Max Fawcett is a freelance writer and a former editor of Alberta Oil magazine and Vancouver magazine.
You almost have to feel for Doug Schweitzer. When he was shuffled in late August out of a high-stakes cabinet position as Alberta’s justice minister, Mr. Schweitzer was handed an even more daunting task: implementing the province’s economic recovery plan as the Minister of Jobs, Economy and Innovation. Nevertheless, in mid-September, while announcing a $75-million investment and growth strategy, he declared that his government would be “moving at the speed of business.”
But when Cenovus, Canada’s fourth-largest oil and gas company, acquired Husky, Canada’s fifth-largest, in a $3.8-billion takeover on Oct. 25, Mr. Schweitzer got an object lesson in how fast business can really move – and how unprepared his government is for the consequences.
The deal may well prove to be good for Cenovus and Husky shareholders, as the combined entity will be better able to weather lower commodity prices thanks to operating efficiencies and economies of scale. But those efficiencies will come at the cost of thousands of white-collar jobs – as much as 25 per cent of Cenovus’s workforce, according to a company spokesperson – and the layoffs will echo through the rest of the economy as Calgarians spend less on everything from restaurants to real estate.
If it’s any consolation, they’re not alone. Last week, Chevron announced it would lay off 25 per cent of the workforce at Noble Energy, a smaller company it bought last month, in addition to its plans to trim its existing workforce by 10 to 15 per cent, or between 4,500 and 6,750 people. On the same day, ExxonMobil said it was set to slash 1,900 jobs from its U.S. workforce, most of them out of Houston. And the Cenovus-Husky deal won’t be the last one Calgary sees, either; whether it’s smaller natural gas producers combining in order to drive down their costs or large oil sands producers looking to buy out their partners in large projects such as Fort Hills, there will be more deals in the energy sector that will put more management teams and senior executives out of work.
That has Calgary’s commercial real estate brokers even more anxious amid a market that was already reeling before the pandemic. “We’re mostly worried that this is a trend we’re going to see more of,” CBRE’s Greg Kwong told the Calgary Herald. “Maybe not to this magnitude, but with all companies struggling in this environment, they’re going to look for efficiencies.”
Calgary’s grim atmosphere represents an emotional sea change from what used to happen after these sorts of major transactions. Once, they were seen as good news: The acquirer would pick up valuable assets and increase the size of its business, while the key people at the company being bought would often take their profits and start the process all over again. But those days appear to be pretty much over. In the Husky deal, the price represents an almost 35-per-cent discount to where its shares were trading at this time last year and almost 75 per cent to where they were in September, 2018. In other words, no one is getting rich off this deal – least of all Li Ka-shing, the controlling shareholder of Husky, who will now own just under 16 per cent of Cenovus.
The industry’s move toward consolidation is clearly bad news for engineers, accountants and other white-collar head office employees, but it’s not great for the men and women out in the field, either. Of the $1.2-billion in annual savings that Cenovus has identified, half will come from reduced capital investment. And as Stacey McDonald, a former capital markets analyst and current member of Birchcliff Energy’s board of directors, noted on Twitter, it almost certainly means that Cenovus’s planned expansions at Foster Creek and Christina Lake – which she saw as obvious candidates for any increase in oil sands spending – won’t be happening any time soon. “That’s likely off the table now,” she wrote.
There’s no reason to think that the new bulked-up version of Cenovus can’t prosper in the years to come, even as global climate policy becomes more stringent. Cenovus has upstream assets that are among the best in Canada, and our country has climate policies in place that are more ambitious than those of almost anywhere else in the oil-producing world – a selling point for potential investors. But that prosperity won’t be shared nearly as widely as it was in the past. There will be fewer employees, less activity and more careful attention to the bottom line than before.
None of this is good news for Calgary, a city that’s dealt with its share of bad economic news over the past few years. That’s not the fault of Mr. Schweitzer or his boss, Alberta Premier Jason Kenney, or Prime Minister Justin Trudeau. Large companies are simply following the global and fundamental shift away from ambitious growth targets and toward a more cautious stance. But the consolidation does show that cutting corporate tax rates may not be the magic job-creating balm that Mr. Schweitzer’s government insists it is. And it’s a reminder that when things move at the speed of business, sometimes people get run over in the process.
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