Two years ago, the future of the Canadian oil and gas industry looked extremely bleak. OPEC’s attempt to drown its competitors in cheap oil – especially those in the United States – had forced energy prices below the threshold cost of production in Alberta. Sales of land rights in the province dried up, drilling slowed to a crawl, investment tanked: 16 oilsands projects were cancelled. Thousands of energy industry workers lost their jobs.

To make matters worse, the fracking revolution in the U.S. had unlocked an ocean of oil and natural gas in Alberta’s main export market.

Then in May 2015, Albertans elected a provincial government promising an array of new taxes and regulations on the energy sector. That fall, Canadians elected a prime minister of a similar bent. Within months Calgary real estate prices suffered a precipitous decline and the commercial vacancy rate breached 20 percent.

The province had survived many boom-busts in the past but this downturn felt different, deeper and more structural than any before. “Last one out turn off the lights” was muttered grimly over drinks by unemployed petroleum engineers.

At the dawn of 2017, however, oil prices are holding steady north of $50 a barrel, and the mood in Calgary is shifting from game over to game on.

As ever, the leading sign of recovery is investment, marked especially by this month’s news that a “star” global investment banker is coming back to Alberta’s oilpatch with a bag of money.

Adam Waterous and his brother Jeff started Waterous and Co. in Calgary in 1987 and built the company into a worldwide oil and gas acquisitions and divestitures firm before selling out to the Bank of Nova Scotia in 2005.

Now 55-year-old Adam Waterous, co-Head of Global Equity and Advisory at ScotiaBank, is leaving that plum post at the end of January to start a new Calgary-based M&A outfit, seeded with $400 million in international start-up capital. In an interview with the Financial Post, Waterous expressed great optimism about the future of the Canadian energy sector, saying the best opportunities lie in new technologies applied to unconventional plays that can deliver elevated – even unprecedented – rates of return through fracking, and horizontal drilling.

“I think in Alberta, despite this painful restructuring we are going through, the energy business is going to have a tremendous renaissance,” Waterous said. “This is not a fad. This is something that has enormous legs in front of it because of the enormous number of drilling locations.”

Such enthusiasm, while encouraging, needs to be tempered by the fact that the tax and regulatory climate in Canada remains inclement compared to competing jurisdictions. Massive oilsands expansion projects that have been postponed or cancelled are likely to stay benched for the foreseeable future. Despite recent federal government approvals for both the proposed Petronas LNG plant at Kitimat and the twinning of the Kinder Morgan Trans Mountain pipeline to Vancouver, doubts persist. Knowledgeable observers question whether the former remains economically viable, and whether Ottawa is sufficiently committed to the latter to stare down the protestors who will undoubtedly try to block its construction. Prime Minister Justin Trudeau didn’t sound very dependable when he recently suggested at a town hall in Ontario that the oilsands must be “phased out”. Nor did he sound very convincing at another town hall in Calgary this week where he claimed he “misspoke”.

Perversely, Trudeau’s contradictory comments might actually be welcomed by Adam Waterous and his investors. Their business plan is at least partly predicated on the availability of cheap energy assets. After more than two years of market turmoil and unfriendly government there are plenty of distressed small-cap companies – distressed but with solid assets – that are anxious to find buyers.

In past years the usual source of capital, public equity firms based in eastern Canada and the U.S., would have picked discerningly through these cherries. “Not today,” says Jason Fleury, Director of Investor Relations at Calgary small-cap Painted Pony Petroleum. “The big funds have lost interest in Alberta. The market specialists are mostly gone. They’re generalists now. And the U.S. investors don’t know much about what we have here… refineries, pipeline capacity, egress opportunities. That scares them off.”

That means less competition and more opportunities for smaller, nimbler private equity funds of the kind Waterous is assembling. And the first bet can certainly be the best bet if things keep improving as they have in recent months.

Energy prices bottomed out in the second quarter of 2016 when oil sank to $26, and natural gas to $1.62. Oil now routinely trades over $50 and gas above $3.00. That’s far from the lofty price peaks of a few years ago, but it’s certainly pointing the right direction.

There has also been a Darwinian effect. The oilpatch has a saying that the cure for low oil prices is low oil prices: That is, low prices drive weaker players off the board, production falls and ongoing demand forces prices up again. Now that OPEC is trimming production, companies that survived by cutting costs and increasing efficiency are well-situated to reap the reward of rising prices.

More evidence of a rebound is in a rising rig count in Alberta: as of 23rd January, 226 were at work out of 450 available. It’s a milestone, marking the first time in two years that more rigs were active than idle.

This in turn helps employment: Precision Drilling for example re-engaged 1,000 rig workers last fall. President and CEO Kevin Neveu says he’s encouraged by the “significant improvement in sentiment of our customers and the resulting increase in activity.”

It’s fitful recovery, though, of dubious sustainability, which means workers who were laid off from the patch and moved on are reluctant to return to jobs of uncertain duration. Hiring calls are thus going unanswered. On January 24, for example, Alberta service rig operator Canyon Technical Services had 24 rig-related jobs that were going begging.

“It’s a more sudden return to activity levels than we anticipated,” Rob Cox, vice-president of Canadian operations for Trican Well Services told the CBC this month. “We’re finding that there’s not as big an appetite for a lot of those people to come back to the oilpatch.”

Workers are understandably wary of an equally sudden return to high inactivity levels, but here’s another “green shoot”: oil exports are denominated in U.S. dollars, but domestic exploration and productions costs are expended in Canadian dollars. Thus, the five-year decline of the loonie against the greenback from parity to roughly 75¢, means a foreign exchange bonus for Canadian producers. Fifty dollar oil on Nymex is actually more like $70 to the shareholders in Calgary.

Finally, the political environment has changed, on balance seemingly for the better. The federal Liberal cabinet approvals for the Petronas, Kinder Morgan and Enbridge’s Line 9 projects represents progress, minus Ottawa’s rejection of the Northern Gateway Pipeline and moratorium on oil tankers off British Columbia’s north coast. Alberta’s NDP government is doggedly advocating for increased pipeline capacity and new market access, despite the growing distress of its green, progressive base.

And both Canadian governments cannot ignore the fact that the energy-environment policy assumptions they had been operating under have been turned upside down by the election of U.S. President Donald Trump. Nobody can say for sure what he’s going to do or what effect it’s going to have on the continental energy market, but it’s clear America will not be pricing carbon or meeting emission targets set at recent climate change summits, and Canada will be hard-pressed to compete if it persists in doing both.

Canada’s continental market share could be dramatically reduced if the Border Tax Proposal floated by Republican House Leader Paul Ryan is applied to his northern neighbour. According to the Financial Times, the tax would deny U.S. companies “their current ability to deduct import costs from their taxable income, meaning companies selling imported products would effectively be taxed on the full value of the sale rather than just the profit. Export revenues, meanwhile, would be excluded from company tax bases, giving net exporters the equivalent of a subsidy that would make them big beneficiaries of the change.”

However, Trump emissary Stephen Schwarzman had reassuring words for Prime Minister Trudeau and his cabinet at their January 23 meeting in Calgary. Canada had little to worry about, he explained, as U.S. policies were aimed at countries with which it had large trade imbalances: “I think Canada is very well-positioned for any discussions with the U.S.”

That was quickly followed by Trump’s qualified approval of the Keystone XL pipeline expansion project, which would pump 830,000 barrels a day of oilsands crude into the U.S. The president hinted that Canada might have to take a haircut on the price of that oil, but after so many years of low prices and pipeline constraints, the general reaction in the Canadian industry appears to be that half a loaf is better than none. Now Canadian energy exports to the U.S. depend more on the willingness of the federal and provincial governments to permit development of the resource, than on the U.S. to accept it.

Alberta’s energy rebound remains fragile. Insiders are calling it the ‘but recovery’ as in ‘Some people are working but there are still a lot who aren’t…’ or ‘So-and-so raised some money but I could tell you six who are still trying…’ And perhaps there will be a ‘but’ around Keystone redux: ‘It was approved, but the border tax…’

It is too early to tell: Speaking at a conference last week hosted by the Alberta Enterprise Group, a well-connected international energy consultant said there’s only a 50-50 chance KXL will proceed as planned. Paul Michael Wihbey, a one-time adviser to former Prime Minister Pierre Trudeau, predicted Donald Trump’s America will ramp up domestic oil and gas production, processing and exports. Canada’s convoluted process for pipeline approval not only makes it harder for this country to compete for U.S. energy market share, said Wihbey, it also makes us a “laughingstock” and is a recipe for “economic suicide”.

Maybe so, but there’s no denying the renewed activity and optimism in Canada’s energy sector. The consensus is that the market has bottomed out. And buying at the bottom, says Pat Ward, President and CEO of Painted Pony, “This is when you make a lot of money.”