Martin Pelletier: Looking into the future is never a 20/20 exercise, but we like the direction Alberta is heading

Most Albertans will want to forget 2019. The province ends the year flirting with a recession, the layoffs seem never-ending and downtown Calgary is a fraction of its former self with hundreds of companies relocating to the U.S. including Encana Corp., a once mighty hometown hero.

Municipalities have responded by holding the line on spending and offsetting budget shortfalls through large tax hikes (especially on small-business owners), while the province has taken the opposite approach. In the end, Albertans will be paying a lot more in taxes and getting less in services.

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Not helping was Ottawa’s deafening silence on all of this, until more recently when, according to Prime Minister Justin Trudeau, dealing with Alberta’s economic woes is quite simple: just transition the economy to the new world, one that doesn’t involve oilsands. And, by the way, he will help force the issue by implementing bills C-69 and C-48.

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Not surprisingly, this added to the extreme pessimism in the sector, sending the share price of many oil and gas companies to record lows and, in some circumstances, flirting with insolvency.

For dessert, let’s sprinkle on the worsening foreign relations with China by allowing ourselves to be dragged into the middle of its trade fight with the United States.

We’re not sure why canola farmers have to pay the price, though, but perhaps they’re just another unintended consequence. The smart ones proactively shifted to wheat, but an extremely wet fall required dryers that, in turn, burn natural gas, which for some reason does not apparently qualify for rebates under the newly imposed and highly complex carbon tax.

There sure is a lot of negativity rolling into 2020. However, there is a great saying that when you’re on your back, there is no place to look but up, and we actually like what we see heading into the new year.

For instance, watch for a return of capital investment as rumblings suggest that U.S. private-equity investors are sniffing around some of the incredible value opportunities being offered in Alberta and British Columbia shale resource plays. The interest makes sense given how overcapitalized the U.S. shale plays have become.

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Interestingly, Canadian oil and gas stocks on the S&P/TSX Capped Energy Index have more recently started to outperform their U.S. counterparts, so perhaps public markets may have already started to make the move north.

In the oilsands, expect massive industry consolidation to lead to much greater cost efficiencies to the point of effectively competing with U.S. shale. Investment in clean extraction and processing technology is already having an impact on carbon emissions, with the ultimate goal to get to net zero. For example, Canadian Natural Resources Ltd. reported that it has cut its greenhouse-gas emissions by 29 per cent and methane emissions by an impressive 78 per cent since 2012.

The start of the decade could also be the year of clarity on export and transportation restraints. The recent appeals funded by anti-oilsands environmental groups have not stopped construction on the Trans Mountain expansion, which has been underway for the past few months. And Enbridge Inc.’s Line 3 is expected to be fully operational by the end of 2020, adding a much-needed take-away capacity of 760,000 barrels per day.

Finally, some of the proposals by Premier Jason Kenny could really accelerate Alberta’s economic diversification. In particular, moving the province’s share of the Canada Pension Plan over to be managed by Alberta Investment Management Corp. could be a real game changer for the financial services sector by attracting world-class talent and perhaps even outside capital to be managed.

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If planned properly, Alberta could use this transition as a catalyst to transform itself into a real powerhouse in the global wealth management industry.

In conclusion, instead of playing the victim card in response to all the circumstances that played out last year, let’s use them to make us stronger by doubling down on the green shoots. Looking into the future is never a 20/20 exercise, but we like the direction Alberta is heading in 2020.

Financial Post

Martin Pelletier, CFA is a portfolio manager and OCIO at TriVest Wealth Counsel Ltd, a Calgary-based private client and institutional investment firm specializing in discretionary risk-managed portfolios as well as investment audit and oversight services.