Canada's Opportunity in Energy Leadership

CANADA’S OPPORTUNITY IN ENERGY LEADERSHIP MIRED IN MISINFORMATION & MISUNDERSTANDINGS

MAC VAN WIELINGEN | macvw.ca Fourth Quarter 2019 MAC VAN WIELINGEN

FINANCIAL & ENERGY EXECUTIVE INVESTMENT MANAGER PHILANTHROPIST

Past director of Founder of Speaker in 15 3 + Boards Companies Engagements

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AWARDS & RECOGNITION PUBLICATIONS

• 2017: Fraser Institute Founders’ Award Van Wielingen, M. (2019). “Perception is not reality: Canada's energy sectorKU • 2016: Calgary Business Hall of Fame Laureate VJGbest in the world." %CNICT[*GTCNF1RKPKQP • 2016: Fellow of the Institute of Corporate Directors 8CP9KGNKPIGP/ ū%CPCFCŨUGPGTI[RQNKE[CPFKVUKPETGCUKPIN[HCEVHTGG • FKUEQWTUGFGOCPFUCTGVJKPMŬ)NQDGCPF/CKN1RKPKQP • 2014: Distinguished Business Leader Award 8CP9KGNKPIGP/ ū%WNVWTGCUIQXGTPCPEGCPFVJGNKPMYKVJRGTHQTOCPEG • 2014: Honorary Doctor of Laws, University of Calgary 6JGGXQNXKPITQNGQHVJGEQTRQTCVGDQCTFŬ%QPHGTGPEG$QCTFQH%CPCFC$TKGHKPI • 8CP9KGNKPIGP/ ū6JGGXQNXKPITQNGQHVJGEQTRQTCVGDQCTF)QXGTPCPEG • 2012: Francis Lefaivre Award, United Way Calgary UVTCVGI[CPFVJGKORGTCVKXGQHRGTHQTOCPEGŬ%QPHGTGPEG$QCTFQH%CPCFC • 5VGYCTFUJKR4GXKGY

for more information visit macvw.ca INTRODUCTIONHEADING SUBHEADING IF NEEDED Canada’sThird Subheading energy sector is world class in scale and has world leading capabilities, but it is being progressively hampered by political, legal, and regulatory processes, and hostile Fourth Subheading activism. There is no fundamental justification for the damage we have done to ourselves. TheBody common text explanations come wrapped in concern and criticism about our energy sector’s environmental, social, and governance (ESG) standards. Margins are .75 all around. The problem is not what most believe. The problem isn’t actual environmental performance or that the industry denies climate change. The problem is misinformation and misunderstandings, a failure to grasp actual realities, an unwillingness to collaborate among ourselves, and a lack of confident, visionary leadership.

We have fallen into blame, intensely politicized divisiveness, destructive adverse policy, and are on track to neutralize, if not dismantle, our leading, global energy sector. We have incurred massive economic and social costs, and are experiencing a self-inflicted threat to national unity, with no offsetting material benefit to the problem of global greenhouse gas emissions and climate change.

The vision that has “benefits to all” is to combine our extraordinary energy resource with the proven innovative potential of the Canadian energy industry to offer cost competitive, reduced carbon, high ESG energy products and advanced technologies that support a long- term global transition to a low-carbon environment.

A great vision will support cohesion and collaboration, and will be inspiring for all Canadians, industry participants, and stakeholders, and it will make a material difference in impacting the problem we are all concerned about: global emissions and climate risk.

What is needed in Canada is visionary leadership grounded in boldness,

collaboration, and evidence-based pragmatism. There is no question that this has been absent through the recent national election campaign.

macvw.ca 1 WHAT IS THE FUTURE FOR CANADA’S ENERGY SECTOR?

How do we participate in a long-term transition to a low-carbon world, where oil and gas is phased out over 30, 50, 100 ... or even 150 years – whatever the timeframe? THE ESSENCE OF THE VISION THAT IS NOW EMERGING CAN BE ENCAPSULATED AS FOLLOWS:

The last barrel to be phased out should be the best barrel… and the best barrel should be Canada’s barrel.

Our customers – the public – want affordability, reliability, and low-carbon, high ESG standards, and an industry that is innovating and advancing to solve problems and meet needs. This vision of the “best barrel” – the “best energy products” – implicitly embraces the interests of our customers, the public, and all stakeholders.

It reflects a customer mindset, serving what our customers want and need. It acknowledges and builds on our advantages and strengths. It is a commitment to excellence and progress. It is believable as it’s grounded in well-substantiated evidence and direct knowledge.

We are now the best – or among the best in the world – and we will be believed when we say, “We

are going to become even better.” We have all the fundamentals in place to embrace this vision and make it happen.

macvw.ca 2 MISINFORMATION & In a recent article published in the New York Times by Lee Wasserman, MISUNDERSTANDINGS Director of the Rockefeller Fund, the argument is made that keeping Canada’s “carbon-intensive [oil] sands in the ground [is] at the top of every We must see the truth, that we are mired list … about what we must do to avoid full-blown climate catastrophe.” in misinformation and misunderstandings. One profound Further, in reference to the Trans Mountain Pipeline expansion, example relates to what has become the Wasserman states that, if completed, we will be losing the “last, best most controversial part of the Canadian opportunity to safeguard what remains of our fragile climate system.” 1 energy industry: the oil sands.

CONTRAST THESE VIEWS WITH THE REALITIES: GHGs from the Canadian oil sands are immaterial to global emissions. BY THE NUMBERS Our oil sands contribute only 0.15% of global emissions.2 If we phase out our oil sands, the lost volumes would be replaced by supplies from other countries: − Notably Saudi Arabia, Iraq, and historically, Venezuela and Mexico, all of whom have much lower ESG and human rights standards, and much higher levels of corruption.3,4 − These other suppliers would also generate GHG emissions in the extraction th process. We have calculated that the net reduction in global GHGs would be a 1/7 negligible 0.03 of 1% (or 3/100ths of 1%).5 Visualize 100 peanuts in a jar. For further context: The contribution of Canada’s − In 2018, the increase in GHG emissions from China and India – just the year-over- GHG emissions from the oil 6 year increase – was equivalent to adding ten Canadian oil sands. sands to the global total is not − The total absolute level of GHGs from China and India in 2018 was about 12,000 even one peanut. It is about 6 MTs, which is roughly equivalent to 150 Canadian oil sands. 1/7th of one peanut!

This is all public information and the math is simple, yet the director of a high-profile foundation somehow succeeded in publishing in a leading global media outlet that Canada’s oil sands are going to destroy the world.

IN CONSIDERING THESE REALITIES, HOW IS IT POSSIBLE TO ARGUE THAT THE OIL SANDS ARE SOMEHOW A MATERIAL FACTOR IN CAUSING A GLOBAL CLIMATE CATASTROPHE, AND A PHASE OUT7 OF THE OIL SANDS WOULD SOMEHOW SAVE THE WORLD?

The absolute level of GHG emissions from the oil sands is immaterial on a global basis. However, this is no excuse not to reduce emissions from the oil sands and all other sources.

macvw.ca 3 CANADIAN PRODUCERS Emissions on legacy production have HAVE MADE declined significantly and new projects are now being developed at lower SIGNIFICANT emissions per barrel than the average in PROGRESS U.S. and world markets. v Emissions intensity of Canada’s oil sands is down 28% since 2000 • Suncor is stating “that greenhouse gas emissions for the and is anticipated to decline about another 20% through to 2030.8 average barrel extracted at Fort Hills are on par with the average crude refined in the U.S.”12 v Emission levels from new projects are close to, or below, the average level of crude oil refined in the U.S. • MEG is evidencing GHG emissions intensity that is 20% lower than the industry average, while also withdrawing v The following five companies make up approximately 45% of oil 57% less water per barrel produced (and recycling 90% of and liquids production in Canada and are evidencing significant water used).13 progress.9 • Canadian Natural is evidencing great progress: “[GHG] • Imperial has stated their new cyclic solvent process “could emissions intensity of … oil sands operations are virtually eliminate the use of steam and reduce emissions by up approximately 5% higher than the average emissions to 90% in certain areas” of their Cold Lake field.10 intensity for global crude…with a pathway to below the global • Cenovus is reporting “oil sands emissions intensity that is less average.” Further, they have stated publicly that their “long- than the average barrel of oil refined in the U.S.”11 term aspiration [is] to … net zero emissions.” 14 MEG has also expressed the same goal.

Canadian Natural is Canada’s largest oil and gas producer, and one of the largest globally. How can a leading company with extensive oil sands operations become a net zero emitter of GHGs? The same question must be asked of MEG. The vision of these companies is confronting the old paradigm, but not by shutting down as some argue. It is through ingenuity, innovation, and the application of advanced technologies.

THE IMPLICATIONS: If our oil sands emissions are the same or below the average in the U.S., how can the Rockefeller Fund and others possibly argue that Canada should shut-in its production? How can we justify phasing out or curtailing our oil sands only to see Saudi Arabia, Iraq, Mexico, and Venezuela increase their market share? These countries have lower ESG and human rights standards, 3,4 and much higher levels of corruption. What are the policy reasons to shut-in and stand on the sidelines as the U.S. continues to boom? Attacks on Canada’s oil sands because of high GHG intensity and climate concerns reflect a gross distortion of the materiality of emission levels. This is the story of yesteryear. But the myth continues, causing ongoing damage.

Further, we are being incredibly selective in how we view the oil sands in the context of other high emission industrial activities within Canada. As an example, we are very willing to demonize the Alberta oil sands and yet turn a blind eye to coal exports through the Port of Vancouver, which generates at least 100 MT of GHGs per year, equivalent to 31 million passenger vehicles (approximately 3 million less than the number of vehicles on the road in Canada .15

macvw.ca 4 CASCADING NEGATIVE CONSEQUENCES FOR CANADA’S ENERGY SECTOR

HOW MANY OF US KNOW THAT OUR STRATEGICALLY IMPORTANT OIL AND GAS INDUSTRY IS CURRENTLY EXPERIENCING A MELTDOWN? At the same time, the U.S. industry has been enjoying a major expansion.

The growth in U.S. oil production over the last ten years Koch Industries, with additional asset dispositions (2008) is approximately equivalent to adding another by Royal Dutch Shell, Murphy Oil, EOG, Devon Canada in world markets (growth of ~6 mmb/d).8, 16 Energy, and Apache. Looking at these companies, we estimate that approximately $40 billion worth of The LNG business in the U.S. has leapfrogged past assets have been sold off since 2014.18 Canada in capturing Asian LNG markets, currently averaging 5.23 bcf/d, compared to no current Some of our own world-class, leading businesses, production in Canada, and constructing and such as Encana, TC Energy (formerly TransCanada), sanctioning for 10 bcf/d of capacity by the end of 2020 and Enbridge, are shifting their business to the U.S. versus 1.8 bcf/d for Canada.17 Capital, equipment, and some of our most talented 19 Numerous major international companies have workers are exiting. exited the Canadian energy sector, notably, Statoil We estimate that 77,000 direct jobs have been lost (Equinor), Total SA, ConocoPhilips, Marathon Oil, in Canada’s energy sector since 2012.20 How do we account for the social costs of these job losses? Many Albertans are understandably feeling that the government’s commitment to preserve and create jobs depends on where the jobs are within Canada. Even a priority as basic as jobs has become extremely politicized. The SNC Lavalin governance debacle has been justified by possibly saving a few thousand jobs. Compare this to the loss of 77,000 jobs in the energy sector in the West.20 Don’t they matter?

macvw.ca 5 During the Senate hearings on Bills C-48 and C-69, a number of Senators and INVESTOR witnesses expressed worry that these legislative initiatives would hurt investor confidence. CONFIDENCE My view was and remains: it is too late to worry. HAS We are beyond trying to avoid or mitigate the risk of damage to investor confidence. The damage has happened, and much has been self-inflicted. From the point of view COLLAPSED of investors, they see the mess and don’t care who is to blame. Most are saying some version of, “Canada can’t get its act together and we are giving up.”

There is virtually no investor interest in the Canadian energy sector at this time.

New equity raised last year was the lowest in 27 years, down 94% from the prior five years.21

There has been a $100 billion loss in market value since 2014 of publicly listed oil and gas companies.22

Of 129 independent Canadian listed oil and gas companies in 2014, almost half have declined by 90%, QT have been sold, delisted or gone through an insolvency event.22, 23

The Canadian independent sector has been crushed. They can aptly be viewed, as they say in the banking industry, as a “workout problem.”

MUCH OF THE At the top of the list is a series of failed high-profile projects: DAMAGE HAS BEEN • Notably, Northern Gateway ($650 million of project costs), which was approved by the Harper government but rejected by, the then newly elected, THE RESULT OF Trudeau government. Investors view what happened as prima facie 24 FAILED POLITICAL, evidence of sovereign risk. • Energy East ($1 billion of project costs) 25 LEGAL AND • Petronas LNG ($1 billion of project costs) 26 REGULATORY • Trans Mountain is alive and now moving towards being built, but only because of a bailout purchase by the federal government. It is PROCESS, AND acknowledged that the recent approval is a positive development. However, HOSTILE ACTIVISM more evidence is needed that it will in fact happen.

Failure to build much needed take-away capacity has resulted in the failure to realize the full value for our energy commodities. For oil alone, from 2013 to 2018, there has been $40 billion in lost revenue for Canadian energy companies.27

macvw.ca 6 There has also been damage from other sources…

PROVINCIAL INTER-PROVINCIAL FEDERAL • 2014 Alberta royalty review • B.C.’s repeated challenge of • The Prime Minister musing when oil prices were collapsing the federal government’s about the phasing out of the constitutional authority oil sands7 • The acrimonious canceling of relating to Trans Mountain electric power purchase • Extremism of tanker contracts and related $2 billion • The Quebec Premier’s moratorium (Bill C-48) in related costs to Albertans28 negativity towards Alberta oil • Continued uncertainty with (specifically in connection with • Imposed carbon taxes when Bill C-69 Energy East)25 U.S. competitors pay none • Generalized interpretations of • The threat of civil • Inflammatory attacks on our Indigenous peoples’ interests disobedience, which still provincial regulator29 that are not fact based looms over Trans Mountain

Policy development and political process in 2019 has created severe damage. • Recommendations from the due process of two Senate committees to withdraw Bill C-48 and overhaul Bill C-69 were rejected (C-48) and substantially turned down (C-69). • A rejection of the input, and implicitly the needs, of leading project proponents who are the ones that make new projects happen. • Rejection of the pleas of six premiers, representing approximately 60% of all Canadians, to not proceed with the enactment of Bills C-48 and C-69 as written.30 • An implicit disregard of our need for investment and infrastructure capital, which is the source of future prosperity for Canadians.

Through the Bill C-48 and C-69 processes, we turned our backs on the advice of expert witnesses; the studied, and well- considered recommendations of our Senators; the formalized pleas of six premiers,30 and nine premiers in total who were opposed; and the input and needs of major project proponents, all of which impacts our national unity and serves to reinforce existing negativity towards investing in Canada. Most recently, in the federal election, the energy-producing region of Canada faced shocking hostility and policy priorities expressed by certain leaders that were extraordinarily off- base with actual realities. National political leaders of three major parties, four including the Bloc, expressed themselves in a way that has been perceived as demeaning to most/many in the West. Yet the “progressives” wrap themselves in a commitment to inclusivity, particularly amongst all societal factions in our country.

How can our political leaders talk about inclusivity, while at the same time trample on the

interests of one region, and disregarding the input and concern from within that region?

macvw.ca 7 CANADA’S ENERGY SECTOR IS A GLOBAL LEADER IN SCALE & CAPABILITIES We have the third largest crude oil reserves in the world.31 Our oil sands and Montney tight-gas resources are extraordinary endowments for Canadians, for all our global customers, and for everyone around the world. These resources exist in one of the most stable, reliable countries in the world, with recognized leading ESG standards, and a well-evidenced commitment to improve, advance, and progress to do better.3,4 Our oil sands are arguably the most reliable source of oil in the world. People may be unaware that this is a de-facto manufacturing business, with effectively no natural decline compared to conventional reserves. Our people – our talent – is another extraordinary resource. We have globally recognized engineering, geological, technological, financial, and project management experience and expertise. Our people have managed over $1 trillion of capital expenditures in our upstream industry over the past five decades27 and have built a depth of capabilities that are amongst the best in the world.32

CANADA’S ESG STANDARDS & PERFORMANCE ARE EXEMPLARY IN A GLOBAL CONTEXT Among Canadians, resistance to the oil and gas sector primarily relates to perceptions and concerns about the industry’s ESG record. Perceptions are not reality: Among oil producing countries in the world, Canada’s ESG standards and performance are as good as it gets.

Based on an assessment of ESG performance, BMO cites Canada as having the top “global ESG scores given performance across [a] spectrum of important issues from environmental policy, to social welfare, political stability, regulatory oversight and corporate governance.” Further, they note Canadian oil companies deliver stronger ESG scores than companies 34 In the above table, rankings reflect the relative ranking among the top ten producers of oil and liquids in 2018. For actual rankings relative to all countries in the indices, see references.; Ranking by production data: EIA. of almost all other oil producing countries in the world.33

macvw.ca 8 The conclusion from a study conducted by Worley Parsons Canada was unsurprising:35 “Canada’s Environmental Assessment processes are among the best in the world.”

We know this through…

ARC RESOURCES ARC FINANCIAL

An example close to home for me is ARC Resources, Another example is ARC Financial, who, as an investment which has been recognized for its governance leadership manager focused on the Canadian energy sector, has been by institutional investors, not just in Canada, but globally. recognized for its leadership in ESG standards. In 2016, ARC Resources is ranked among the top 1% of 1,400 Yale’s Chief Investment Officer, David Swensen, stated in The companies surveyed globally by Brendan Wood New York Times that, “[ARC Financial has] developed a International.36 framework for assessing, reporting and comparing the greenhouse gas intensity of fossil fuel operations on an apples- We have some fantastic leading businesses in Canada to-apples basis.” He also commended ARC’s diligence in that are leading the way for the rest of the world. “using it as a tool when they make new investments.” 37 I can also confirm that ARC is driving portfolio companies to reduce emissions.

In addition to reducing GHG emissionon levels, there are numerous other achievements critical to Canada’s ESG performance:f • Our electricity sector is among the greenest in the world. 80% of our electricity is from non-GHG emitting sources,38 approximately twice the 40% average for OECD countries.39 • Canada is the second largest producer of (non-GHG emitting) hydro-electric power globally (after China).40 B.C., Manitoba, Newfoundland and Labrador, Quebec, and Yukon produce over 86% of their electricity from hydro. This is a major advantage in a world driving for reduced carbon.41 • Canada was the first country in the world to commit to national methane emission regulations, and we are recognized as a global leader in methane reductions from flaring and venting. Research from Joules Bergerson and colleagues at Stanford has noted that while Canadian oil is among the most carbon-heavy in the world, we lead in venting and flaring, and if Canada’s standards were imposed worldwide, “the amount of greenhouse gases emitted from producing the average barrel of oil would fall by 23%.”42 Methane reduction regulations are a critical competitive differentiator for our natural gas sector and support the build-out of LNG. • Canada is a world leader in carbon capture and storage (CCS). There are two existing long-standing commercial projects in Southeast Saskatchewan, four significant demonstration projects, and numerous feasibility and pilot projects underway. Canada participates in the International Energy Agency’s (IEA) Carbon Sequestration Leadership Forum and we are a founding member of the Global CCS Institute.43

macvw.ca 9 • We have a proven world-class pipeline transportation system that is safe and continuously getting safer. Over the past ten years, liquids incidents have declined by 90%, and 99.3% of oil spilled was recovered through cleanup.44 • Canada has proven world-class marine safety along the world’s longest coastline. There are 20,000 tanker movements per year, and we have had no significant accidents or spills.45 Despite the controversy of Trans Mountain, the terminal has loaded marine vessels since 1956 without a single spill from tanker operations.46 • Our worker safety standards and outcomes are exemplary. Fatalities are down 90% since 2001.47

• Our industry is the largest employer of Indigenous people, and new participation structures are evolving that will prove transformational for industry and our Indigenous communities.48

• And lastly, we’re among the best in corporate governance in the world. Virtually all global reports and independent rankings confirm this.33, 34 Rahul Bhardwaj, President and CEO of the Institute of Corporate Directors, notes that,

“Canada’s excellent and predictable governance places it firmly in the very upper end of countries. It is enshrined in the rule of law, which is independently and emphatically enforced…

This is what will define us from our global counterparts in the 21st Century and beyond.”49

macvw.ca 10

INNOVATION, INITIATIVE &

ADVANCED TECHNOLOGY

Innovation and technology is another key strength of the Canadian energy industry.

Some people argue that we are an old industry stuck in old technologies. Nothing could be farther from the truth. When I testified on Bill C-69, the other witness on the panel was a Professor at Ryerson University who commented that the industries impacted by Bill C-69 “are part of an old economy” and that “we have to move forward on new technologies,” and specifically “new and clean technologies.”50 We are an old industry in the same way that food is an old industry; people have always The above depicts M. King Hubbert’s 1956 world oil production needed food and likewise, have always distribution, using historical data and projected future production. It needed energy. showed a peak of 12.5 billion barrels per year in the year 2000. As of 2016, global oil production was 29.4 billion barrels per year

As for technological advancement … remember peak oil?

The consensus view, alive for decades, was that oil supply would soon peak and enter terminal decline, leading to what some viewed as the “collapse of civilization.”51 This consensus view on scarcity was the original inspiration that drove the push for renewables. During the height of public concern, there were numerous articles referring to the “peak oil catastrophe.” Here is the title from one report published just less than nine years ago (2011): “The peak oil catastrophe-in-waiting.” The first sentence read, “The United States continues to slumber while a catastrophe lies in wait.”52 At the time when this was written, the U.S. and Canada were on the verge of a supply side revolution.

\We disrupted ourselves with advanced technology and resolved what many viewed as an irresolvable problem, conferring enormous benefit to society.

Instead of being asleep in the face of possible catastrophe, we unleashed a tsunami of innovation and have gone from shortage to abundance, at least in North America. Technology, advanced drilling and completions, digitization, and automation have transformed the supply cost curve of the industry. The price of oil and gas worldwide would probably be twice what it is today if not for this technological revolution. I marvel at the fact that many observers of the industry fail to acknowledge this. Critics of the industry rarely speak about innovation; instead they speak about “phasing out and shutting down.” Across the energy and technology sectors, there are many new technologies being developed which will improve both efficiency and environmental performance.

macvw.ca 11 Canadian innovation, initiative, and advancing technology, combined with other strengths, creates the leverage to make Canada a leader in reducing global emissions.

1.LNG Canada will be the lowest emission LNG plant in the world. • The project is estimated to reduce emissions by 60 to 90 MT through the replacement of coal in China.53 • This is roughly equivalent to removing 80% of the cars on Canada’s roads. • This also roughly offsets the emissions from our entire oil sands sector. For further context, if Canada bought every car Tesla made at current rates, it would take approximately 57 years to produce the climate benefit that LNG Canada will have in only four years.54 • Further, we have other LNG projects on the drawing board that cumulatively could make a major impact in reducing global emissions. • The IEA recognizes that new LNG projects will significantly reduce GHGs from the burning of coal.55

2. We are a leader in methane regulations and reductions.56 • We are also a leader in methane detection and mitigation technologies. • Methane reductions in Canada are happening. CNRL has reduced methane emissions by 78% since 2012,57 and they continue to lead and advance innovation through investing in R&D and collaborating with industry partners. In 2018, CNRL launched the Fugitive Emissions Management Program Effectiveness Assessment (FEMP EA), “the world’s first-of-its-kind methane leak detection, quantification and repair project.” 30 producers are collaborating to build a methane emission inventory of 200 oil and natural gas facilities that repeatedly measure emissions over a 12 month period.58

3. The oil and gas sector is the largest investor in clean tech in Canada and there are other major entrepreneurial initiatives underway.59 • Clean tech within the industry does not have the “pop and sizzle” of venture capital, but it has long time frames, large balance sheets, access to a unique depth of scientists and engineers, and readily available real-world applications. • You can expect to see real advancements in carbon capture, sequestration, and usage. One noteworthy initiative is the Alberta Carbon Trunk Line which will have capacity to move 15 million tons per year of carbon for permanent 60 reinjection of CO2 into the ground or “net zero” enhanced oil.

The dramatically reduced environmental impact, the enhanced safety of our transportation systems, and reduced emissions among others, are all being driven by advanced technology. Ironically, much of Canada’s clean tech investing is occurring within Canada‘s oil sands companies.

macvw.ca 12 Iro WE NEED CANADA’S MAJOR OIL

AND GAS COMPANIES:

Suncor, Cenovus, Canadian Natural

Resources, Imperial, MEG and others.

We need their commitment and willingness to invest in new technologies and to advance progress in the industry. We need their balance sheets, their depth of technical expertise, and their long-term strategies and time horizons. Yet in recent legislative initiatives and processes, their views were either ignored or rejected.

Across the energy and technology sectors, there are many new technologies being developed which will improve environmental performance, for example:61

• The use of solvents versus steam in oil sands recovery • Production of green electricity from crude oil via with a substantial reduction in emissions microbial transformations

• Recycling of water in frac operations, resulting in • Sustainable hydrocarbon recovery using CO2 injection reduced fresh water consumption and less trucking in tight reservoirs

• Proliferation of multi-well pad drilling, dramatically • Fugitive methane emission detection through lowering the surface impact in SAGD oil sands and advanced cameras and sensing devices conventional production • Continued phasing out of high emission frac pumps in favour of cleaner, more efficient units • Increasing usage of natural gas for power drilling and frac fleets, displacing higher emission diesel fuel And there are numerous technologies and processes being

• Microseismic monitoring and advanced modeling to researched and developed to convert CO2 into useful mitigate the risk of induced seismicity products such as super strong, low weight carbon microfibres and recycling carbon into “green” fuels.

The challenge for policy makers is that the outcomes of innovation are difficult to see and predict, but I believe that research, creativity, innovation, and entrepreneurialism represents the greatest opportunity in the path forward to resolve, or substantially mitigate, our environmental risks and problems. Political leaders need to turn towards the oil and gas sector and see it as a critical part of the solution … not the problem.

macvw.ca 13 PUTTING CANADA’S OIL & GAS As we struggle in Canada with policies and sentiments that are hostile to the oil and gas sector, INDUSTRY INTO CONTEXT: many of us within different regions of Canada fail to THE IMPORTANCE OF THE OIL realizeize tthehe size and scope of our oil and gas AND GAS SECTOR TO CANADA productionduction aand pipeline business…that it is:

Larger than the combined Banking, Investment These numbers are for upstream and Management, and Insurance Sector within Canada pipeline sectors only, representing 1.7 X Entire Transportation Sector (including air, rail, $132 billion of GDP. This increases to water, trucking, and related warehousing) $200 billion if you add related 2.6 X Residential Construction Sector downstream activities and power generation. 4.0 X Telecommunications Sector

AND… This number gets even larger if you 5.6 X Combined Forestry, Logging Wood Product, and consider service and manufacturing Paper Manufacturing Sectors directed towards the energy sector.62 8.2 X Auto Parts Manufacturing Sector

My read of the data is that our Canadiandi energy sector is the largest sub-sector of the Canadian Economy. Our energy sector is important within Canada and we are a major player in global markets.

63 For the table, see references for all sources. macvw.ca 14 Another critical understanding that has been lost is the financial contribution of WHEN THE ENERGY our oil and gas sector to the rest of Canada. Alberta has contributed cumulatively $630 billion in net federal transfers to confederation since 196164 SECTOR EXCELS, and has always been a net giver, never a receiver.65 The oil and gas sector has been the engine of this financial contribution. This year alone, Alberta's fiscal ALL CANADIANS transfers will total $22 billion, and generally have averaged approximately $24 billion/year from 2007-2015.65 Alberta’s prosperity has, in fact, been Canada’s PROSPER prosperity.

I’m often asked why Alberta hasn’t done what Norway did, building a massive sovereign fund, which today exceeds $1 trillion. There are numerous factors, ALBERTA however, the main reason relates to fiscal transfers from Alberta to the rest of Canada. Norway is a sovereign country and was not hampered by fiscal transfers VS. to other jurisdictions. Add a modest return on the cumulative $630 billion that has been transferred, and we could easily have a $1 trillion fund. Expressed NORWAY differently, if these transfers had been accumulated within a national fund, Canada would have a $1 trillion fund.66

The reality is clear, and context needs to be brought to the issue. If Alberta was able to keep even a portion of its $24 billion, it could:

1. Offset Alberta’s 275 MT of GHG emissions annually, by planting 13 billion trees at the cost of approximately $5 billion.67

2. Or, nationally, offset Canada’s 750 MT of GHG emissions annually, by planting 34 billion trees at the cost of approximately $14 billion.68

Both scenarios align with our Paris commitments, and the Liberal promise of net zero emissions by 2050.

macvw.ca 15 THE GHG EMISSIONS Our customers and stakeholders want lower carbon products. But the issue must be ISSUE IS SERIOUS. understood in the context of five evidence- WE MUST REDUCE EMISSIONS. based, concrete realities.

Global emissions is a global problem, not a local problem. Emissions are created throughout the world and collect in our atmosphere. It doesn’t matter whether a coal plant is in China, the United States or Canada. The amount of greenhouse gases measured in the atmosphere is roughly the same all over the world, regardless of the source of the emissions.69 At the local level, in Canada, we are not creating our climate.

It’s consumption, not production, that is most impactful. Emissions are roughly four times greater at end-use consumption versus extraction – 80% versus 20%.70 It is four times more a consumption versus production problem, so why are producers being singled out to blame?

Markets are dynamic and competitive and capital is mobile. If we shut down production, we will be shifting investment, jobs, and tax base to other jurisdictions.

These three points explain why if we shut down our oil sands – or even our entire oil and gas industry – we may not have any material impact on global emissions. In fact, emissions may go up. The GHGs on the extraction side would shift to suppliers in other jurisdictions, like Saudi Arabia, Iraq, Venezuela, and Mexico, who would likely have higher emissions and lower ESG standards.3,4,34 Further, if nothing else changed, consumption within Canada would be supplied simply through increasing imports. The net effect is essentially zero impact on global emissions, a loss of energy security, and a serious loss of prosperity within Canada.

macvw.ca 16 The transition away from hydrocarbons towards a low-carbon future will occur THE GLOBAL ENERGY over a very long time frame: multiple TRANSITION IS A decades, not years. Whether we like it or not, world oil demand continues on an CHALLENGING, inexorable march upwards, growing 15.3 LONG-TERM EVOLUTION million barrels/day over the past ten years.71

Global demand for hydrocarbons is expected to grow by about one third through to 2040.72 Even in the most conservative low demand scenarios, we will still be using hydrocarbons for multiple decades. World oil demand will likely not peak for at least another 10+ years and natural gas for at least 15 years.73

Renewables’ share in global energy demand is about 3.6%,71 which is the result of nearly $4 trillion in investment globally since 2005.74 Comparatively, over the same period, the oil and gas sector in Canada has spent approximately $745 billion.75 The vision of a relatively fast transformation of our energy system using solar and wind as the primary strategy is unrealistic. Solar and wind are making great progress and must be embraced, but alone are insufficient as a short-term bridge to a low-carbon world.

Further, while the discussion and the shift to renewables is an important part of the energy mix, it cannot be overstated that access to energy is essential to reduce poverty. Globally, as of 2018, approximately one billion people still live without electricity and three billion people use polluting fuels to cook, undermining their health, development prospects, and quality of life.76

macvw.ca 17 How has Canada gotten so off track and what can we do differently?

CONTINUED FOCUS Historically, our industry was insufficiently focused on ESG issues. This has changed and perceptions now have to match reality. The ON ESG industry must remain passionately committed to innovation and to 1PERFORMANCE further improving its environmental performance. STRONGER Historically, industry leaders talked a lot about jobs and wealth. The COMMUNICATION TO public also wanted environmental sustainability and social value. We all need to communicate and advocate to all stakeholders our EDUCATE OTHERS current ESG performance and standards. Industry leaders, industry ABOUT OUR ENERGY workers, all of us who are informed, all our politicians, including federal politicians, need to contribute. 2 SECTOR It can be objectively said that the lack of Alberta and Saskatchewan UNITE AND MOBILIZE representation in government policy and decision making creates a TO REPRESENT risk for ourselves as a region and for the unity of Canada. We all need to mobilize and step up our public and political profile to more OURSELVES TO OUR actively represent ourselves to our fellow Canadians. This is in the interests of all of us who live in these under-represented regions of 3 FELLOW CANADIANS Canada, and it is in the interests of all Canadians. There are two competing visions for Canadian energy. One involves the diminishment, if not outright dismantling, of a leading innovative, SUPPORT AND ethical global industry. This is the path we are on now. This strategy may somehow “feel good” for some Canadians and may produce EMBRACE A “gains” for some political leaders, but it comes with enormous financial and social costs and is a threat to national unity. Ironically, the impact of this strategy on global emissions and climate change CLEAN ENERGY is immaterial or negative as new supplies will come from countries with lower ESG standards. The other vision is to support the LEADERSHIP development of a “clean, ethical Canadian energy brand” based on innovation and a commitment to a low-carbon future, leveraging our VISION technologies and advanced processes to have a material impact. 4 This is the vision that offers maximum “benefits to all.”

macvw.ca 18

CANADA’S OPPORTUNITY TO BE A GLOBAL LEADER IN ENERGY AND ENVIRONMENTAL STEWARDSHIP

As preposterous and unbelievable as this may sound given current political realities, to achieve a full strategic turnaround of Canada’s energy sector requires high level political leadership – specifically, the Prime Minister, Ministers, and Premiers – to position themselves in front of our industry and face outwards to all Canadians and the world, extolling the excellence, accomplishments, adaptability, resilience, and extraordinary ESG performance of our energy industry in Canada.

We need a complete about-face in the narrative from our politicians and senior government officials that is nevertheless consistent with a vision to reduce global emissions and climate risk, and which supports a long-term transition to a low-carbon world. This vision is consistent with our climate strategy goals AND with preserving our national unity.

THE BASIS OF THIS NEW VISION AND NARRATIVE IS EXISTING EVIDENCE-BASED REALITIES AND THE MORAL RESPONSIBILITY TO DO WHAT IS IN THE BEST INTEREST OF ALL CANADIANS AND THE WORLD.

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macvw.ca 22 ABOUT VIEWPOINT RESEARCH

Viewpoint Research is a boutique research centre founded on the experience, expertise, and thought leadership of KPHNWGPVKCN energy executive and private equity investor, Mac Van Wielingen. With a vast research database, senioT leadership expertise, and an active research team, our focus includes providing thought leadership and research on various issues in the business sector, including Canada’s energy sector, and on offering customized research solutions and assessments in the area of organizational behaviour and strategy.

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