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Nov 14, 2018

‘An emergency situation’: Cenovus CEO warns on capital flight in Canada’s energy sector

Cenovus CEO calling for drilling restrictions

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The chief executive officer of Cenovus Energy Inc. is joining a chorus of industry voices warning that investors are steering clear of Canada’s energy sector amid record-low oil prices as the country struggles to get its oil to market.  

“They’re looking at the industry, they fear the industry is falling behind the U.S., and they are ascribing a very significant level of sovereign risk to investing in our country,” Pourbaix said in an interview with BNN Bloomberg Wednesday.

Pourbaix said there is no doubt investors see the Canadian energy sector as “a very risky place to be” amid the myriad of concerns plaguing the industry.

“As everybody knows, we have some of the best, most environmentally-conscious oil and gas production in the world,” Pourbaix said. “But we can’t get it to market, it is going to have a very material effect on investment in this sector and access to capital.”

Low oil prices are also weighing on the sector, and are expected to the hit the country’s economy in a big way. While estimates vary, the Canadian Association of Petroleum Producers pegs the impact as at least $13 billion in the first 10 months of 2018. 

Western Canada Select was trading at US$15.88 Wednesday as of 11:37 a.m. ET , marking a steep gap between Canadian crude and the North American benchmark, West Texas Intermediate, which was trading at US$56.50 per barrel.

“Canada right now is achieving the lowest price for oil in the world,” Pourbaix said. “That is entirely related to what amounts to right now a very small imbalance of production oversupply.”

“We’re talking [about] an emergency situation and a very serious situation.”

However, Pourbaix sees the steep oil discount as a relatively short-term issue with Enbridge Inc.’s Line 3 expected to come online and crude-by-rail shipments to increase in the fourth quarter of next year.

Pourbaix has been calling on the Alberta government to put a cap on production levels to help ease some of the energy sector’s problems.

He noted the Alberta oil industry is “fiercely independent” but the “complete failure of the market” has prompted the energy executive to urge government intervention.

“Government needs to step in to avoid economic catastrophe,” Pourbaix said.

“People need to remember these resources actually belong to the people of Alberta, and when the market isn’t working to get this oil out of the province, I think this is one of those very rare times when we look to the government.”