​ONE | LOW COMMODITY PRICES

As depressed oil prices continue to dominate the headlines and natural-gas prices hover near record lows, sustained low commodity prices have had a cascading effect on the industry, compelling companies to fundamentally alter their business strategies.

Cash-flow management is among the areas most impacted. Without a steady income stream, companies are left with few options. The public equities market did not present many opportunities for the industry last year, and we expect this trend to continue into 2016. Furthermore, lenders have tightened their purse strings, forcing many businesses to renegotiate their lending agreements as write-downs take their toll on them. This has forced struggling companies to divest their assets to raise necessary capital.

Despite the problems for some, the greatly reduced valuations present rare opportunities for industry players with strong balance sheets. With the rise of insolvency proceedings and lender pressure on troubled companies to sell assets, well-positioned companies are poised to capitalize on distressed sales and favourable take-over prices. As a result, we expect an uptick in M&A activity in the coming year. However, with increased demand for such assets, buyers should be wary that assets may be sold on an expedited "as is, where is" basis.  

TWO | CLIMATE CHANGE INITIATIVES

Alberta recently unveiled its Climate Leadership Plan (Plan), which represents a dramatic shift in Alberta’s approach to climate change and greenhouse gases (GHG) issues. The Plan replaces Alberta's current emissions regime for large GHG emitters with product-based emissions performance standards. Facilities that cannot meet the emissions standard will be subject to a carbon levy, set to increase from C$15/tonne to C$30/tonne in 2018. For emitters that do not qualify as large GHG emitters, the Plan implements a broad carbon tax on end-use emissions. It also targets fugitive methane emissions and places a hard annual cap of 100 megatonnes on oil sands emissions.

The federal government has hinted at eliminating industry subsidies, which are predominately accelerated capital-cost tax write-offs. Further, it has promised to revise the regulatory review process for major federal projects. These changes include providing affected stakeholders with greater procedural rights and mandating an analysis of upstream environmental impacts resulting from proposed pipelines.

Both the Alberta and federal governments claim that these measures will ultimately aid the oil and gas industry by establishing public support for crude oil pipelines at a time when the fate of several pipeline proposals remains in limbo.   

THREE | NEW ROYALTY REGIMES

The Alberta government has established a Royalty Review Panel tasked with providing a final report by year-end 2015. The review has involved a comparison of current Alberta royalty rates with those of other oil-producing jurisdictions, an assessment of all costs incurred by a producer and feedback from out-of-province investors. While the panel is expected to recommend several changes to the current royalty rate structure, the specific recommendations are not yet known. However, Alberta’s government has promised no changes until after 2017.

The Province of Newfoundland and Labrador announced a new generic offshore oil royalty regime, designed to apply to all future oil and gas projects. However, as the Province has a history of negotiating individual benefit agreements on a per project basis, it remains to be seen whether this will continue to be the case or if this new regime will truly be applied generally.  

FOUR | LIQUEFIED NATURAL GAS (LNG)

While initial expectations for Canada's LNG industry have dimmed somewhat, several LNG projects are expected to build off the industry's progress in 2015 and continue to move forward in the year ahead. There are also a few projects slated for 2016 final investment decisions (FIDs). In just 2015 alone, another 10 projects received export licences, and a handful of new LNG projects were proposed. Of note, many of the LNG projects making waves in 2015 were smaller-scale and/or Canadian East Coast projects. This was partly due to the shifting economics of Canadian LNG projects. As for the major export proposals, Pacific Northwest LNG was given the conditional green light pending environmental approval, and LNG Canada, having received all necessary regulatory approvals, is set to make an FID in 2016.   

FIVE | MAJOR PROPOSED PIPELINES

Although the future of proposed crude-oil pipelines remains clouded, 2016 provides reason for optimism. Notwithstanding the U.S. government's Keystone XL decision and the federal government's recently proposed ban on oil tankers along British Columbia's northern coast, tidewater access will remain a priority for industry and policy-makers. Attention now shifts to Kinder Morgan's Trans Mountain and TransCanada's Energy East proposals, with the National Energy Board (Canada) expected to rule on these proposals in 2016 and 2017, respectively. While opposition to proposed pipelines will continue, industry and Alberta, supported by the Plan, will seek public support and will strive to demonstrate that critical pipeline infrastructure is not incompatible with environmental sustainability.​​​