The Liability Management Incentive Program is both bad politics and bad policy
Psssst. Ms. Premier…
Quick question: have you lost your ever-loving mind?
I had always figured you to be more astute than the average bear, but yeesh, this one ought to have you rethinking your internal advisory team and how you act on their guidance. Or maybe this is your own crackpot creation.
Of all the harebrained schemes out there, The Liability Management Incentive Program (LMIP) blares BOONDOGGLE in ALL CAPS.
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I wondered if I was cross-eyed because I first saw it as LIMP, then I realized it meant, politically, Liability In My Plantar … from the hole you’re potentially shooting in your foot.
It’s bad politics, and it’s bad policy.
Quick pause for those who have been sleeping under a drill bit: the LMIP program proposes to provide future royalty incentives on new drilling activities to companies that clean up their aging and unattended-to assets. Before becoming leader, when she was a business lobbyist, the premier promoted the idea under the label R-STAR.
Ms. Premier, if you’re floating a pre-election balloon, you’re doing it with all the stealth and subtlety of a Chinese “weather” dirigible. You’re literally and figuratively inviting the NDP bazookas to ready, aim … and ride the reverberating boom soundwaves all the way to power in May.
The oil and gas industry is already sufficiently offside with an increasingly hostile provincial citizenry; it doesn’t need your help in widening the animus chasm in some vainglorious attempt to outflank Justin Trudeau’s “just transition” wackiness. Nor do Albertans need another reason for the rest of Canada to continue to think of us as those “energy ass*$%#@.”
At a time of heightened public scrutiny and sensitivity about subsidies to the fossil fuel sector – and when corporate balance sheets are as buoyant as they’ve been in a long time – the idea of more public dole seems at odds with prevailing political winds – particularly when companies are already legally obligated to clean up after themselves.
That won’t compute with the people who own the resource. Me. My kids. My grandkids. My neighbours and colleagues. You, too, own it, but not as premier. In that role, you’re merely the temporary babysitter of our collective wealth.
No way Albertans will let you screw that up. No sirree. They’re starting to understand royalties mean tax dollars.
Here’s why energy companies (at least those with integrity) won’t touch LMIP with a 10-foot pole. They know their performance on aging assets is, overall, less than laudable. That collective industry record flies in the face of a (generally) mildly hubristic self-congratulatory backslapping about being the world’s best. Maybe at the front end of the process and points in between, but not at the back end. It’s an inky black blob on their sustainability copybooks – and it has angered Albertans more than many companies realize. Elections and all the rhetorical muck tossing democracy stirs up will bring normally dormant sentiments into critical mass. Do you really want that with a razor-thin lead in the polls? Especially when you need that rural vote?
Do old assets need to be cleaned up? Absolutely.
Thousands upon thousands of inactive wells, for example, still sit on active company balance sheets. Thousands more whose owners have vanished sit with the Orphan Well Association for clean-up funded and run by industry. That’s just wells. Associated infrastructure is another ball of wax.
Overall, Alberta’s oil and gas collective corporate history vis a vis its asset retirement obligations is generally horrible. Downright deplorable. The industry needs to demonstrate out of its own pocket money that it can clean up its own messes, as recently strengthened regulations are intended to achieve.
Ms. Premier, you’re also pandering to an Alberta mindset that doesn’t exist anymore. Albertans like their oil and gas sector, but they also want their sector to be self-accountable like it’s never been before. The days of being a putative ward of the state are over.
Oil and gas will be around for a long while yet. But the terms and conditions of its continued “permission to produce” will be governed by a complex set of “conditions of combustion” and other forces that include clear signals that the industry needs to stand on its own two legs – and clean itself up wearing big boy pants it buys itself.
Indeed, if I were the CEO of one of several companies already rumoured to be potential beneficiaries of government largesse, I would be dusting off my crisis communications manual. Just look at the constant grumblings about industry already asking for government backing on major carbon capture and sequestration projects.
But wait … it’s easy to criticize. The real heavy lifting comes in solutions thinking. And because time is short between now and May, here’s an elegant idea to levitate yourself out of the imprecise language hole you don’t apparently realize you’re in.
Now, because I know you’re stubborn and loathe to walk things back, I am offering an elegant way to save some face. Free of charge. Because as an Albertan, I expect you to put my hydrocarbon wealth portfolio to work, if not for me directly, then for other pressing societal issues. How about thinking about some ROC: return on creativity.
You’ll remember the Site Rehabilitation Program (SRP) from 2020, when Ottawa handed the provinces a big chunk of change to stimulate employment through asset retirement when commodity prices were in the tank. Service providers were able to access grants that helped them put folks to work.
It was a subsidy, to be sure, but given difficult times, no one was overly fussed. It wasn’t our finest administrative moment, but hey, the pandemic had turned things upside down and operating company balance sheets were stretched thin. Those neglected assets kept piling up.
Of the program’s overall results, the Indian Resource Council’s stellar efforts stand out. Hundreds of wells and other assets on First Nations territories were appropriately abandoned. Hundreds of men and women learned new skills and went to meaningful work. Even when commodity prices soared, and other service providers went off to greener fields, the IRC kept at it. It was truth and it was reconciliation. And the IRC has been lobbying intensively to keep the process alive and well for obvious reasons.
So, Ms. Premier, if you hired me as a pro bono adviser, here’s what I recommend. Move forward with the LMIP pilot with the following provisos:
- Companies which opt to participate must hire indigenous contractors for the work.
- Those same companies must agree to figure out if there are ways and means of making asset abandonment a synthesized product of western science and indigenous knowledge and share the results publicly.
- Companies participating must create strategic indigenous advisory groups as part of their governance ethos.
- Companies which engage must also direct a portion of their future royalty credits to the Orphan Well Association, so they are at least in the rearview mirror helping offset the costs associated with the sector’s bad apples.
This approach isn’t perfect. But at least Albertans can take solace in knowing that their resource wealth is working to remedy another egregious part of our historical performance and creating an important social return and future economic assurance for indigenous partners. And this way, participating companies have something to brag about on their ESG scorecards. They won’t stop drilling because there’s no LMIP, but at least they will be partnering with the public to achieve two defined ends.
Let me know.
If you want, I will even have IRC CEO Stephen Buffalo give you a call to work out the details.
But let me invoke the spirit of Ralph Klein, Ms. Premier: there’s a parade moving here, and you would do well to run like hell and get out in front of it.
Bill Whitelaw is the Managing Director of Strategy & Sustainability with Geologic Systems.
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