Alberta Minister of Finance and Enterprise Iris Evans was in Houston this week delivering news on the province’s energy programs. E&P interviewed the minister during her visit.

With the continuing slide in oil prices, what is your province’s concern regarding the oil sands and the current royalty issues?

Three major concerns that Alberta has relative to the development of the oil sands includes the perception by some that we should be doing more environmentally, the cost and availability of labor, and the cost overall for major projects. Because we are the only ones that appear to be developing major projects of this kind, comparables are not easily discernable so you have to make sure the estimates are appropriate identifying costs correctly and making sure that we can live within those costs, especially with markets the way they are right now.
The biggest concern by far has been the perception that depicts Alberta’s oil sands industry as being less environmentally sensitive. Since 1990, the projects in the Alberta oil sands have reduced their carbon footprint by some 45%. More recently, by July 2007, while others across North America talked about targets, Alberta legislated targets and with emitters of 100,000 tonnes identified a reduction of 12% and forced them to meet or beat the targets paying an amount of $15/tonne in excess of the emissions that were permitted. These funds were submitted to the government’s Climate Change and Emissions Management account; within the first six months we collected $40 million. So the story there is, if you don’t meet the targets you pay.
Let’s talk about the targets that were met. We enabled the removal of what would have been equivalent to 2.6 million tonne of emission, or the equivalent of 550,000 cars on the road every year. So, you take that kind of environmental initiative account – the only place in North America that’s done that – and I think we’ve been demonstrating that we are anxious to be environmentally sensitive.
The second thing, and the most important recent announcement, is our carbon capture and storage (CCS) program, which will set aside $4 billion: $2 billion to fund carbon capture and storage and $2 billion to Green TRIP for “greener” transportation initiatives. These are two very important programs. The CCS storage will include five projects and we believe major companies will demonstrate new technology in the way they do that.
Finally, the BRK project (bitumen as royalty in kind) is a new policy in the heels of the royalty regime framework, which enables our government to take raw bitumen and process it through distribution to willing partners, and we’ve recently closed expressions of interest. After a screening process we will determine who will be made partners in the RFP process and eventually reach a position of understanding on how to move forward on the use of bitumen in this fashion. We want to “value-add” in Alberta by building a base with roughly a third of the bitumen for use in the production of synthetic crude and other offshore markets. The BRK policy will be a new frontier for us, and we think it will allow us to enable Alberta to not be merely dependant on mining the oil and shipping it somewhere else for the manufacturing process. We hope to develop a system of doing this onsite allowing our own people to get the advantages of this industry.
Challenges for Alberta include developing our resources in environmentally safe way and changing current perception of our oil sand industry. Our new energy strategy also provides several other actions including federal emission standards, our “water for life” standards and our “land use” framework, which are methods to identify methods of proper land use to increase efficiency and reduce waste from border to border. The bottom line is we want hydrocarbons to be processed in an environmentally sensitive way. The development of our energy resources is exceedingly important, and we see ourselves as being responsible for doing that in the right fashion.
The citizens in and around Fort McMurray are so sick of hearing that “they don’t care about the environment.” They do care, and the people that are mining there and working in the oil sands projects care passionately – more than most anywhere. I would put them up against anybody claiming that these individuals don’t care about the environment. The perception that we don’t care looms like an elephant in the room when conversing with people who are suspicious of our environmental efforts.
Of more than 140,000 sq. km only 500 sq. km are currently being developed, which is comparable to a Smart Car placed on a Texas football field – not very much. Many people see the large equipment with enormous tires and falsely assume that we’re digging up the planet one cu. yard at a time. It’s quite disconcerting especially when you can visit and view buffalo grazing on repatriated land. This is an amazing to see.

In the US, 40 American mayors passed a resolution not to use fuels from Canada’s oil sands in municipal vehicles. Could you give some background on what spurred this development?

No, but I can only guess that there was a much heightened debate about that time. As a former municipal politician, we have the Federation of Canadian Municipalities, so that if all these mayors were gathered in one place there may have been some discussion about “greening the planet.” And perhaps a mention was made of one of the most offensive statements to Albertans – dirty oil or tar sands.
We’ve been privileged to bring some US Senators up to Alberta to see the oil sands. We’ve found that after being exposed to the project most will claim they “didn’t know about this.” I think the mayor of Calgary said it best, “Come up here and we’ll show you around.”
Here’s the real deal. If you turn the taps off and there are no more oil sands, for the US to engage in manufacturing it will have to produce 18% more of its oil to fill its current needs, or it will have to import manufactured goods or the needed oil from other sources. By the time this oil is shipped from Saudi Arabia, it’s almost as expensive in terms of the environmental impact. If you look at safe, secure suppliers – we’re it. Canada is friendly to the US, and it already invests here.
Let’s say the US didn’t do that manufacturing, if it looked to developing countries for that. At the rate they’re firing up coal plants with perhaps questionable techniques and technology, it’s entirely possible there would be a greater environmental impact by allowing somebody else to fill that vacuum and void and leaving Canada out of the equation.
I think when people think about the options: we are the second largest proven source of supply, and already have investments from US companies who have built their oil sand up-graders south of our border to accommodate a heavier grade of bitumen. I think that practically speaking many of the Midwestern States would see Canada being a more responsible partner, and I think we’re not going to take for granted that should re-invest the profits that we earn from our product to make sure that we stay on the cutting edge on the environmental front because we have an interest in that as well.

Earlier you said that one of the concerns was labor. How is the province addressing that issue considering the lack of skilled labor is a global issue within the energy industry?

For the first time you’ll see more people with disabilities that are in the workforce, and I think that’s happening all over. We’re looking at everything on a national basis from the portability of pension plans and ways to alleviate pressure there, but for the next three years in a program we’ve identified building and educating tomorrow’s workforce we will look to build strategies focused on the manufacturing industry, the energy industry, the retail and hospitality industry. We’re working our way through every industrial sector. We are also working toward developing training programs for adult education trying to make sure that people that should re-enter the workforce are being educated in a way that gives individuals tools for gaining sustainable employment.
Where skilled labor has been in short supply we’ve increased our emphasis on responsible and responsive immigration policy with some $248 million being expended over the next three years to increase our immigrant population from an average of 7% to 9%, which more closely approximates the 10% population Alberta holds in Canada. Of all of the immigrant population that comes to Canada, we want at least 10%.
We’re at 9% currently. Many contractors are getting workers from the Phillipines, and (46%) are from the US. We are getting some immigrant population from Europe, and we are building that as well. Many companies have brought temporary workers over that are now able to stay two years. We also have a provincial nominee where people wanting skilled laborers can target countries. Through this PNP program companies can bring over skilled laborers while bypassing some of the normal processes of immigration. There’s about 800,000 people lined up to get into Canada, and we only take about 275,000 people a year. This ratio makes it very difficult for refinery and oil sand projects to get people when development queued up.

In a September interview with the Canada Business Journal you stated that there was $90 billion of work on the books for Alberta’s oil sands. Last week, several major companies active in the region announced cutbacks on spending for oil sand developments. What type of contingency plans does Alberta have for the loss of these revenues?

Almost too frequently lately, we’ve heard of companies scaling back. Here’s the point – we know that they will continue to develop. When you get into oil sands development, you’re in there for the hundred-year haul. When I was a reeve of a municipality and talked to one of the major players in the oil sands he said, “We don’t do 20 year plans. We do 100 year plans.” So, it’s not a case of “if” it’s a case of “when.” So they may slow down on their development. What it might mean for us is a reassessment of how quickly our capital plan will mature. We’re fine on our budget and our targets this year. We’ll have to take a look at Q2, which will come out in November; what we’re getting on corporate income tax whether that is affected much; what we’re earning in terms of crude oil and natural gas prices; and we’ll take an assessment about whether or not for the balance of the year if we’ll have to make adjustments.
This year, we won’t have to because we budgeted for oil at WTI $78 and in July we had $147. For the first six months we averaged about $121, so with budget at $78 we anticipate a $1.5 billion surplus. It won’t be what he hoped for in August, but we still expect a surplus this year of around $2 billion.
The interesting thing about the economics in Alberta is that on the operating budget we’re 41% dependant on the non-renewable resource revenue, so that if we had a situation where we had a complete crumbling of the industry obviously it would be very traumatic. One benefit that we have is the ability to augment lower resource revenues with the use of a $7.5 billion sustainability fund. I’m an optimist, and I think we will see our other industries in Alberta continue to help with some of the issues and I think this market turmoil that we’ve seen today will be reconciled. Energy prices today are a bargain, and I don’t think they can stay at that rate very long. I think we’ll see prices move forward and that will help.

Going back to your comments on the strategic importance between Canada and the US, what are the concerns about the political situation we’re going through right now? Do you see any changes coming because of the politics and the fact that we will soon have a new congress and a new president?

I think both Mr. McCain and Mr. Obama have identified changes in their policies. How that will translate, I am not sure. Clearly, they at various times signal that they would be looking at the sustainability of resources. There have been suggestions that the US should become more self-sufficient. Some of the remarks about “foreign oil” seemed to be phrased in a way to refer to offshore exports as opposed to Canadian, but we’ll have to wait and see.

Given your concerns over negative public perception of Alberta’s oil sands, what advice would you give to people in the US who oppose offshore drilling?

I would say learn more about it. Quite honestly, I think we have to teach more in schools about energy use. We have to take a look at the companies that are engaged in this industry. It’s interesting that you asked that because I’ve had a company that anxious to be involved in this bitumen royalty in kind project, and they are more concerned than anyone I have heard about going through the basement to the ocean. They don’t want to do anything to damage that ocean. They don’t want to be guilty of being one of the people that leaves another generation worse off because of how process things.
So, when I meet the real environmentalists that I’ve been exposed to, they are almost always are involved in the oil and gas industry. They understand that when you waste energy or spill natural resources that you waste profitability. I would think anyone engaged with offshore drilling has to manage with every bit of the due diligence that we do when we operate in the north forty in Alberta.