CALGARY, ALBERTA – Canadian oil and gas shares tumbled and the country’s main stock index hit a one-month low on Wednesday, after the leftwing New Democratic Party surged to power in the oil-rich province of Alberta on promises that included energy industry reforms.
“Even now our inboxes are filling with messages expressing something between disbelief and dismay,” analyst Andrew Bradford of Raymond James brokerage said after the party won an election on Tuesday to end 44 years of Conservative rule.
New Democrat Premier-elect Rachel Notley offered conciliatory words after her party swept to crushing victory, capitalizing on anger over the impact of the drop in oil prices on government programs.
The NDP is expected to be less accommodative of the energy industry and its Alberta oil sands operations, the target of heavy environmental criticism. Alberta is the largest source of U.S. oil imports.
Notley moved quickly on Wednesday to assuage oil-industry worries, saying she will reach out to executives and work collaboratively with them.
“I am hopeful over the course of the next two weeks they will come to realize that things are going to be A-OK over here in Alberta,” she said.
She proposes a review of energy royalties, tighter environmental regulations and reduced support for some pipeline projects such as TransCanada Corp.’s controversial Keystone XL project.
The plans revived memories of a bitter 2007 battle when then Premier Ed Stelmach raised royalties as oil prices boomed. But his party was forced to backtrack as drilling slowed and the financial crisis hit.
Many in the industry expect companies will steer investment to lower-cost jurisdictions even before the review begins.
“If you’re a producer and you’ve got operations in (British Columbia) and operations in Alberta, for the next six months to a year, without knowing what royalty rates are going to be for a while, you’re just going to ship that capital to B.C.,” said Jeremy McCrea, analyst at AltaCorp. Capital.
Benoit Gervais, a portfolio manager at Mackenzie Investments, said in addition to B.C., some companies could shift investment to Texas.
But some observers believe the New Democrat’s rise to power, combined with the soft environment, could temper the push for higher royalties.
“She said that oil companies can trust her and they’re not going to kick the oil industry when it’s down,” said Brian Prokop, managing director at Integral Capital Markets.
“You have to be mindful of what (the industry’s recovery) is going to look like.”
While opinion polls had predicted the come-from-nowhere victory by the NDP, its election in a province where conservative governments have long partnered with oil industry leaders left many reeling.
Pundits on Twitter suggested the outcome was as unlikely as socialists taking power in Texas.
The NDP won a majority government, while the Conservatives dropped from 70 seats in the legislature to 10.
Energy executives pledged to work with the new government.
“I guess you can’t change the wind, but you can adjust your sails,” Husky Energy Chief Executive Asim Ghosh told analysts on a conference call.
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