In a conversation with Energy Examined host Tracy Larsson, energy thought leader Van Wielingen discusses why productive assets from a strong oil and gas industry are vital to counterbalance growing deficits, and why Canada needs to better support its homegrown industry in a global competition for investment capital, focusing on its strong environmental, social and governance standards.
Mac Van Wielingen Biography
Mac Van Wielingen is an energy executive, private equity investor, corporate director, and philanthropist, and has been called “Calgary’s corporate radical” for his progressive thinking and unique grasp of corporate leadership, strategy and human behaviour. His visionary, yet unconventional corporate idealism has been developed through extensive experience in building and directing businesses and by his knowledge as a self-described “student of business leadership.” As the Founder and Chair of Viewpoint Group, his role is to oversee the entire team, and offer support, guidance, and thought leadership.
Full transcript of podcast:
Tracy: Hello and welcome to the Energy Examined podcast. I'm Tracy Larsson, and today we're going to delve into Canada's economic recovery, what it could look like and the unique role of Canada's natural gas and oil industry. Joining the podcast today is Mac Van Wielingen. He's a veteran energy executive. He's a corporate director, a private equity investor and a philanthropist. Mac founded ARC Resources and ARC Financial, which is Canada's largest energy focused private equity firm. Mac, thank you for being on the podcast today.
Mac: It's a pleasure to be here, Tracy.
Tracy: So, you have a long history of working in Canada's energy sector. And just given the breadth of your experience, I thought it would probably be of benefit to the listeners if you could take just a minute and talk a bit about Canada's natural gas and oil industry in terms of its size and its actual impact on Canada's economy.
Mac: The oil and gas sector is Canada's largest industry sector. And depending on how you slice and dice it, it's order of magnitude about 10 per cent of our total economy. It's multiples greater than a lot of other sectors in the economy. It's about the same size, interestingly, as the entire banking and financial services business in Canada, which is always a surprise for people to hear. And if you look at it relative to the automobile sector, automobile parts and so forth, and in southern Ontario or manufacturing, other subsectors, it is multiples greater. But what's important to see about the oil and gas sector is that the economic value created relative to, in a sense, the inputs and specifically relative to labour, which gets to the whole thing about labour productivity, which is one of the key drivers for any country in determining economic growth so that the value created from the sector in economic terms, is very significant. And it's the highest in Canada of all subsectors.
Tracy: You know, the perception is that natural gas and oil is a Western Canada thing, and that's actually not true. It's kind of -- it's right across the country.
Mac: Well, it's certainly right across Canada in terms of suppliers to the industry and services to the industry, employment levels. It's really extraordinary. And then, of course, there's the Atlantic-based oil and gas activity as well, which is certainly very significant to those provinces, Newfoundland and Labrador specifically, for example. It does cut across the whole economy and it's a very important part of the sector. And quite frankly, I have a lot of trouble imagining recovery in Canada, the post-COVID recovery without an oil and gas and resource-based recovery in Canada.
Tracy: OK, so let's get right into that, then, when we're talking about Canada's economic recovery, what that could look like. What do you see as the role of Canada's energy sector and of the resource sector?
Mac: Well, quite frankly, it's a hard question to answer because the role and the contribution of our energy and resource sectors is going to be driven very much by policy and politics. And you know, I know that, for example, our investors, 70, 80 per cent of our investors at ARC Financial are international investors. And they're basically saying that they believe Canada is a poorer destination for capital and one of their key perspectives is, 'why should we take the additional risk when we can buy into our own companies in the United States and we have a positive, supportive policy environment whereas in Canada you're forever fighting with each other and you can't get infrastructure built? And there's always the risk of a truly hostile policy. And tax initiatives are on the horizon.' And many of them have said to us, you know, 'we can't even really justify dedicating the resources to trying to figure out Canada, to understand, you know, what in fact might unfold.'
And so, we have so much policy and regulatory uncertainty and political uncertainty slash controversy, sometimes hostility directed towards the industry --the Western Canadian energy-based industry -- that it has been a factor. There's no question that markets’ supply and demand, certainly with the COVID impact, has really impacted the prices of oil and natural gas. And that's been going on actually prior, well, prior to COVID.
Tracy: Yeah, for sure.
Mac: And so, there's no question that's been a factor. But when you look through it all and you try to parse it out, there's also no question that adverse policy, hostile politics in Canada has really hurt the industry. It certainly has hurt investor confidence.
Tracy: Well, Mac, when we're talking about investment in the industry, then, why is it so important that we turn to that? Because we've seen record government spending in response to the COVID crisis. But talk about why attracting investment back to Canada is so important right now.
Mac: Well, the record spending that you're talking about is government spending. And private sector spending, of course, is going the other way. And in fact, we expect to see a deleveraging within both the consumer sector, which has, in Canada has among the highest levels of debt of any country in the world, countries in the world. That's primarily mortgage debt. And the corporate sector is also, the debt levels are among the highest in the world. And with the contraction that has occurred, you can, and with ultimately, as we come out of it, you can reasonably anticipate that there's going to be a deleveraging that occurs to some extent.
And how dominant it will be in economic terms has to be seen because there are offsetting areas of positivity and growth that are still present. But there is a deleveraging and in that kind of an environment that weighs heavily on the economy. And then with respect to the government sector spending, the spending they've been doing. What one has to appreciate at the end of the day, what we will have, even if the economy comes back 100 per cent, is what we will have is an extraordinarily high level of debt and new debt that was created to deal with the COVID problem and the loss of income. And as a strategy, as a government strategy and governments all over the world are doing this, I can see that it made sense for them. And so, I'm not criticizing that. But what I am saying is that you have the whole entire private sector in a form of deleveraging to some extent, and then the government sector has added all this debt.
But the critical point is that there's no offsetting productive asset relative to that debt that is now on the public balance sheet. It's not like a corporation that borrows a whole bunch of money and goes out and builds a new plant or new facility or makes an acquisition. However that unfolds, there's an offsetting asset. Or, even for a household, putting money into the house for repairs and maintenance, those can be at least partially explained by or looked at as investments, and you've got an enhanced asset. But there is no productive asset here that offsets the $380 billion deficit now that we're running.
Mac: And so, I emphasize it because the question for Canada is how it's going to manage its fiscal situation to be able to ultimately not just kickstart the economy and create jobs in the short-term, but ultimately to kickstart our productivity numbers and our competitiveness more into the medium- and long-term.
Tracy: Right. So, you bring up a point there, competitiveness. And that's a great lead in to kind-of the next topic that I wanted to look at, which is, Canada actually has world leading ESG [environmental, social and corporate governance] standards and performance. And so, is that not, does that not give Canada some competitive advantage to attract investment?
Mac: You know, it should, Tracy. The problem is that there's such a negative overlay and those who are opposed to the industry are almost ignoring the whole ESG story and just focusing on one factor, which you would be aware of, and that is the CO2 emissions and climate risk. And even then, what most people are failing to appreciate is that the energy transition to decarbonize is going to occur over multiple decades and even multi-generational. And the question for Canada is, what is our strategy in that kind of an environment of deep, potentially and most likely declining demand as we go into this transition? Because there is an enormous opportunity for Canada to maintain this vital sector of our economy, even if it's not growing, maintain it and ensure that it maintains, that it's stable and profitable and protected in a sense by policy and not attacked, not torn down. It's an extremely important resource, a strategic resource for Canada and for the world. And so, we need that positive orientation. And it's my opinion and people disagree with me on this, that we won't have a shift in the investment climate until we have a shift from our political leaders. And they can stand in front of the industry and speak to those positive ESG fundamentals that you referenced and really defend the industry and put it into a proper light versus advantage seeking, in a sense, within the polarization that has been created in Canada.
Tracy: Right. Mac, you're also involved in the Real Jobs Real Recovery Task Force. Did you want to talk a little bit about how this plays into that approach to recovery and what that strategy entails?
Mac: Yeah, I mean, my background is very much about vision and strategy and governance. And so, I look at these dilemmas really through that kind of lens. And it is my opinion that Canada really, on the policy side and political and policy side has really, has not been strategic. And it's like there's almost a reluctance or an embarrassment or an unwillingness to look at our resource potential truly as a strategic asset for Canada. And if it's not Canada producing these resources, the resources will get produced in other jurisdictions and these other jurisdictions do not have the same quality of governance oversight that Canada has and ESG standards. And so, from the point of view of the world, Canada really deserves to be in the market developing its resources. We really can define resource development, responsible resource development. That's our opportunity on a global basis.
And so, I'm very partial to the advantage, the natural competitive advantages that Canada has as a small population and a very, very large country and vast resources. The natural advantages that you were asking earlier. You know, why isn't our ESG enhancing those advantages? They should be, but it needs to be presented that way. We need to market ourselves that way. It's not just the industry marketing. It's our political institutions as well.
Tracy: And marketing on a global scale is what you're talking about.
Mac: Well, you know, at first, let's start marketing at home. I mean, I don't like to see political leaders, political leaders -- and I've said this many times in Ottawa --I say this all the time, actually, that, you know, what we want and need is for you to stand facing outward to the Canadian public with your back to the industry and facing outward and to kind-of speak with clarity and conviction and evidence and facts about the strengths and the achievements of our resource industries. To Canadians. Let's start with ourselves. And then naturally, that moves out publicly and globally. But the government, this federal government has been very reluctant to do that because they don't want to be seen as being associated with our resource industries. They don't really want that closeness. And it's shocking. And, you know, I'll tell you, Tracy, when we look around the world, that other resource developing countries and specifically energy producers around the world, we're hard pressed to find the level of polarization and hostility that exists in Canada. We can't really see it anywhere else in the world. The U.S. is now starting to go in that direction somewhat. But even then, you know, we just don't think, we don't see the same level of polarization we see in Canada. And so, it begs the question and people are all asking. I mean, as you would know, many people will say over and over and when I talk about this in Ottawa, for example, I always apologize. Well, before I ask this question. But would energy policy in Canada be different if the energy region straddled Ontario and Quebec? Would our policy be different? Would our politics be different? You look at Norway. Look at Norway. Norway's a sovereign country. And so, it's developing its resource and it has in a sense, you don't have the same splits within a country like Norway as you do in Canada with the regional split. And this unfortunate thing about, you know, the different political representation in different regions. And I don't think we can objectively appreciate how profound that is.
Tracy: When you ask that question Mac, what kind of answer do you get?
Mac: I have not had one person say to me, 'oh, no, it would be the same.'
Mac: And the usual response is just a smile, a smirk and, 'oh, of course, it would be different,' that kind of thing.
Mac: ‘Of course, it would be different.’
Tracy: If we look at Canada's natural gas and oil sector, we can see all kinds of ways where the industry has been innovating, continues to do so and has a track record in doing so. But do you think that industry is responsive enough and able to adapt quickly enough?
Mac: Well, I've been shocked at how some opponents of the industry have this view that the industry is not innovative. I literally have come to view the industry the way it's evolved is, that it's a technology business, it's technologically driven, and it's so reliant on technology, it really, can be understood as a technology company that's focused on resource development.
Same is true in agriculture and in mining and forest products and the way technology is, is being utilized. That's the thing about innovation is, it's generally, major innovation's unpredictable. You can't see it. And that's why a lot of people have trouble wanting to rely on innovation -- policymakers and government leaders or the environmental activists -- because they can't get a direct line to what it is that might surface on the innovation side. And they don't have enough confidence and faith in in the process of ingenuity and inventiveness and how powerful the incentives are to solve society's problems.
Tracy: Given all the work that you've been doing, looking at strategies for recovery Mac, can you point to anything, and this might not even be a fair question, but is there something you can point to as, what's the most important thing that we need to do now to enable a strong recovery for Canada?
Mac: Well, I think the most important thing that Canada could do right now is apply criteria of economic value and productivity to the post-COVID recovery plan. And, you know, for example, and I know some people have trouble hearing this, but we could go out and we could spend hundreds of millions of dollars planting trees. And I think we should actually, that should be part of our strategy or our climate action strategy. But we have to bear in mind that -- and you create jobs because people are going out and planting trees and all the related work.
But there's no long-term strategic, competitive value creation being created in doing that. There might be a little bit of an indirect link on the investment side that institutions and banks would say, 'well, Canada's really got its act together there and they have all these progressive initiatives regarding climate,' but it's minimal. And so, my point is that we need to think synergistically across a number of fundamentals and the economic fundamentals should always be there. And I think you're aware that when I talk about ESG, I always talk about economics. And when I talk about economics, I talk with ESG and I'm trying to encourage people to look at, to broaden the concept of ESG to E-ESG or what I sometimes describe as double 'ee'-s-g. And it's, we have to see these aspirations across those four cornerstones.
We need to see them as not just competing, but there are synergistic opportunities. And that's the way we have to think. So, I answered your question by referring generally to, in a sense, the process, the decision-making process relating to like, what is it we can do to support recovery? Well, if you think about it from that perspective, then when you look at the resource industry in Canada and the oil and gas sector in Canada, you see something quite different. It’s as you know, it's a huge employer. It's a huge value creator. And the governance record in the industry is excellent.
And the environmental record and I know some people are really wanting to challenge me on this, the environmental record in Canada is as good as you get in the world. We do have unique problems because we have some unique assets, notably the oil sands and the tailings ponds, for example, and then we have all these abandonment liability issues, which is a policy and governance issue. And so, we do have many problems, but we're making progress. And so, it has to be seen.
Tracy: Mac, is there anything before we wrap up our discussion that you would like to add? I mean, I feel like we could talk a lot longer about this. But is there anything else that you would like to add at this point before we wrap up the podcast today?
Mac: Well, one of the things that I just want to emphasize is that what I have found in my discussions with people, one point of understanding that kind of separates people in terms of their strategies and their policies, is this issue of how long it's going to take for the industry to go through the transition.
And the enormous amount of attention and debate relating to demand rolling over and the industry moving in to some kind of a state of total decline. And, you know, it's almost every other day some headline from a reporter written generally by people who are advocates on the renewable energy side that are calling for the death of the oil industry, it's gone, it's done. And I find that shocking. I mean, it's not that it's not possible. It's very possible. Like, I was looking at one study just this morning and it's saying that, 'well, yeah, oil, the oil industry, that's it now it's done.
You know, we expect oil demand in the 2050s is going to fall by 30 million barrels a day from one hundred to seventy.' Well, from Canada's point of view, the question is, and maybe we can just finish on this, the question is, what is our strategy and what's in the best interests of Canada and what's in the best interests of the world? Who is going to supply that 70 million barrels a day and there are still going to be declines, natural reservoir declines. And who's going to replace that production? Because I expect the amount that has to get replaced is going to be much larger than the reduction in demand, even in an aggressive transition scenario.
And why shouldn't Canada be an active participant in offering our products into that market long term? And that's, you would have heard me use the expression before, in a long-term transition, the last barrel should be the best barrel and Canada should be offering the best barrel. And that's, in a sense, is a competitive vision. It's a competitive strategy and it's a challenging strategy that's positive for the industry. It's not negative, it's not hostile, it's not tearing it down. It's how can you be the best barrel? Let's talk about that. And so, I would just end with that Tracy, and just say I appreciate this opportunity to have this conversation with you.
Tracy: Mac, I really enjoyed this discussion and I hope I get to talk to you again. Thank you so much for your time today.
Tracy: Thanks to everyone for tuning into another edition of Energy Examined. Please join us again next time.