Teck decision to cancel Frontier rattles investor confidence, critics say

The decision by Teck Resources (TSX: TECK.B; NYSE: TCK) to withdraw its $20 billion Frontier project from the regulatory review process will further reduce investor confidence in Canada’s oil and gas industry, says an industry analyst.

“Our conversations with institutional investors had begun to put ‘regulatory hurdles’ lower on the list of concerns when looking at the Canadian energy sector,” said Jeremy McCrea, director of energy research with Raymond James.

“The announcement and the wording in yet another open letter will likely bring this concern to the forefront again, unfortunately.”

In a letter to the federal Minister of Environment and Climate Change explaining the company’s decision, Don Lindsay, Teck’s president and CEO, said the promise of Canada’s potential will “not be realized until governments can reach agreement around how climate policy considerations will be addressed in the context of future responsible energy sector development.”

“Without clarity on this critical question,” Lindsay explained, “the situation that has faced Frontier will be faced by future projects and it will be very difficult to attract future investment, either domestic or foreign.”

The timing of Teck’s decision is “not a coincidence,” said Alberta Premier Jason Kenney.

During the past two weeks, the country has been roiled by rail blockades raised by Indigenous people and other supporters of the Wet’suwet’en First Nation’s hereditary leaders. The Wet’suwet’en’s hereditary chiefs oppose the Coastal GasLink project, which would bring natural gas to a liquefaction facility and export terminal on the B.C. coast.

“This was an economically viable project, as the company confirmed [within the past] week, for which the company was advocating earlier … so something clearly changed very recently,” Kenney said in a statement. “It is what happens when governments lack the courage to defend the interests of Canadians in the face of a militant minority.”

Federal Conservative leader Andrew Scheer also pointed fingers at the federal government.

“Justin Trudeau’s inaction has emboldened radical activists, and public safety concerns are now shutting down nation-building energy projects,” Scheer wrote on Twitter.

In his letter, Lindsay noted that global capital markets are “changing rapidly and investors and customers are increasingly looking for jurisdictions to have a framework in place” that reconciles resource development and climate change, in order to produce the cleanest possible products.

“This does not yet exist here today, and, unfortunately, the growing debate around this issue has placed Frontier and our company squarely at the nexus of much broader issues that need to be resolved. In that context, it is now evident that there is no constructive path forward for the project,” he said.

“Questions about the societal implications of energy development, climate change and Indigenous rights are critically important ones for Canada, its provinces and Indigenous governments to work through.”

Don Scott, mayor of the Regional Municipality of Wood Buffalo, said he was disappointed that Frontier will not be moving ahead.

“This project represented a major investment in sustainable development in the oil sands and would have created thousands of jobs and billions of dollars in social and economic advancement opportunities for people in our region — including the 14 Indigenous communities that reached agreements with Teck — and communities across Alberta and all of Canada.”

“Our region is strong and resilient, and we continue to be open for investment and in building opportunity in a sustainable way that respects reconciliation with Indigenous communities,” Scott continued. “At the same time, as Canadians, we need to reflect on how we can address issues together in a way that creates economic confidence in a region that has given so much to so many.”

The cancellation of the $20-billion Frontier project is a major setback for resource development in Canada, according to the Progressive Contractors Association of Canada (PCA), whose member companies and workers would have welcomed the opportunity to build the project.

“We are at a crossroads with Canada’s resource economy. Teck’s cancellation culminates a 10-year regulatory process and had the support of all local First Nations,” said Paul de Jong, PCA’s president. “Canada must decide whether the rule of law and fair consultation will prevail, or a radical minority.”

“Not only has Canada missed out on major jobs and revenue, it’s signalling to investors that this is not the right place for their investment dollars,” he continued. “Those opportunities are going to more sophisticated jurisdictions that have the vision and strategic approach to get national resources projects approved and built.”

As a result of this decision, Teck will write down the $1.13 billion carrying value of the Frontier project.

In a statement, Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers (CAPP), said “this is a sad situation for Canada, and [CAPP] is disappointed Teck Resources has officially withdrawn its application to build the Frontier project. Our global reputation as a reliable, productive, nation that welcomes high-quality projects and capital investment has been further damaged.

“This is not the first major project to be abandoned, nor is it likely to be the last. This is the result of a system — where after nearly a decade of work in the permitting space, unprecedented consultation, support and agreements with Indigenous communities, and recommendations to approve from a joint review panel — a company feels it has no choice but to withdraw its application.”

“This is bigger than one project; it is a pattern of projects,” he added. “The decision speaks to the ongoing inability of major Canadian projects to succeed. Aside from yet another blow to Canada’s oil and natural gas sector, we just ask ourselves about the implications for Canadian industries as a whole. This time it was an energy project, but the next time it could affect a manufacturing, aviation, forestry or agriculture project.”

— This article first appeared in the Daily Oil Bulletin. The Northern Miner and the Daily Oil Bulletin are a part of Glacier Resource Innovation Group.