Exit Strategy: Take the Money and Run

     The oil industry has been a big deal here in Alberta for decades; our two NHL teams are the Oilers and the Flames, and while the latter started out as the Atlanta Flames (named for the burning of Atlanta during the Civil War), they kept the nickname when they moved to Calgary because it was evocative of the flare stacks you see at oil refineries. And our provincial government has long been increasingly friendly to oil interests, to the point where it's fair to say they govern for their exclusive benefit.
     For example, for many years the provincial Conservative Party had set the royalty rates on oil and gas at below the market value recommended by independent economists. They also were very lax about enforcing rules on setting aside money to clean up abandoned oil wells, so it's been a common practice for wells to be operated by small throwaway corporations who conveniently go bankrupt before having to properly rehabilitate spent well sites. Alberta has thousands of orphan wells, with an estimated cleanup cost in the tens of billions, according to this CBC story.

    The corruption and entitlement of the Conservative Dynasty reached a peak in 2015, when there was just enough anger among the electorate (and division among conservative factions) to allow the New Democratic Party to form a government. They had a steep learning curve, but they were doing a pretty good job starting to repair the damage. But the old Progressive Conservative party and the Wild Rose Party merged to form the United Conservative Party and, with a very well-funded campaign vilifying the NDP, managed to retake a majority in the provincial legislature.

    I had thought, at the time, that their long term game plan would stay the same: pander to the oil companies for as long as they can, and if worse comes to worst and their opponents get elected, blame all of the long-term damage from their own policies on the four years of their opponents trying to fix that damage, and get re-elected to continue oil service.
    But lately that has shifted in a very sinister way. The very first thing the UCP did when they won the provincial election last year was announce a major business tax cut, ostensibly to help create jobs.  (It did not have that effect. Husky Oil, one of the bigger beneficiaries of the reduced taxes, announced layoffs shortly afterwards.) And the UCP has been making truly devastating cuts to education and health care (yes, even health care, in the middle of a pandemic). And just last week, a government pension fund lost $4 billion on an unusually risky investment.

    I don't think this is business as usual. I think what's happening is that the oil companies are recognizing that oil isn't coming back. Investment in and demand for sustainable alternative sources of energy continues to grow, while fossil fuels are becoming at the very least unfashionable. And the pandemic is, among other things, getting people talking about how blue the skies are and how maybe we don't need to fly or drive everywhere quite so much. This will pass, and -$35 a barrel oil futures are almost certainly an anomaly, but the future just doesn't look all that rosy for the oil industry, and they know it.
     So what would you do, if you realized that your long term prospects for extracting wealth from the ground were effectively at an end? The sensible-self-interested strategy would be to liquidate all the assets you could from your oil-production business and get the hell out. Abandon your spent wells and leave someone else to pay for cleaning them up, but on a much bigger scale.

     How big a scale? How about a whole province? For decades, it was worthwhile to keep Alberta functioning as an advanced oil-extraction support system. They needed smart engineers and geologists and technicians, and so it was worth it to spend money on education, and on a robust health care system to support the work force. But now, with the future of oil in doubt, investing in all these other things doesn't really benefit the oil interests. That's why the UCP is making such drastic cuts to everything, while dumping as much money into "supporting" the oil industry as possible. But those subsidies aren't going to attract new investment in developing Alberta's oil resources. It's part of the process of draining as much value out of the asset as possible while they still can, that asset being the provincial government itself. It's time for them to take the money and run.

     It's not that Premier Jason Kenny and his cabinet are unaware that their policies will leave Alberta in a desperate mess when their term is over and they face another election. It's that they don't care. They may still have enough financial backing from the oil industry to hang on for another election, but even if they don't, they know they're in the endgame already. If they lose the next election, then the mess they've made will be someone else's problem. That was the plan all along.