Left turn in oil-rich Alberta stuns energy industry

2015-05-06 23:22

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Calgary - Canadian oil and gas shares tumbled and the country's main stock index hit a one-month low on Wednesday after the left-wing 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.

In her victory speech, Notley moved to assuage oil-industry worries, saying she would work "to build Canada's energy sector so we build bridges and we open markets instead of having a black eye."

She proposes a review of energy royalties, tighter environmental regulations and reduced support for some pipeline projects such as TransCanada's controversial Keystone XL project. She also promises to raise corporate tax rates by 2 percentage points to 12%.

Reeling

The front page of the Globe and Mail newspaper said the election "changes everything Canadians think about Alberta," while pundits on Twitter suggested the outcome was as unlikely as socialists taking power in Texas.

Financial analysts focused on the potential hit on the oil industry, which already has been stung by slumping prices.

"Companies will need to take money out of Alberta and spend more in British Columbia, and more in Texas," said Benoit Gervais, a portfolio manager at Mackenzie Investments.

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. The NDP won a majority government, while the Conservatives dropped from 70 seats in the legislature to 10.

"The vast majority of energy executives and professionals we spoke with downplayed the polls, projecting instead that 'people would come to their senses' and return the (Conservatives) to government," Raymond James' analyst Bradford said.

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.

Read more on:    canada  |  environment

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