The last barrel

May 2015 will be remembered for two historically significant elections, one of them nationwide in the UK, the other in the Canadian province of Alberta. From an oil and gas point of view, one election went in the right direction (the UK), while the other contest (Alberta) went wrong.

Cameron takes his place in history. For weeks leading up to the UK’s May 7 national election, the general media had predicted neither a Conservative nor Labour Party majority, resulting in a “hung parliament” that would require yet another coalition. They cited various polls to back up this outlook and stubbornly stuck to those numbers, right up to the closing of voting (and looking very foolish).

Yet, on the evening of May 7, Prime Minister David Cameron and the Conservatives became one of the very few British coalition governments to win a clear majority in a re-election effort. Indeed, the Conservatives picked up 24 seats, to gain a 331-seat majority of the 650-seat parliament. The Labour Party lost 26 seats, finishing at 232. Having been in the previous coalition with the Conservatives, the Liberal Democrats fell from 57 to just eight seats. And the upstart Scottish National Party jumped from six to 56 seats. Not surprisingly, Labour Leader Ed Milliband resigned his post, as did former Deputy Prime Minister and Liberal Democrat Leader Nick Clegg.

It appears that voters opted to keep a Conservative government, because the UK economy is slowly but steadily improving, and they want to keep that continuity. Additionally, the message/platform of Milliband and Labour seemed to be a bit too strident. Also important in shaping voters’ preferences is that Cameron was perceived as being more calm, pragmatic and steady, while Milliband came across as being too leftist and loud. 

So, what does this mean for British E&P? The government appears ready to carry on with its March budget proposals, to resuscitate UKCS activity. Key changes include reducing the petroleum revenue tax from 50% to 35%; cutting the supplementary charge on company profits from 30% to 20%; and a £20-million ($35.54-million) fund for seismic surveys. This fund will be granted to the newly-created Oil and Gas Authority (OGA).

On May 27, the Queen’s Speech confirmed that the government will put a new Energy Bill into the parliament, to formally establish OGA and give it “the powers it needs to become a robust, independent and effective regulator...” Dan Jackson, CEO of io oil & gas consulting, said, “io welcomes the government’s proposal to give the OGA greater powers to reinvigorate exploration and production, and ensure a bright industry future.” 

Alberta swings to the left. Equally stunning was the May 5 provincial election for the Legislative Assembly of Alberta, which saw the center-right Progressive Conservatives (PCs) swept from power after running the province for 44 straight years. The left-center New Democratic Party (NDP) assumed the reins of the Alberta government for the first time in history, going from just four seats to a majority of 53. NDP leader Rachel Notley was re-elected as a member of the Legislative Assembly (MLA) for the Edmonton-Strathcona riding. She was sworn in as provincial premier on May 24 .

Finishing second was the center-right Wildrose Party, led by Brian Jean (MLA for Fort McMurray-Conklin), which rose from five seats to 21. The PCs and their leader, outgoing Premier Jim Prentice, fell off the political cliff, going from a 70-seat majority to third place and just 10 seats. After the election, Prentice resigned both as PC leader and MLA for Calgary-Foothills. Thus ended 80 consecutive years of conservative rule by the Social Credit Party (1935-1971) and the PCs (1971-2015).

Several factors played into the PC debacle. First, Prentice made the mistake of calling for a tax hike to offset shrinking revenues from lower oil prices, just six weeks before the election. Worse, he applied all the tax hikes to individual Albertans, while no increases were added to corporate taxes.  

Second, the NDP was able to paint the PCs as being too entwined with the corporate community. The PCs did not help their cause by refusing to review Alberta’s oil and gas royalty regime, while the NDs, particularly Notley, campaigned on the theme that the province was not receiving high-enough revenues.  

Third, the PCs (24.23%) and Wildrose Party (27.80%) split the conservative vote, enabling the NDP to garner a 40.57% plurality. The two center-right parties had been feuding, ever since nine Wildrose members defected to the PCs during 2014.

So, what should we expect of Ms. Notley and the NDs? Four things are fairly certain. One, royalty review will go ahead in this term, although the timing is uncertain. Two, fewer pipeline projects will be approved. Notley said during the campaign that Enbridge’s $8-billion Northern Gateway pipeline from Burderheim, Alta., to Kitimat, B.C., “is not the right decision.”  

Three, the Notley/NDP regime said that it will push new climate change regulations, which will include an increase in the current $15/tonne levy for carbon emissions from major industries. Fourth, further expansion of oil sands production at various sites is likely to be much more difficult, as signaled by Notley selecting long-time NDP strategist Brian Topp as her chief-of-staff. Topp is infamous for a 2012 speech that said Alberta needed “a much more orderly and considered pace” of oil sands development. He also said that “we need to establish a hard cap on carbon emissions and mean it.” Conservative Canadian author and commentator Ezra Levant has labeled Topp an “anti-oil extremist.”

Levant also had this to say about Notley, in a post-election analysis: “Hopefully, Notley will not indulge her worst impulses, including the authoritarian streak in the NDP and the labor streak in the NDP. But, it is possible, that even a great place like Alberta can be wrecked.”   

About the Authors

Kurt Abraham

World Oil

Kurt Abraham kurt.abraham@worldoil.com