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AIMCO and Alberta's orphan well crisis
69 Plays4 years ago
With the global economy in freefall thanks to the one-two punch of coronavirus and an oil price war we explore a very relevant subject in the months and years to come – AIMCo's investments in oil and gas companies that will likely go bankrupt and drop billions of dollars worth of environmental liabilities on the public.
We have Regan Boychuk of the Alberta Liabilities Disclosure Project on to discuss the subject.
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Transcript
Introduction and Podcast Overview
00:00:15
Speaker
Friends and enemies, welcome to the Progress Report. I am your host, Duncan Kinney. We're recording today here in Amiskwichiwa Skygan, otherwise known as Edmonton, here in Treaty 6 territory.
Alberta's Environmental Liabilities
00:00:25
Speaker
And today, we're very lucky to have Regan Boycek of the Alberta Liabilities Disclosure Project
00:00:31
Speaker
on to talk about Alberta's mind-bogglingly huge environmental liabilities from oil and gas, and what exactly that means for everyone who lives in Alberta as we reckon with our legacy of generations of fossil fuel development and a regulatory regime that you would characterize generously as deadbeat dad.
00:00:53
Speaker
Um, based on what report you read, you know, we're looking at tens, if not hundreds, maybe a quarter trillion dollars worth of environmental liabilities in Alberta. And not only is that a real thing, but the other part of what we're going to talk today is, is how AIMCO, Alberta's crown corporation that's responsible for managing workers pensions is tangled up in all of this.
00:01:20
Speaker
But before we get to the expert, I think we're going to test drive out a new kind of way of introducing our pod. And I think we're just going to have producer Jim and I kind of riff off the top, introduce what it is we're talking about, and kind of just go over a few concepts and things that might not need to be covered over by our guest. But we think that it's important for you to know about. So producer Jim, welcome.
COVID-19's Impact on Alberta
00:01:41
Speaker
Hello, hello. So, Jim, I mean, I know you've just come back from a round of bronchitis. How do you feel about coming back just in time for coronavirus to shut down the world economy and Alberta's economy?
00:01:54
Speaker
Well, I mean, I didn't need the practice. I've been social distancing my whole life. It wasn't great practice either because I was sick while everyone else wasn't. I mean, when Corona hits, I am not going to be able to live off Skip the Dishes every meal. Yeah. I mean, you can try, but I mean, it's, uh, I might have to start paying you more if you want to live strictly off Skip the Dishes, but.
00:02:14
Speaker
I got paid sick days, which is better than most folks in Alberta are getting. The locations where people can't afford to take unpaid sick days, like grocery stores, senior care facilities,
00:02:30
Speaker
retail places, malls, etc. Daycares. Daycares, yeah. These are places where it's incredibly dangerous to have contagious people. And I think it's a real dangerous situation we're looking at, especially with regards to the senior care facilities. You got people out in these privatized rural locations working for like
00:02:51
Speaker
$15, $16 an hour understaffed already. Duncan, do you remember the CBC report from back in January about that woman in Viking who passed in her senior care facility? Because they literally weren't bringing her water to drink.
00:03:06
Speaker
It was privately runged. She had bedsores that got infected or something. Just awful stuff. Yeah. Totally.
Oil and Gas Industry Challenges
00:03:13
Speaker
Absolutely heinous. Now think about those understaffed facilities dealing with a really lethal to seniors pandemic rolling in.
00:03:25
Speaker
While the workers themselves are sick as hell because they can't take days off We're gonna see some pretty unpleasant Death rates. Mmm. Yeah, I know I mean this episode isn't about coronavirus But when you look at what coronavirus is doing to Alberta Alberta's budget Alberta's economy And you layer it on top with this Saudi Arabia Russia kind of price war It really is pretty fucking dire right and it is really pretty fucking dire for
00:03:55
Speaker
A lot of the companies that we're going to be talking about today on this podcast, Alberta's conventional oil and gas industry is already doing very poorly. There's really no way to sugarcoat it.
00:04:11
Speaker
This is a problem because Alberta's conventional oil and gas industry is the part of Alberta's economy that owns and operates all of our mature oil and gas infrastructure. We are going to get a very clear example of why it is so bad.
00:04:26
Speaker
to privatize all of the profits while handing all of the risk to the public. That risk is being called now, you know, cards on the table, and we are going to be the ones left holding the bag. Yeah, we are very likely to see bankruptcies royal through this industry, right? And when companies go bankrupt, their oil wells
00:04:46
Speaker
And the responsibility to clean them up goes to the state, and eventually right now they go to the Orphan Well Association, which is ostensibly this industry funded group. But by all analysis and accounts, the Orphan Well Association has nowhere near the amount of resources on hand to actually handle
00:05:03
Speaker
the problem and so you know this was just in the last budget actually Jason Kenny allocated a hundred million dollars in a as a loan to the orphan well association and and and I know you had some thoughts on that in the last newsletter right that's it's ridiculous it's a that loan is never gonna get repaid so I mean we are just paying to clean up the messes that these these shareholders and board directors and so on have left us you know people like
00:05:33
Speaker
Bred W. Bred Wilson. And so this is what is facing us, right? You know, AMCO, the Crown Corporation responsible for managing Alberta's public sector pensions, is deeply invested in oil and gas companies with massive environmental liabilities. And we're gonna get into the complexities of that, of those, what those relationships are, because they're like, mutually beneficial and parasitic. Whatever it is, it's all bad for us. And the other thing is that Kenny is now talking about using public money to invest in oil and gas.
00:06:03
Speaker
Right. He's very he's got like like two days before the budget came out. He was like, oh, yeah, by the way, we're going to we've got we're working on a plan and we're going to invest God knows how much money in publicly investing in oil and gas companies. The fact that these things, you know, the coronavirus slash price war has happened, I think are only going to intensify that for Kenny. And so it's worthwhile to consider what aim Co has done on this case. Right. There was nothing the reason why and the reason why it's worthwhile to consider aim Co is that there was nothing in the budget on this.
00:06:29
Speaker
So where is the money going to come for these plans that Jason Kenny has? I mean, I think we have to look at all of the empire building happening with AMCO and say that it's going to be coming from workers pensions, right?
00:06:40
Speaker
It's going to come from us, you know, ultimately. Whether they dump a bunch of pension money into it or whether they just run up the deficit and then cover that by cutting services down the road. Both sides of this crisis are just full-on shock doctrine, right? On the corona side, our healthcare system is going to get completely overwhelmed and they will use that to call for more privatization.
00:07:04
Speaker
And on the orphan well liabilities side, they're going to use that to call for more handouts to these corporations, more tax breaks to these corporations.
Environmental Liabilities Disclosure Project
00:07:14
Speaker
I mean, look who they just appointed to chair their panel to come up with a response to the price crash.
00:07:22
Speaker
imperial loyal board member, Jack Mintz, tax break crusader. This is not a guy who is going to advise that the government, you know, implement a wealth tax and sell government bonds or even invest in infrastructure, right? Or even invest in like Keynesian like stimulus spending. Right, right. The stimulus, air quotes behind the mic that he is going to advise is just tell them they don't have to pay as many taxes.
00:07:51
Speaker
Yeah, it's not very encouraging. But enough of us kind of opining on this issue. We're very lucky to have Regan Boychuk of the Alberta Disclosure Liability Project on today to talk about the unfunded oil well environmental liability crisis and AMCO's complicity in it.
00:08:10
Speaker
The ALDP is a very interesting organization. I encourage you to look them up. We'll have their URL in the show notes. Their mission is to ensure that the Alberta government no longer neglects its obligation to collect and disclose accurate, independently verified information about oil and gas liabilities.
00:08:26
Speaker
And their aim is to ensure that all political parties make clear commitments to address this urgent and ongoing issue. They're a really fantastic org and Regan has been kind of sounding the alarm, dealing and talking with landowners and digging into the data on this issue for years now. So there really is no one who's more knowledgeable on this issue than him. So let's get to his interview. Regan, welcome to The Progress Report. So nice to have you on.
00:08:51
Speaker
So we kind of talk on the phone from time to time, and you seem to be a pretty regular working class dude. I call you when you're waiting for shingles to show up for your roofing gig. But you also seem to have stumbled into one of the biggest stories that is going to affect Alberta over the next 20 to 30 years, and that is this unfunded oil well environmental liability crisis. How did you actually get into this?
00:09:19
Speaker
Well, indirectly over a period of time, I'm not just a roofer, I'm also a political scientist and I've been an independent researcher here in Alberta for a long time. I've been studying the oil and gas industry in Alberta for more than 15 years and in the course of that I've
00:09:39
Speaker
made it been able to make a couple insights in my spare time. And initially, the first ones are around profits and royalties, how much we get paid for the oil and gas that's produced here. And eventually, that led to the issue of old wells and what we're going to do to clean them up and the potential it has to put people back to work in these tough times.
Exploring Environmental Liabilities
00:10:01
Speaker
And so the more I dug into it, the more I learned of the scale, and the more I learned about how the two issues that I'd been researching for 15 years were intimately connected. And that these old wells was actually the reason why I'd been watching royalty rates get lower and lower over the last 15 years in Alberta. I watched it, but couldn't explain it.
00:10:24
Speaker
And after the last Royalty Review lowered royalties even further, I was looking for an outlet for all the researchers and all the research I was working on and shifted my focus to old wells as a way to put Albertans back to work, but didn't really know what I was getting into until I got quite a bit deeper and realized how big and bad of a problem it is.
00:10:47
Speaker
And you are in a different, you know, you're in a bunch of different spaces, right? Like academia and activism, but then you're also out there like talking regularly with like conservative as hell, like rural landowners who are, you know, whose politics they, I mean, they're probably definitely voted for the UCP, but they're also definitely like mad as hell about having, you know, leaking and old oil and gas infrastructure on their land. And there doesn't seem to be any plan from government on it or industry on how to clean it up, right?
00:11:15
Speaker
Yeah, it's true. I've learned a lot of what I know about this from landowners, from farmers and ranchers all over the province who've been dealing with these issues firsthand for decades and learned a lot from them, politics aside, lots of interesting and
00:11:35
Speaker
interesting characters across Alberta and there's some I may be a roofer but I've got some other tricks up my sleeve and so do a lot of these farmers pretty impressive characters politically they've always leaned right but this is an issue that affects them it's been simmering for decades and is really boiling over at the moment in Alberta for right-wing conservative farmers are calling for sabotage
00:12:03
Speaker
Rural politicians are in open revolt against the province and it's really really quite a political moment here now It certainly seems like it is a time like like a moment in time right now where this is coming to a head and I know this is a really big subject, but can you give us like a five-minute Coles notes version of You know the unfunded oil well environmental liability crisis, you know, what is the problem? What is the scale of the problem? you know who is ultimately
00:12:31
Speaker
Ultimately, who's responsible for cleaning them up? How are they failing in that kind of regard? Kind of walk us through it for someone who's only kind of maybe passingly familiar with it.
00:12:40
Speaker
Right. So we drill lots of oil and gas wells across the province over many years, but the license for every one of those activities comes with the legal and moral responsibility to clean up when you're done, to return the land to near the state it was before you started. But there's a flaw in that system that regulators and politicians are generous to industry and we let polluters pay as they go. We don't require them to set aside a bunch of money for the eventual cleanup
00:13:10
Speaker
upfront, because that would take money out of circulation, they could better spend it on other daily operations, they argue, and out of generosity and an effort to stimulate economic activity, we let them pay as they go. The problem is, you let them go too long, and there's no money for the cleanup. And that's essentially where we've gotten Alberta. We've been drilling oil and gas wells for 100 years.
00:13:34
Speaker
Most of that time, there was little to no environmental regulation. It wasn't a major concern until the 80s and 90s when rules were really tightened up. Just to jump in for a sec, I know that we had the Medicine Hat newsboys on a couple weeks ago, and they told me that back in the day in Medicine Hat, you would just dig a well for natural gas in your backyard back in the day.
00:14:00
Speaker
It is. There's a great series in the Edmonton Journal in 1992 about a brief window of cleanup activity we had in Alberta. And they talked about the old days. Up until the sevens, they said, nobody really cared much about the environment. Spills or leaks were the cost of doing business. You just bulldozed them over and carried on. The important part was
00:14:21
Speaker
Getting the oil out of the ground and getting paid for it. So for a long time, those environmental concerns weren't big. But once we did start to take them seriously, we never made the tough decision of getting industry to set aside money for the eventual cleanup. And so what's happened in Alberta is we've drilled hundreds of thousands of wells over many decades.
00:14:43
Speaker
And there's essentially zero dollars in the bank to clean it up. And the reason Rufr spends all of his time working on this issue is because the previous work I did on profits. And outside of the oil sands, I tracked the profits in Alberta for the last 50 years. And so I know something happened that's quite significant that no one wants to admit here in Alberta.
00:15:07
Speaker
But in 2010, outside of the oil sands, the Alberta oil and gas industry started losing money, started spending more on fracking than it got out of the ground. And so not only have we accumulated many decades and hundreds of thousands of wells that need to be cleaned up,
00:15:22
Speaker
And we haven't saved any money for it. We've allowed the industry to continue operating past the point of profitability. And so for the last 10 years, the industry has racked up more than $50 billion in losses. And so it causes a real dilemma about who's going to pay to clean up this mess that's accumulated.
00:15:41
Speaker
Give me a sense of the scale of the problem. How many wells are we talking about? What is the probable dollar figure that you've estimated or that the regulator has estimated that it's going to take to clean it up?
00:15:53
Speaker
Well, there is an enormous amount of oil and gas infrastructure in Alberta. There's about 450,000 wells have been drilled, about 100,000 of them have been cleaned up, but there's still three or 400,000 wells that need to be cleaned up today or eventually a sizable undertaking that could easily exceed $100 billion in eventual cleanup. In addition to that, there's 100,000 oil and gas facilities, things like tanks farms and compression stations.
00:16:21
Speaker
all over the province, and that's tens of billions more. There's 400,000 kilometers of pipeline that needs to be safely retired, and that's before we even get to the oil sands. So it's enormous. The regulator who manages it all, they have two estimates. They have a public one.
00:16:38
Speaker
And they have a private one. They did an internal study a year or two ago questioning those public estimates that they stand behind publicly, the public estimate for everything, the oil sands, coal mines, pipelines, the wells. The public estimate is $60 billion in cleanup. And so that's all they're trying to protect us from.
00:16:58
Speaker
They're doing a bad job of it. We only have a tiny fraction of that held as security. The public is at risk of funding the rest of it if the industry disappears into bankruptcy. But the real problem is the internal estimate. When the regulator looked at things closely, they came to a bigger number, $260 billion, as a minimum.
00:17:22
Speaker
And so that's the scale of this. I mean, they're all their elaborate estimation. It's in the end of the day, it's a guess. We're talking about an absolutely enormous number for which we have nothing in the bank and the polluter has already been losing money for a decade. And so we're running out of time if the polluter is actually going to pay.
00:17:42
Speaker
I mean, the Kennedy government just gave this much-ballyhooed $100 million loan to the Orphan Well Association. This is the industry-funded, industry-funded, in quotes, group that is ultimately responsible for cleaning up these wells. I mean, $100 million you're talking about.
00:17:58
Speaker
$60 billion at a minimum, but something more like $260 billion, $100 million, who gives a shit? It is a drop in the bucket. It's going to create 500 jobs, might clean up 1,000 wells according to the government's own estimates for whatever they're worth. That's welcome, but it is grossly inadequate for the scale of the challenge.
00:18:23
Speaker
That's kind of at the root of this. The problem is so big, we have a lot of trouble just facing the simple facts and looking for an easy way out. Leveraging private money by simply lending it to them is a cheap way to stimulate jobs.
AIMCO's Investment Controversies
00:18:41
Speaker
But if we are going to clean up 300,000 wells before it's too late, the scale, the spending required is in the billions every year.
00:18:49
Speaker
And that means billions of dollars in job creation every year. There's no retraining, no relocation, no capital costs involved in the cleanup. It's the same folks that are sitting around unemployed today on sale that are required to do the cleanup work. And so there's enormous economic opportunity, but it requires the political will to hold the industry accountable. And that is sorely lacking in Alberta.
00:19:17
Speaker
I mean, it does require us to kind of reach for the brass ring there. Okay, I think you've set the table for what we are dealing with when it comes to the unfunded environmental oil well of liability crisis. The other kind of head of this two-headed snake is AMCO.
00:19:33
Speaker
And I'll give a bit of background on AMCO, and if you have anything you need to add or if you think people need to know about, please jump in. But AMCO is, this is a Crown Corporation. It was created under the STELMAC regime. It's not that old. It's like 11 or 12 years old. And it was created to manage the pensions of Alberta's public sector workers. Pensions, just to reiterate this, and I say this any time I bring up pensions,
00:19:55
Speaker
So, pensions are the deferred wages of workers. They are a section of wages that has been set aside to give back to the workers when they are no longer able to work. Okay, so if that's what pensions are, that's what AMCO is, why should we care about this?
00:20:12
Speaker
Kenny has been empire building with AMCO, and it should be making anyone who has a pension managed by AMCO very nervous. First, he transferred over the Alberta Teachers Retirement Fund over to AMCO's control. This was done over the objections of the teachers, done for no good reason, really, I think they say cost savings. But the funny thing is that the ATRF, the Alberta Teachers Retirement Fund, was actually far better at managing the investments of teachers over the years than AMCO has been at managing their own investments.
00:20:40
Speaker
And so teachers were not very pleased with that. You know, under the NDP government, the pensions, the public sector pensions won the ability to leave AIMCO if they so desired. This is kind of a key feature of like of actual customer service. Like if you've got a pension fund manager that is managing your pension for you and they're doing poorly, the ability to leave is actually a pretty big stick that you have as a pension as a pension.
00:21:07
Speaker
that you can use on your pension fund manager. That stick is now gone. And finally, the kind of last, most important part of this empire building is Jason Kenney and his kind of proto separatist talking points, his fair deal for Alberta stuff. And one of the big talking points that he uses in this fair deal for Alberta rhetoric is taking Alberta out of the Canada pension plan and taking the money that is Albertans in that context and transferring it to AIMCO.
00:21:33
Speaker
Okay, so that's what AMCO is. This is the empire that Kenny is building around AMCO. Why would he do such a thing?
00:21:42
Speaker
And I mean, it had been signaled through proxies. You know, Danielle Smith was on some national television broadcast talking about this. You know, unnamed government officials were floating this to Don Braid in columns. But just a few days before the budget, Jason Kenney was out on his hind legs telling the public that due to, you know, circumstances, the cancellation of the tech oil sands of mine, the Wetsuit and solidarity blockades, any reason he kind of brought up at the moment,
00:22:12
Speaker
Justin Trudeau is being so mean to us that we're just going to have to sink public money into oil and gas projects. And he promised details on that at the end of the month. Okay, so whatever. Sure. I mean, take it what you will. I mean, conservatives, you can make a lot of jokes about the principles of conservatives and the ideology of conservatism.
00:22:33
Speaker
and that being totally hollow and false, but okay, if that's what you're gonna do, sure, then the budget comes out, and there's nothing in the budget on this. There is not a dollar set aside in the budget for what Kenny just came out and told the media was gonna happen. So where is that money gonna come from?
00:22:50
Speaker
I mean, the natural conclusion here is that money is going to come from pensions. And there are processes and mechanisms that would allow him to do so. So yeah, so there are mechanisms that would allow Jason Kenney to set aside pension money to essentially indulge in this publicly owned oil and gas project that Kenney is speculating about.
00:23:13
Speaker
Okay, so there we go. We've got the two setups that we needed to get out of the way. We've got what the hell is wrong with our unfunded oil well environmental liability crisis and what the hell is AMCO and what the hell is AMCO up to. And this is why it's so important to consider AMCO's prior investments in oil and gas.
00:23:32
Speaker
And we've done a bunch of research on this, and we have turned up some extremely troubling trends when it comes to AMCO's investments in the conventional oil and gas and oil field services sector. So, okay, so before we even get to that, AMCO is very upfront about the fact that they are heavy or they're long on Alberta.
00:23:55
Speaker
Um, you know, AMCO CEO Kevin Ublin has said out loud to the standing committee on the Alberta Heritage Savings Trust Fund on June 21st, 2019, he said, and I quote, in fact, 8% in Alberta from our perspective is a pretty massive overweight against Alberta's representation in the total economy, which is closer to one half percent.
00:24:16
Speaker
So you might think of that as a 7.5% overweight. We're very comfortable with that overweight because, as Dale has already said, I won't be redundant, we see a lot of good investment opportunities in our own backyard. Frankly, we have in some instances, not all but in some, a home-field advantage. We understand the marketplace around the block and across town better than we might understand the marketplace in far-flung places."
00:24:41
Speaker
And we also had Kevin Ubline on Bloomberg, television, May 28th, 2019. Quote, we have an overexposure, if you will, or a long exposure to Alberta overall, but we think that's quite natural because we have insights and we can evaluate transactions that are closer to home. Okay, that's the end of that quote. I mean, I don't know how you can interpret that, Regan, as anything but like, EMCO has a lot of oil and gas investments.
00:25:10
Speaker
Very risky, very risky investments at that. That's a big part of the problem when you're talking about Alberta oil and gas. You're talking about an industry that hasn't turned to profit in a decade.
00:25:22
Speaker
And you might assume there's all sorts of wonderful investments he'll be able to find if AMCO is directed to invest in oil and gas, like Kenny says. But we've already played this game before. The NDP invested up to 3% of the Heritage Trust Fund, which is over half a billion.
00:25:43
Speaker
into what they call the growth mandate into high growth stocks and What that meant in reality was oil and gas stocks they moved a couple of real estate assets into the portfolio But at least two out of three dollars was spent on fracking companies and oil and gas companies from 2015 forward during these tough times and so we have a we
00:26:07
Speaker
other than a couple of AMCO executives' word, we have examples of them trying to find profitable investments in Alberta oil and gas at the direction of politicians. And when we take a look at all the investments that were made under that, the companies they invested in, and how those have played out, and what the character of those investments were,
00:26:27
Speaker
It should be very troubling for Albertans whether or not they have a pension. It's bad enough that we are gambling our deferred wages on risky things like oil and gas when we're talking about long-term investments. But even before we get to that,
00:26:45
Speaker
The AIMCO, when directed by government, wasn't making productive investments for society. Their typical investment was a high-interest loan of last resort to a company who was unable to borrow anywhere else. And that loan was typically used to pay back other debtors. It's not exactly the most productive investment of pooled resources one can imagine, even before we talk about the risk involved.
00:27:13
Speaker
or those investments were used to do share buybacks, or to create dividends, or to relocate operations to other countries. I mean, we've got examples here that we'll go into that we have details on that are extremely troubling. And a bit more detail on what you're talking about. So yeah, the very, very first budget that the NDP brought in, part of that budget was the Alberta growth mandate. And I think we can all agree that governments should not be telling pension fund managers what to do, but in this case, the NDP did, I think it was a mistake.
00:27:39
Speaker
Yes, 3% of the Alberta Heritage Trust Fund was allocated to this Alberta growth mandate, and it was essentially an invest local thing. You're right. Of the $406 million that had been invested under the growth mandate, nearly $270 million of that, or two-thirds, went to oil and gas investments. They went to companies like Kalfrack Well Services, Pine Cliff Energy, Razor Energy, Kinder Morgan Canada, hilariously. They actually probably did pretty well on that investment because
00:28:06
Speaker
because the federal government overpaid so much for it, a trident exploration, a company that went bankrupt, a perpetual energy, a company we'll talk about later. The only reason we actually know about these investments, Regan, is because there's a little more disclosure that's involved with Alberta Heritage Savings Trust Fund investments than what you get out of AMCO. AMCO is a black box. You get an annual report in one meeting a year with the senior management that's on the record with the committee.
00:28:31
Speaker
And that's it. And their annual report does not have a lot of detail in it. And so the only reason we were actually able to get this information is because of reporting around the Alberta Heritage Savings Trust Fund. And why don't we just go into some of these investments? Why don't we start off with a very prominent one, one that people may have heard about, a company that went bankrupt last year, Trident Exploration Corp. Inco invested $12.3 million from the Heritage Trust Fund into Trident as part of the Alberta Growth Mandate.
00:29:01
Speaker
But then they also did this thing that has become a habit for them, which is that once they get under the hood of these companies with one of these heritage trust fund investments, they start, essentially, as Regan was saying, they become this lender, this lender of last resort, high interest loans. And in August 2nd, 2017, tried to announce that it had secured a $60 million credit facility and an annual interest rate of 7.15%.
00:29:29
Speaker
Then, less than two years later on May 1st, 2019, Trident went bankrupt, leaving behind substantial environmental and cleanup liabilities. I know the media estimated it to be $329 million, but I think Alberta Liabilities Disclosure Project had that analysis much higher. Do you remember that number off the top of your head, Regan? Yeah, the simple multiplier could easily be in the range of a billion.
00:29:55
Speaker
So like one company, a billion dollars worth of environmental liabilities, and AMCO was listed as a creditor for more than $60 million in Trident's receiver to ship documents. So they were $60 million into, AMCO was $60 million into Trident. Just incredible stuff. Okay, so another one that I think is worth bringing up. Pine Cliff Energy. These are primarily a gas producer, natural gas producer. They received $6.3 million in direct investment from the Alberta Heritage Trust Fund as part of the Alberta Growth Mandate.
00:30:24
Speaker
as well as further investment in high-interest loans. And when you look at it, the terms of their debt, $49 million worth of debt that AMCO had extended to Pinecliffe was recently renegotiated, just came out at the end of February, beginning of March, that the terms of that debt had been pushed two years into the future. And according to a June 2019 Bloomberg report, AMCO owns around 5% of Pinecliffe energy might be higher now, depending on the terms of that renegotiation.
00:30:53
Speaker
The share price when Inco initially invested in August 2016, $1.03 a share. The share price as of today, do you want to make a guess, like a over-under guess there? Do you think it's more or less than a quarter, Regan? Less.
00:31:11
Speaker
I think it's less than 15 cents. But more or less than 15 cents. Could be less, yes. Yeah, more or less than 10 cents. I'll stick with the trend, less. All right, it is. It's 6.5 cents a share at the moment. Again, remember the initial share price was $1.03 a share.
00:31:33
Speaker
Okay, let's dig into another one of these companies, Journey Energy. AMCO is substantially invested in Journey Energy. They are a mixed junior oil and gas producer. AMCO owns more than 18% of Journey's outstanding shares according to a September 2019 press release from Journey.
00:31:49
Speaker
They received three separate investments through the Heritage Trust Fund. These come up to $12.8 million, but again, Journey Energy has also received substantial high-interest loans, and the terms of those repayments have been renegotiated at least once.
00:32:06
Speaker
More troublingly, in 2018, it was announced that AMCO financing was being used for a share buyback, and we're going to have all this stuff in the show notes. But again, I don't think under the terms of this Inves local mandate that AMCO should be giving money to an oil and gas company so that they can buy back their shares to the benefit of the existing shareholders. That strikes me as way out there. No doubt.
00:32:30
Speaker
And, okay, in October 2016, when the original investment in AMCO occurred, the share price was $2.05. Any guesses on the share price today? We won't do the higher or lower. I'll just pick a number out of the air. Well, they must have made money somewhere, say $3.00. No, the share price is 42 cents a share. The price has gone down by more than $1.50 a share from the original investment.
00:33:00
Speaker
I gotta do a couple more of these because again, it is incredible.
00:33:04
Speaker
On January 31, 2017, Razor Energy received a $7.2 million investment from the Heritage Fund via the Alberta Growth Mandate. At the very same time, it also received a $30 million loan at 10% interest. The funds, according to the news release from Razor, were used to purchase additional oil and gas assets in the Swan Hill region. And as part of this financing deal, EMCO ended up acquiring 10% of Razor Energy. Okay.
00:33:33
Speaker
Then there was a further investment 15 million dollars in loans to razor on the same terms and Later that year in 2018 razor announced that it would begin paying a dividend This is a tiny company hardly any cash flow hardly any profits on the books, but they were they were gonna start paying a dividend Okay, whatever in February of this year fate razor announced that they were suspending their dividend and
00:33:57
Speaker
And again, the share price for Razor on the initial investment in February 2017, $3.21 a share. The share price today, $0.14 a share.
00:34:12
Speaker
I mean, I could do this all day, and we could literally just be going through these investments one by one. I think that's enough for now, but there is one that I do want to bring up that I think is very important, and that is perpetual energy. Regan, what can you tell us about perpetual energy and their involvement in the kind of unfunded oil well environmental liability crisis?
00:34:33
Speaker
Well, perpetual played an important role in an important episode under the previous government. When the previous government came in, they're facing the flagship industries in very dire straits.
00:34:50
Speaker
And so they have tools at their disposal that they want. They don't want industry to fail on their watch. It wasn't their fault. They didn't create the problem. They just inherited it. They want to delay the consequences. And so they used Alberta Treasury branches to extend loans to smaller local companies. They used AMCO to invest money in smaller local companies.
00:35:12
Speaker
Chinese investment to join in this game. And Perpetual is one of them who sold thousands of wells to a Chinese outfit that came in buying up these old and new active wells. Perpetual sold Sequoia 2300 wells for $10.
00:35:32
Speaker
and came with a sweetheart deal, came with hedged contracts that paid above market value for the natural gas these wells produced for 18 months. When those above market prices ran their course after 18 months, Sequoia went bankrupt.
00:35:49
Speaker
They weren't legitimate businessmen trying to turn a profit in tough conditions. They were buying up garbage for a song, looting what they could, and then walking away from it in bankruptcy. And now it's tied up in court. The receiver for Sequoia PricewaterhouseCoopers is trying to reverse that sale. They're trying to send those wells back to perpetual.
00:36:10
Speaker
Perpetual isn't a terribly big producer. I think they're worth $40 or $80 million in market cap. But these wells they sold for $10 have a cleanup value associated with them in the hundreds of millions of dollars. And so not only could Perpetual not have afforded to clean them up, they sloughed them off for $10 to some dishonest foreign investors to loot them.
00:36:35
Speaker
In the meantime, and when they went broke, that is what the law says. That is how it's supposed to work. These wells should be returned to their previous owners who are then responsible for cleaning them up. But the system's broken in Alberta and the orphans don't go back to their parents. There is a lawsuit.
00:36:52
Speaker
trying to force that but it's tied up in the courts for years and that's the root of the problem is we let companies get rid of their garbage for a fraction of a dollar to companies that never have the ability to clean it up and Perpetual was part of that episode that saw more than four billion dollars in Chinese investment come in and buy up
00:37:16
Speaker
failed companies and garbage assets and they had a they had a nice run for a couple years but their Sequoia went broke and a number of other ones have wasn't a long-term legitimate business strategy it was looting and perpetual played a big part in that
00:37:35
Speaker
and what is the current status of the lawsuit you know uh... there's they've been uh... i'm a lot of it was thrown out uh... first time it came before judge uh... the the estimates are it's gonna be tied up for between two to five years uh... and i'm i'm i'm not terribly convinced uh... it's a real serious effort to reestablish that ability to send wells back to the previous owners uh... i have trouble believing that uh... the industry and their accountants that that's their objective uh...
00:38:02
Speaker
I would think it much more likely that the reason it's tied up in court is to keep it tied up in courts so that no less reliable hands start pushing this issue, trying to push wells back to previous owners, like the law says. And in order to avoid that, it makes a lot of sense to tie it up in the courts, to rag the puck for two to five years while the game can carry on.
00:38:28
Speaker
Yeah, it's cheaper to pay lawyers, right? The AMCO angle on this is that perpetual energy received an investment of just over $10 million from the Heritage Fund via the Alberta Growth Mandate in February 2017. And then in March 2017, just a month later, AMCO announced a significant investment on top of that, $45 million worth of debt and millions of shares acquired at $1.75 a share.
00:38:56
Speaker
The share price as of today for perpetual energy is three cents a share. And this investment, I'd have to go back and look at the timelines, but I'm like 92% sure that this investment by INCO came after the details of the lawsuit against, or Sequoia's lawsuit against perpetual came to life, right? It came after the sale. And so the reason perpetual looked attractive is because they just ditched hundreds of millions of dollars off their balance sheet for 10 bucks.
00:39:25
Speaker
And then made them more attractive, AMCO steps in, but Perpetual faces the risk that that sale could get reversed. It should get reversed. And then AMCO's already lost plenty of money on their perpetual investment, but they stand to lose much more if the orphans come home.
00:39:45
Speaker
Yeah, just wild stuff. You go back and you look at all of this. Every single investment made by AMCO in a publicly traded Alberta oil and gas company done via this Alberta growth mandate has seen the share price of that company go down after the initial investment.
00:40:02
Speaker
Okay, that sucks. And it's not that they're uniquely inept. It's just the state of the industry. Despite their best efforts and their local knowledge, they can't find a winner. That should tell us all something. We should be concerned about the state, about the maturity of our industry.
00:40:23
Speaker
Exactly. And then you layer on top of this the environmental liabilities on these companies' books that AIMCO has invested in. And AIMCO didn't start this unfunded oil well environmental liability crisis, but they certainly seem to be culpable in it.
Regulatory Failures and Legal Issues
00:40:40
Speaker
Just by their very actions of investing and then floating these loans and then renegotiating the terms of these loans and kind of keeping these zombie companies alive, it seems like they're entangled with all this.
00:40:54
Speaker
Absolutely. They're helping to perpetuate it. The objective of a Ponzi scheme is to keep it afloat as long as possible. And because regulators have been so captured in Alberta and are not being duped around these issues, they are long since complicit. The industry is in a systemic crisis and the regulators' incentives flip. Their objective is to keep it hidden under the rug. And that's how we got to this point.
00:41:23
Speaker
And we're doing everything we can to keep the Ponzi scheme afloat. We're lending them as much money as we can. We just learned from Reuters yesterday that Canadian banks have dramatically increased the oil and gas loans over each of the last three quarters. It's not going to look, after Monday morning, it didn't look like such a sharp investment. And that's what we're doing, is throwing money at these failed companies to keep them afloat. But it's a fool's game.
00:41:48
Speaker
They're unprofitable. They're never going to be profitable again. We need to stop throwing good money after the bad, trying to keep them afloat so that we can hopefully escape any blame for the inevitable collapse of these companies. But there's AMCO playing with our pension dollars to try to keep the game afloat.
00:42:07
Speaker
If EMCO is losing their shirt on these equity investments, just purely on share price value for these companies, maybe they're making it back on this private equity, vulture capital, high interest loan game that they're playing. Something like this price shock is going to come along, it's going to wipe out a bunch of these companies, and they're just going to be left holding on to EMCO just going to have millions of dollars of worthless debt that they're never going to be able to collect from bankrupt companies.
00:42:32
Speaker
They're strip mining these companies. They're stripping them clean. Simultaneously, at the end of the day, it's going to be the public and Albertans that are going to be responsible for cleaning up their environmental liabilities, not AMCO. That's right. If the polluter doesn't pay, the taxpayer will.
00:42:51
Speaker
Yeah, and I don't want to get into red water. I don't want to spend a lot of time on it because I know you end up, when you do media like on this issue, red water comes up all the time. But maybe kind of just briefly talk about why the red water thing doesn't matter as much as kind of people tend to think it does and why it really just comes down to a regulator that's not doing its job.
00:43:13
Speaker
Right, so the Redwater case grew out of banks hoping to escape cleanup. When a company went bankrupt, the regulator can ask them, can force them to clean all sorts of stuff up. And according to the law, that would come before even secured creditors like banks get paid back, whatever they wrote. Banks didn't like that, so they tried to escape that cleanup. They made the argument in court that
00:43:40
Speaker
If a company goes bankrupt, if there's any contaminated sites or anything that's going to be expensive, we can just disown it. Anything that doesn't contribute to the value of the company, we can just disown it. We'll take everything of value, sell it, and pay ourselves back. They made that argument in lower court and appeals court in Alberta and won.
00:44:00
Speaker
took the Supreme Court to sort it out properly to make it clear that regulators aren't creditors. They're not debtors who get in line at the end of the day. They enforce public rules. The regulator's not a creditor. And the Supreme Court reestablished the point that was established by courts 30 years ago that cleanup comes first. Regulators can make you clean up anything, even if you're bankrupt. It comes before the banks.
00:44:27
Speaker
The reason that decision hasn't been of great consequence is because it's changed nothing. The banks have changed nothing about the behavior. In fact, so that decision is a little over a year old, and we just learned from Reuters yesterday that Canadian banks have increased their oil and gas loans in each of the last three quarters. So not only has the red water decision had a, it hasn't cut off lending
00:44:54
Speaker
It has increased lending. It has the opposite effect of intended. And so the reason red water decision didn't change anything is because the regulator here in Alberta has always had the power to make people clean up whatever it wants. But the red water hasn't changed the fact that our captured regulator doesn't want to make industry clean stuff up.
00:45:16
Speaker
And so they haven't been doing it, and they didn't start doing it after Redwater, so we're left in the same place we were. We have a regulator that lacks the will to hold industry accountable. Yeah, we're left with a regulator that wasn't doing anything in the first place, and this decision from a judge didn't change anything when it came to the political will of the regulator to actually start doing what it was supposed to be doing.
00:45:39
Speaker
But I want to come back to AMCO in that AMCO making poor decisions isn't necessarily a novel thing for them. I mean, they're a relatively new organization, 11 or 12 years old, started in 2008. And they've made some shockingly poor decisions when it comes to financial and political risk over the years. And it has kind of borne out in their investment performance, LEPP, which is the local area pension plan, is the largest single public service pension plan in Alberta. AMCO has never met
00:46:09
Speaker
lapse benchmarks for performance over the entire term of its existence. Why that is, it's a big pension fund manager. They have a lot of investments, but it's worth pointing out that they've never beaten the LAPPs benchmark for performance over its entire existence.
00:46:28
Speaker
But one of the things that might have affected its performance over the years, and I just want to highlight a few of the huge fucking gaffes they've made over the years, which kind of speak to AMCO's judgment. One of them is life settlements, also infamously called death bonds. This was one of AMCO's most infamous money-losing ventures. And anecdotally, the reason why AMCO's first CEO, Leo DeBeaver, was forced out of the organization, essentially death bonds are
00:47:00
Speaker
Seniors are encouraged to sell their life insurance policies to investors for a one-time cash payout, and then that investor, usually a hedge fund, continues to pay the life insurance premium, and they are the beneficiary when the person eventually dies. The investor is essentially betting that the payout to the senior and the continued payments of the premium will be less than the death benefit that they will eventually collect from the person who dies.
00:47:23
Speaker
Essentially, AMCO was betting that seniors would die earlier. It turns out a lot of those seniors whose death bonds that AMCO held ended up living longer than expected, and AMCO lost their fucking shirt. This was around, in 2014, the Auditor General actually looked into this, mostly around the way AMCO was classifying and accounting the risk around these, as well as their life expectancy models.
00:47:50
Speaker
But this is what the Auditor General had to say in 2014, the performance of these investments may be overstated in the year of purchase and understated in later years because large one day gains were recognized.
00:48:02
Speaker
That's the end of that quote. I mean, this life settlement scheme and this investment was extremely ethically objectionable to me, but it also turned out to be extremely unprofitable. We'd also be remiss to not bring up AMCO's investments in private prisons. AMCO until recently had shares in both Geogroup and CoreCivic, worth a total of around $4.8 million as of March 31, 2019, and maybe even into the second quarter or third quarter as well.
00:48:29
Speaker
These are two private prison companies that essentially run and manage the concentration camps. You might see them be called immigration detention centers by people who are maybe a little more squeamish than me, set up by the Immigration and Customs Enforcement Agency, ICE, in the United States.
00:48:46
Speaker
I'm sure we don't have to go into the details about the horrific nature of these private prisons and these concentration camps, but they're bad. And no one should be investing in the companies that run them. AMCO was. Eventually AMCO did divest from those companies after pressure was put upon them, but it took people putting pressure upon them to realize that, hey, maybe we shouldn't do that.
00:49:06
Speaker
Aimco also owns one and a half million dollars in shares of ladder capital, a company which has been described as Donald Trump's shadow bank. So that's a lot of fun. And finally, we have the coup de grace, just an incredible investment decision. It was announced on Boxing Day this year, which is a day that I am usually paying a lot of attention in the news and getting a lot of my news.
00:49:28
Speaker
On Boxing Day 2019, it was announced that AMCO, in partnership with Global Investment from KKR, would be purchasing 65% of the coastal gas link pipeline from TC Energy for a little under $4.3 billion. Now, Regan, have you heard about this coastal gas link pipeline and the news at all? I don't know. I think it might have been lately.
00:49:48
Speaker
Yeah, may have popped up in a national crisis when the RCMP invaded Wet'suwet'en territory and arrested matriarchs and their activists and other land defenders. Yeah, yeah, not good. And then there were solidarity blockades that popped up all over the country in response to this. You may again have seen that on the news.
00:50:16
Speaker
Because yeah because essentially this is unceded territory. There's never been a treaty. There's never been a battle That's actually said oh by the way, this is Canada's land and not the wetsuit in territories not the wetsuit in land and so Yeah, the coastal gas link Alberta workers pensions are 4.3 billion dollars tied up in this this project that is at the best case scenario gonna get built at the end of a gun so That's a thing
Opportunities in Environmental Reclamation
00:50:42
Speaker
Um, but okay, we've done our, our aim co kind of like trashing. I think it's time to get onto the, like the hopeful stuff. And I know you've done a bit of thinking on this Regan, like, what is to be done? What is the reclamation boom that we can get going? How can we put the people to work who will be unemployed because of this oil price shock? How do we get moving on this?
00:51:03
Speaker
well that's the conundrum is how to make the polluter pay when we have outside of the well sense here we have a an insolvent polluter uh... and we have a big problem uh... nobody needed any more of those but uh... another part of the reason why i'm so focused on this is trying to solve this dilemma of how we make then solvent polluter pay
00:51:24
Speaker
And there's some ways we can go about doing that. But the reason we do it is because of the opportunities and the silver lining to this mess that we've inherited from decades of fraud and mismanagement is that cleanup represents such an enormous opportunity in Alberta. Those hundreds of thousands of wells, those hundreds of billions of dollars in cleanup work, those are wages for folks struggling in the energy industry.
00:51:54
Speaker
Regardless of how much oil and gas we produce in the future, we can have full employment in Alberta in the energy sector. Every rigger can keep on rigging. The same folks with the same equipment can do the work to heal the land, to plug the methane leaks and venting.
00:52:12
Speaker
that is a big part of these old and rotting wells and stimulate the economy in every corner of the province. There's an enormous opportunity and the Alberta Liabilities Disclosure Project is in the process of doing that work, of answering the question of
00:52:31
Speaker
answering what a reclamation boom would look like. What if we took these responsibilities seriously and we intended to clean up this enormous pile of mess over the next 20 years? What would that mean for Albertans? What sort of jobs could that create? What would that look like in every municipality across the province?
00:52:51
Speaker
such enormous opportunity hidden underneath this implacable problem that has stymied regulators and politicians in Alberta over the last 10 years. They lack the political will to hold the industry accountable. That's the only missing piece. That political will is the only thing standing between Albertans struggling in the oil and gas industry and a bright future of decades
00:53:17
Speaker
a full employment in oil and gas, which awaits us if we can find the political courage for industry to live up to its moral and legal obligations.
00:53:27
Speaker
Yeah, the question of whether we kind of let these companies die, whether we nationalize them and wind them down in an orderly fashion and train and transition those workers. I mean, it's a political question and one we've got to figure out amongst ourselves, but I mean, we have to kind of confront the question at its core. And I haven't seen any indication from the political parties in Alberta that they are there yet.
00:53:49
Speaker
I think this is going to be an issue that's going to be forced by landowners and it is encouraging to see the work that you're doing and the work that landowners groups across the province are doing. There's just one kind of one hopeful little bit of ray of sunshine that I want to bring up before we get out of here and that is renew well.
00:54:05
Speaker
this pilot project where they're putting solar on old oil and gas sites in southern Alberta. We'll put the details for that in the show notes, but do you see that as an encouraging sign as a way to pay for part of this reclamation boom?
00:54:22
Speaker
Absolutely. It's a way to add value to these sites that are at the end of their life. It's a way for farmers to continue enjoying the service payments that they get from the oil and gas. And there's all sorts of positive local effects.
00:54:39
Speaker
The electricity can be used for irrigation. It can reinforce the wider grid.
Regan Boychuk's Advocacy Work
00:54:46
Speaker
And there's a fairly significant potential for this in southern Alberta. And there's a parallel potential in northern Alberta when it comes to geothermal. Same folks, same drilling expertise could go into that angle of it.
00:55:02
Speaker
And another side effect of all this cleanup, there's a number of wells that could be applicants for a solar array. There's others that would fit for geothermal. But beyond that, the amount of land that could be returned to better, more productive uses return to farming. And the potential for things like regenerative farming
00:55:25
Speaker
to capture carbon, to bury it in the soil, has enormous potential to start to further the healing of the development that we've pursued over the last century without properly planning to clean up after ourselves.
00:55:44
Speaker
Okay, well thanks so much for taking the time to talk with me. Regan, it's that time of the show where people can learn about how they can follow you and learn more about the Alberta Liabilities Disclosure Project. What's the URL? What's the best place for people to go to learn more? ALDP is at ALDPCoalition.com.
00:56:02
Speaker
They're on Twitter at the ALDP Coalition. I'm on there at RKB2 and Reclaim Alberta. It's focused on designing the solutions to this. It's my other organization, ReclaimAlberta.ca, where you'll find a good deal of my research. All of ALDP's were quantifying this problem. You'll find that on their website and stay tuned because
00:56:30
Speaker
We're busy trying to take advantage of this political moment when we have so many friends and allies so focused on this issue. When there's media attention focused on this issue at long last, there'll be much more to come in the near future.
Podcast Support and Closing Remarks
00:56:45
Speaker
Awesome. All right. Well, go follow all those things I do. It's great. It's a great way to keep track of this problem. If you like this podcast and you want to keep hearing this podcast more in the future, we're a bit rushed for time. We're going to get hustled out of our podcast studio, so I'll get right to the financial ask. Please go to theprogressreport.ca slash patrons. Join the 250 other fine people who regularly give this independent media project money every month.
00:57:10
Speaker
5, 15, $50. I don't care. Any amount every month helps a lot. So go to theprogressreport.ca slash patrons, put in your credit card and contribute. We would really, really appreciate it. Another thing I got to flex on really, really fast is
00:57:25
Speaker
If you go to our Facebook page, if you go to our Twitter profile for Progress Alberta, we have a paid sick leave letter tool. Go to that, send your MLA a letter that says we should have paid sick leave. In the context of this coronavirus pandemic, people need paid sick leave. If you have any notes, thoughts, comments, things you think I need to hear about, you can reach me on Twitter at Duncan Kinney, and you can reach me by email at DuncanK at ProgressAlberta.ca. Thanks so much to Cosmic Family Communist for the amazing theme. Thank you for listening, and goodbye.
00:57:55
Speaker
Did you know that Progress Alberta is part of a national community of leftist podcasts on the Ricochet Podcast Network? You can find the Alberta Advantage, 49th Parahel, Kino Lefter, Well Reds, The Progress Report, Lefi Sales, Out of Left Field, and Unpacking the News, as well as a bunch of other awesome podcasts at Ricochet Media or wherever you download your podcasts.