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Pump jacks pump oil at an Encana well near Standard, Alberta, May 12, 2014. (Todd Korol For The Globe and Mail)
Pump jacks pump oil at an Encana well near Standard, Alberta, May 12, 2014. (Todd Korol For The Globe and Mail)

BUSINESS

Uncertainty in the oil patch hits energy stocks after Alberta win for NDP Add to ...

A new political reality for the energy sector, one that could mean higher royalty and environmental costs, hit home in Alberta on Wednesday as executives confronted an uncertain future under a left-of-centre government.

Premier-designate Rachel Notley’s NDP campaigned on a pledge to put the energy sector’s royalty rates under the microscope, nudge up corporate taxes and develop more stringent environmental policy, including tougher targets on carbon reduction.

Bay street reacts to Alberta's orange crush (BNN Video)

The big fear for the industry is that such moves will drive away investment capital just as companies begin a fragile recovery from the collapse in oil prices that has forced deep spending cuts and thousands of layoffs.

Doug Suttles, chief executive officer of Encana Corp., warned that precipitous action could severely damage Alberta’s already-reeling energy sector.

“People need to use great care right now because this is a time when activity levels are way down and jobs are being lost and you don’t want to do anything that discourages future investment,” Mr. Suttles said in a speech in Washington. “You can’t live in Alberta right now and not feel the impact of oil and gas prices.”

The energy sector had long been cozy with the former Progressive Conservative government, and now faces a group of largely rookie MLAs who have few ties to the industry’s corporate headquarters.

Speaking to reporters in Edmonton, Ms. Notley said she would map out a plan for royalties after speaking with civil servants in the coming days.

Investors voted with their feet, however, and sold off energy shares in the first trading session after the NDP stormed to a stunning victory.

The Toronto Stock Exchange’s oil and gas group fell 3 per cent.

Oil sands producers, including Cenovus Energy Inc., Canadian Oil Sands Ltd. and Suncor Energy Inc. were among the biggest losers on the day, even as oil prices climbed to a 2015 high above $61 (U.S.) a barrel.

The incoming premier acknowledged the stock-market drop but said any changes would not be made unilaterally by the government.

“What I said very clearly during the campaign is that while we might believe that some new consideration might need to occur, it will be done collaboratively and in partnership with our key job creators in this province,” she said.

Think tanks and financial institutions issued a chorus of warnings that such moves, especially on royalties, could push investors to spend their capital in other jurisdictions.

On Wednesday, a few energy leaders put on brave faces.

“Ultimately we have a firm belief that it is in the best interests of government and industry to maintain a stable business climate that makes Alberta an attractive place to invest and generate jobs,” Asim Ghosh, chief executive of Husky Energy Inc., said during a conference call to discuss first-quarter results.

“We were very encouraged that was the approach that Premier-designate Notley took in her inaugural speech yesterday. We’re not prejudging any outcomes here, but we intend to be part of constructive dialogue.”

The sentiment was echoed by Bill McCaffrey, CEO of MEG Energy Corp., an oil sands producer: “Alberta was looking for a change.

“Industry and government need to work together.”

The NDP has also promised to raise corporate income tax rates two points to 12 per cent and stop spending taxpayer dollars to publicly support pipeline initiatives.

It also plans to develop a new strategy for cutting carbon emissions.

Economist Derek Holt of Scotiabank Economics said a recovery in oil prices should help offset the impact of the province’s shift to a left-of-centre government.

“If oil is back on an upswing, then the effects could be at least partially offsetting along with the reasonable assumption that policy changes are likely to be pursued gradually and in balanced fashion with an eye on the next election,” he said in a research note.With a report from Justin Giovannetti in Edmonton and Paul Koring in Washington 

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