Natural Resources Committee on Feb. 15th, 2011

[Douglas P. Bloom]

I'll just speak to my own experience here. I'm not familiar with the report you're referring to, but we have a pretty demanding regulator in the National Energy Board in terms of the regulations that we're held to. On the pipeline side, there are the onshore pipeline regulations, and we operate to those standards. The National Energy Board holds us to those standards, and they regularly audit us to make sure that we are complying with those standards.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Bloom, and Mr. Coderre.

Mr. Hoback, go ahead. You have up to five minutes.

[Randy Hoback, Conservative, Prince Albert, SK]

First of all, thank you for being here to testify.

Mr. Bloom, I'll start off with you on the gas line. Over this last year we've been hearing from the industry that we're seeing a lot of the drilling rigs moving south and that the natural gas is being developed more south of the border instead of up here in Canada.

Is that still happening, and are we at risk of seeing that capacity moving somewhere else and not coming back?

[Douglas P. Bloom]

Well, there's always a risk that we become uncompetitive or that rigs and capital move elsewhere. As we know and as we often say, capital is ultimately very mobile, so investment decisions really track the opportunities that are in front of companies. Over the last couple of years, among other things, we've seen producers drive increasingly toward natural gas plays that have a high natural gas liquid content that can enhance the value of the production. We have some of those plays in Canada, but of course we see those plays in many regions of the United States. They include the Eagle Ford and the Marcellus plays, among others.

[Randy Hoback, Conservative, Prince Albert, SK]

Of course, if we raise corporate taxes by 2%, as the opposition members proposed, that's just going to escalate that movement across the line.

[Douglas P. Bloom]

Well, corporate taxes are an important part of any company's investment decisions. Higher taxes reduce the economics of investing in a given play. Our view is that it's very important to ensure that in Canada we have a very stable and competitive fiscal environment, as well as ensuring that we have a very competitive and responsive regulatory environment.

[Randy Hoback, Conservative, Prince Albert, SK]

Of course. I agree with you 100% on that.

Cenovus is also in the refining sector. What's the advantage of refining down in the States versus refining up here in Canada? Why wouldn't we look at increasing capacity in refineries here in Canada versus the U.S.?

[Jim Campbell]

Well, Mr. Chairman, I can only speak on behalf of Cenovus. When we were considering this investment, we looked at the economics of refining and upgrading in Alberta and at existing refineries in the United States, and we found that the economics were better there.

We also found that there is an environmental benefit to refining only once. Upgrading in Canada, moving the product to the United States, and then refining there means you have to heat it twice. There's actually an environmental benefit in not doing that.

I should also point out the deal we made with our partners on the refineries. We own 50% of two U.S. refineries with ConocoPhillips, and Conoco operates them. Conoco then made a corollary investment in our Foster Creek and Christina Lake projects, which enabled us to expand those projects and provide more jobs and economic benefits for Canadians.

[Randy Hoback, Conservative, Prince Albert, SK]

A criticism that comes up is that here's another example of exporting a raw product instead of exporting a finished product.

[Jim Campbell]

I'm sorry, but I didn't get all of that, sir.

[Randy Hoback, Conservative, Prince Albert, SK]

How do you answer the critics when they come out and say we're exporting the raw product all the time instead of exporting a finished product?

[Jim Campbell]

Well, again, thanks to our commercial arrangement with ConocoPhillips, we've managed to expand our Foster Creek and Christina Lake operations perhaps more quickly than we could have alone, which has also provided economic benefits and jobs for Canadians.

[Randy Hoback, Conservative, Prince Albert, SK]

Okay.

It's too bad Mr. Flett has left, but when we look at capacity, I'm curious about the aboriginal content of your organization. How do you see that? Is it growing? Has it been steady?

Up in my riding we have a place out at James Smith that does training for aboriginals so that they can learn how to run the graders, the Cats, the Euclids, and stuff like that. Are you seeing that coming into the sector more all the time?

[Jim Campbell]

Well, we do want aboriginal communities to share in the benefits of our operations, and sometimes that means helping them out. In the one example I referred to earlier, we started out at $177,000 a year. They're now at $12 million. We worked with them to help them build capacity.

Specifically, our spend by year over the last four years has gone from $64 million in 2007 to $110 million in 2008, about $86 million in 2009, and $125 million in 2010. I think that's really good performance. You have to keep in mind that we've only been operating a commercial project for the last 10 years.

[Randy Hoback, Conservative, Prince Albert, SK]

Yes, I'd agreed with you that those are nice numbers. I think anybody can be proud to see the increase. I encourage you to keep increasing it as you're able to.

If you had any advice for us here when we look at security going forward, is there one thing that you would say that needs to be changed or addressed?

[Jim Campbell]

Cenovus is a Canadian oil sands company. We think we're very fortunate to be operating in Canada. If we had one piece of advice for anybody, it would be that there is some overlap of jurisdiction. The work the Energy Policy Institute of Canada is doing to define what a national energy strategy might look like, so that all parties—the federal government, provincial and territorial and municipal governments, the industry, and other stakeholders—work together to ensure that we have a competitive world-class industry would be what we think would ensure that Canada continues to be a leader in the oil and gas industry.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Hoback.

We go now to Monsieur Pomerleau for up to five minutes.

[Roger Pomerleau, Bloc, Drummond, QC]

Thank you, Mr. Chair.

Thank you both, especially today when communication has been making our lives really difficult.

Mr. Bloom, my first question will be short and strictly technical. Are the pipelines used for conventional gas the same as those used for shale gas? Is there a need for modifications or will the same pipeline work for both types of gas?

[Douglas P. Bloom]

Thank you.

Pipelines are designed based on the properties of the natural gas they transport. In other words, a different type of pipeline will be required, or a different type of pipeline design will be required, if the pipeline has liquids associated with the natural gas or if it has sour gas constituents such as carbon dioxide or hydrogen sulfide within the natural gas. Those are the things that really determine whether a pipeline can be used to transport gas from a different supplier.

It's not necessarily a distinction between unconventional gas and conventional gas, because we certainly have examples of conventional gas that is as relatively sweet and free of carbon dioxide and hydrogen sulfide as an unconventional play. We have other examples in which conventional and unconventional plays have very different raw gas composition characteristics. There's nothing one can really generalize about the gas compositions from conventional and unconventional plays.

[Roger Pomerleau, Bloc, Drummond, QC]

You talked about three or four places in Canada that are rich in both gas and water resources, meaning the potential for hydroelectricity.

When there is an abundance of both resources in a particular place and they are both usable, don’t you think there could be a conflict between the two? Wouldn’t it be difficult to use them at the same time, because of the significant amounts of money that would have to be invested, the people who would have to be trained and the market that might not be able to absorb the various new types of energy right away?

Do you think that having those two resources in the same place could create a conflict between them?

[Douglas P. Bloom]

It's a good question.

We certainly see circumstances in which natural gas and electricity from hydroelectric resources compete. For example, in heating applications, just to name one example, you can use either natural gas or electricity. I think in other circumstances, as we look more broadly at the energy resources we have--and in many regions, we're very fortunate to have an abundance of both hydroelectricity and natural gas--I think we can rise above looking at them as two competing sources of energy and see them as sources of energy that can create new market opportunities for us, whether it's within our own country or exported outside of our country.

They compete in certain end-use markets, but in other circumstances, we can see them as complementary, and frankly, as good opportunities for the country.

[Roger Pomerleau, Bloc, Drummond, QC]

Mr. Campbell, you work a lot with aboriginals in the places where you are developing tar sands. Tar sands could be a great opportunity for aboriginals to increase their own wealth, because of the work that you would allow them to do through subcontracts, through the operations of companies that are connected to your operations.

Notwithstanding this source of revenue, do your companies or the government of the province where you are, have a projected amount in mind for the value of what you are taking from the aboriginal lands?

[Jim Campbell]

If I understand the question correctly, I'm being asked whether we're paying a royalty to the aboriginal peoples.

We pay a royalty to the province, which is the resource owner. We work closely with the aboriginal communities to make sure they share in the benefits associated with our operations. We provide them with opportunities to work in our operations and to supply services to us, and we look to find out what they need in their communities and how we can help. Cenovus is committed to making sure our communities are stronger and better because we're there. We're an Imagine Canada Caring Company, which means we provide 1% of pretax profits to community initiatives. We look to see where the needs are and how we can help.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Pomerleau.

We go now to Mr. Allen.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you, Chair, and I want to say thanks to our witnesses for being here today.

Mr. Bloom, when you were responding to the questions from Mr. Tonks, you talked about the regulatory environment and timeliness and certainty. What do you mean by timeliness? Can you put a number on timeliness? Is it six months, a year? In your investment horizon, what do you see as the key timeline for regulatory certainty?