Varcoe: A no-growth economy is Alberta's top business story of 2019 – Calgary Herald

No growth or slow growth, it doesn’t really matter what you call it.

The tale of 2019 is just about over and it’s unclear whether the province slipped back into an economic recession during the past 12 months or narrowly avoided it.

But many Albertans felt like they were mired in a downturn with high unemployment levels, less consumer spending and sluggish activity in the energy, housing and construction sectors.

It was a year when the provincial economy spun its wheels like a car stuck in an icy rut.

Oil production quotas, trade troubles for canola producers and a major petroleum producer relocating its head office to the United States added to the dreariness.

“The biggest story is no growth in the economy,” says Ken Kobly, chief executive of the Alberta Chambers of Commerce. “Until we get some positive news, we’re going to be sitting in the doldrums.”

The economic slowdown was the most important business story of the year in Alberta.

Politics also played a huge factor during 2019, with voters electing a new provincial UCP government and a minority Liberal government in Ottawa.

The surprising acquisition of WestJet Airlines by Onex Corp. and Calgary’s business tax revolt also commanded headlines, as did battles over energy policies and pipelines.

However, the low-growth, no-growth economy was an overarching theme with far-reaching implications.

Here are my top business stories of the year for Alberta.

1. Flirting with a recession — A punishing

in the middle of this decade gave way to two years of economic expansion, but 2019 stopped the momentum in its tracks.

Progress initially came to a halt following a steep downturn in Alberta oil prices last fall caused by a lack of pipeline capacity. The Notley government introduced temporary oil production limits this year which buoyed crude prices, but limited industry investment.

Overall growth in employment drooped over the back half of this year. In November, the jobless rate in Alberta jumped to 7.2 per cent, a full percentage point higher than a year earlier.

“Don’t blame Albertans for thinking their economy is still in recession,” RBC said in a report this month. “The level of activity in the province is still below what it was in 2014.”

There are a few reasons to feel more enthusiastic heading into 2020, but the past year has definitely been a downer.

“2019 was the year of (playing) defence … flirting with recession,” says Martin Pelletier, a portfolio manager at TriVest Wealth Counsel.

2. Exit Encana — As one of the country’s largest petroleum producers, Calgary-based Encana Corp. has a history firmly rooted in Alberta.

Created by the $27-billion merger of Alberta Energy Co. and PanCanadian Energy Corp., the company’s name combined “energy” and “Canada” to reflect its home turf.

Under the leadership of CEO Doug Suttles since 2013, Encana has been gradually shifting its attention toward the U.S., punctuated by the US$7.7-billion purchase of Newfield Exploration last year. And the Texan began working out of the company’s Denver offices last year.

Yet, when Encana announced in November it would change the company’s name to Ovintiv Inc. and move its corporate domicile to the U.S. (pending shareholder approval), it commanded national headlines, becoming a symbol of the Alberta energy industry’s uncertain future.

Encana insists the relocation will help it attract larger pools of investment and stressed it still has about 1,100 people working in Canada. It later confirmed its new head office would be based in Denver.

Political analyst David Taras of Mount Royal University says the relocation is “symbolically a big story” given the Canadian oilpatch’s recent woes.

“If Encana can leave, what’s next?” he says.

3. A political year — With two crucial elections fought in just 188 days — and a series of incendiary federal-provincial battles waged during the year — the shadow of politics loomed over Alberta businesses in 2019.

UCP Leader Jason Kenney’s victory in the April provincial election signalled a sharp turn away from the former NDP government’s policies.

Kenney killed the provincial carbon tax and vowed to scrap the NDP’s $3.7-billion strategy to lease rail cars to ship more oil out of Alberta, planning to shift these contracts to the private sector.

The UCP pledged to cut the corporate income tax rate by a third. It ditched efforts to transform the province’s electricity sector to a capacity market and eliminated an investor tax credit program during the fall budget.

The new government also adopted an aggressive stance toward Ottawa and oilpatch foes, creating an energy war room and launching a contentious public inquiry into the foreign funding of anti-oilsands groups.

On the federal scene, Justin Trudeau captured a minority government in the October election during a campaign that prominently featured climate issues, and the Liberals didn’t win any seats in Alberta.

Kenney responded by creating a “fair deal” panel to examine issues such as the creation of an Alberta Pension Plan.

“The provincial election validated or legitimized some anger,” says Jim Dewald, dean at the University of Calgary’s Haskayne School of Business.

“And then the federal election said, ‘Well you might feel that way in Alberta, but that’s not how the rest of us feel.’ ”

4. WestJet flies into the arms of Onex — The country’s second-largest airline is an Alberta-made business success story, beginning 23 years ago with just three planes and fewer than 250 workers.

It now has 14,000 employees and more than 180 aircraft — and a new owner. In May, a $5-billion friendly takeover offer for WestJet was unveiled by Toronto-based Onex Corp., which plans to take the airline private.

“It is the end of an era,” says Dewald.

Onex, one of the country’s largest private equity players, offered a 67 per cent premium to WestJet’s share price. Onex executives said it has no plans to alter the air carrier’s expansion strategy or shift its headquarters out of Calgary.

Rafi Tahmazian, a senior portfolio manager at Canoe Financial, said Onex can see WestJet’s underlying value, as global air travel is expected to increase in the coming years.

“Onex was leap-frogging ahead of everybody,” he says. “They want this thing to become big and participate in that growth.”

5. Trouble at the regulator — The province’s powerful energy regulator made news for all the wrong reasons this year.

Former chief executive officer Jim Ellis left the organization in late 2018. Controversy soon followed.

Kenney campaigned on reducing lengthy approval times for energy projects within the AER. After firing the regulator’s board in September, he initiated a review of the AER’s mandate and governance.

In October, the province’s auditor general, public interest commissioner and ethics commissioner jointly released damning reports into the International Centre of Regulatory Excellence (ICORE).

The investigations found AER created ICORE to generate revenues by offering training to foreign regulators — outside of its core mandate — and used the AER’s resources. The A-G estimated at least $2.3 million was spent, through out-of-pocket and in-kind AER resources, on the new centre that was not recovered.

A report by public interest commissioner Marianne Ryan concluded Ellis “grossly mismanaged public funds,” as well as public assets in establishing and supporting ICORE.

Ethics commissioner Marguerite Trussler said the main motivation behind ICORE was to create future employment or remuneration for the former CEO.

And in November, the auditor general highlighted improper expenses and financial reporting issues within the regulator.

6. Trade troubles — China has been a lucrative growth market for Alberta agriculture producers for the past five years.

In March, China decided it wouldn’t accept canola shipments from this country, citing insect contamination in Canadian product — a claim rejected by Ottawa. By June, Canadian beef and pork were also blocked, although this was later rescinded.

The dispute came as tensions between the two countries intensified over Canada’s arrest of Huawei Technologies’ CFO Meng Wanzhou.

Trade problems soon squeezed Alberta farmers. Canola is the province’s largest export to China and 14,000 Alberta farmers sold almost $800 million of product to the country last year.

ATB Financial reports the canola ban pushed Alberta crop exports down by 13 per cent during the first nine months of the year, worth nearly $500 million.

“Trade became political,” says Sandip Lalli, head of the Calgary Chamber of Commerce. “That impacts all business sectors, it doesn’t just impact agriculture.”

7. Curtailment commotion — When the Notley government announced late last year it would impose oil production quotas on large petroleum producers on Jan. 1 it marked a dramatic intervention into energy markets.

It also sparked an industry tug-of-war between refiners opposed to the concept and producers who saw it as a necessary evil. The policy was later extended into 2020 by the Kenney government.

Curtailment kept Alberta oil prices from plummeting, but producers also cut capital spending and didn’t move ahead with growth projects.

The province has been lowering curtailment levels and said in November that producers who add incremental crude-by-rail shipments would see those barrels exempted from the limits.

8. Calgary’s tax revolt — The anger of Calgary business owners facing massive property tax increases has been building for years.

It finally erupted in the summer of 2019. Hundreds of business owners rallied at city hall in June to demand council take steps to buffer them from soaring bills caused by the municipal property tax reassessment process.

“You saw CEOs show up, small business owners show up, mid-sized companies show up,” says Lalli. “It was not a comfortable space for anybody.”

The tax revolt was ignited by a plunge in the assessed value of downtown office towers that shifted $250 million in tax revenues onto other commercial property owners.

When bills went out this spring, almost two-thirds of non-residential properties saw double-digit tax increases.

After initially deciding to do nothing to soften the blow in May, the backlash saw council later adopt a $131-million assistance package.

In late November, council passed a 2020 budget that saw more of the tax burden shifted to homeowners.

9. Energy wars — A fight that started in 2018 over the federal government’s new environmental Impact Assessment Act carried over into this year, becoming a potent symbol of the divisions between Alberta and Ottawa.

Industry groups and the Alberta government said the legislation threatened to stop new pipeline projects from being built but the Trudeau government disagreed, passing Bill C-69 before the fall election.

In September, Alberta launched a court challenge to the bill. Other energy scraps erupted, involving the federal moratorium on oil tankers off the northern B.C. coast, and the future of the Trans Mountain pipeline expansion.

After the project’s federal approval was quashed by the courts last year, Ottawa conducted a new round of consultations and gave the Trans Mountain expansion the green light in June. Construction is now underway.

10. Unwanted wells and natural gas pains —

wells have become a super-sized problem in Alberta since the energy downturn began, and it expanded as natural gas companies struggled this year.

The failure of Houston Oil & Gas Ltd. in November, and Trident Exploration Corp. last spring, tossed potentially thousands of old wells into the hands of the Alberta Orphan Well Association, an industry-funded group that cleans up facilities that no longer have an active owner.

Meanwhile, a key Supreme Court of Canada ruling in January on the case of Redwater Energy Corp. clarified the issue of environmental liabilities and bankruptcy proceedings, supporting the polluter-pay principle.

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com