October 19th, 2020

Credit downgrade a wakeup call

By Lethbridge Herald Opinon on December 19, 2019.

By Deirdre Mitchell-MacLean

It’s politically advantageous to set the narrative, but it doesn’t replace reality.

After Moody’s Investor Services downgraded Alberta’s credit rating for the seventh time in five years – and this recent downgrade under a Conservative government no less – Premier Jason Kenney came out swinging.

“The bigger challenge we have is, increasingly, financial institutions – and this apparently includes Moody’s – are buying into the political agenda emanating from Europe, which is trying to stigmatize development of hydrocarbon energy… And I just think they are completely factually wrong.”

This is difficult to square with the number of times Mr. Kenney chided the former NDP government for being at the helm while six credit downgrades were heaped upon Alberta.

Just as he and many others demanded the former government change course, the calls for this government to do the same should be louder. Albertans declared they wanted fiscal responsibility and the UCP government has responded many times that Albertans “fired the NDP” to “get our province back on track.”

Responsible for Alberta’s latest credit downgrade or not, this is a wakeup call.

Since the 2014 downturn in oil prices, the market has been making adjustments. Oil and gas producers are looking for lower capital costs and quicker turnaround between investment and profit.

While the exodus of investment from Alberta’s oilsands may have been attributed to policy or delays, capital costs or turnaround, the reclamation clock has also been ticking. Unfortunately, some companies have used this as a scheme.

When wells became less profitable, they were sold to smaller players who could still make a profit with lower overhead. The next buyer didn’t just assume profit – they also assumed responsibility for reclamation.

Some of these wells would still produce for years, so the middleman was able to acquire a producing well without having to wait for income through the construction phase. They also didn’t have the up-front costs of exploration. For many small producers in Alberta, the downturn in oil prices made it impossible to stay afloat and that left Alberta taxpayers on the hook for the cleanup.

In 2017, the federal government sent $35 million to the Alberta government to help with reclamation of the growing number of abandoned wells as companies became insolvent. Insolvency doesn’t pay the banks everything they’re owed, but at least they could count on something.

Then 2019 brought the Redwater decision that legally prioritized environmental responsibility over credit repayment in case of insolvency.

The Redwater decision ensured financial institutions would be left on the bottom of the pyramid, with taxpayers no less. Because financial institutions have a choice in taking on politically motivated liability, they tightened up their lending practices.

It’s a fairly straight-forward risk assessment and the banks said “not us.”

This brings us to today’s economic climate where technological advances are disrupting the status quo of the energy markets. This new age of technological disruption is particularly difficult for economies that are overly reliant on one disrupted industry.

This is not the first major technological disruption our society has seen should be considered a benefit – we have history to guide us. We should be getting out of the way of markets and looking outside the box to what is coming; not what we want to see, but what we actually can see.

And while it is rightly argued that the green economy is also politically motivated, Alberta’s current trajectory is the equivalent of the Bloc Quebecois; it has a lot of support at home but isn’t even trying to win anywhere else.

The credit downgrade was a wakeup call; and Alberta needs leadership with vision – not blinders.

Deirdre Mitchell-MacLean is a political commentator, reporter, columnist and podcaster based in Strathmore.

Share this story:

1 Comment
Newest Most Voted
Inline Feedbacks
View all comments
diplomacy works


Cons pride themselves on prioritizing the market.

Yet the market is screaming to cut back on carbons and move into renewables.
We still need oil and gas and we need the (diminishing) returns from it to fund our future.

But Kenney cannot lead on this. The ludicrous War Room shouting and making enemies is his only “plan”.

What happened to the leader who instituted a small carbon tax, with rebates and used the remaining funds to explore diversification? The leader who had big oil, some environmentalists and some First Nations & Metis on board with her plan?

Thanks media for absolutely trouncing that leader and giving us a Premier under RCMP investigation for fraud.