TD report warns that BC NDP victory could cause losses in BC energy stocks similar to Alberta NDP win in 2015
TD Securities is telling its clients that a John Horgan-led BC NDP victory on May 9 will likely lead to policy changes that cause BC-based energy stocks to “under-perform.” But TD appears to have neglected a potential conflict of interest in the report penned by Aaron Bilkoski – namely that the Canadian bank is also the lead financial advisor for Trans Mountain Expansion’s $7.4 billion IPO, a project the NDP vigorously opposes.
The NDP think Bilkoski was off-side and accuse TD of meddling in the election.
“TD, as a big bank out of Bay Street with ties to Kinder Morgan, is trying to participate in BC’s election. John Horgan and the BC NDP are working for people,” a party spokesperson said in an emailed statement.
“And people, not a corporation, will have their say on the issue when they go to the polls.”
The interesting sub-text to this argument is that the Alberta NDP government of Rachel Notley just as vigorously supports the Kinder Morgan pipeline. In fact, when Prime Minister Justin Trudeau gave TMX the green light last Nov. he said approval would not have been possible without the Alberta government’s Climate Leadership Plan in place.
The political gossip out of Edmonton is that Notley and company are very worried about a Horgan win, which would set the stage for a huge squabble between NDP governments. So worried that Notley refused to allow NDP staffers to cross the Rockies and work in the BC campaign.
Notley’s May 2015 win in bedrock conservative country, unexpected by even the most optimistic pundits, was the basis for Bilkoski’s warning to investors.
“Using Alberta as a proxy, we saw the NDP usher in an era of policy uncertainty for the energy sector,” Bilkoski wrote, as reported by the Globe and Mail.
“In turn, this resulted in notable share price under-performance for Alberta-based producers in subsequent weeks. We believe that an NDP victory on May 9 could have a similar impact on B.C.-based producers.”
The TD analyst is correct to a point.
The Canadian oil and gas industry, mostly headquartered in Calgary, was completely unnerved by Notley’s win. She had promised a royalty review, which had not gone well the last time it was tried, by PC Premier Ed Stelmach in 2008. Some energy companies dramatically reduced their capital investments in Alberta, leading to some frantic back-pedalling by the PCs.
Notley also promised more aggressive climate policies, not unlike Horgan. And let’s not forget the usual NDP anti-business rhetoric that makes the Chamber of Commerce livid.
But it turns out that Prairie socialists are quite different from their coastal cousins.
Fast forward two years and Big Oil has learned to at least co-exist quite nicely – if not exactly love and cherish – Notley and her merry band of reformers. Little Oil – junior and medium-sized producers – and the service companies are still vocal opponents, mostly because NDP policies affect them more adversely than the larger operators, who have been pricing carbon and reducing emissions for years.
Bilkoski did not respond to my request for comment, so I can’t be completely certain he didn’t provide his clients with the more up to date assessment of the Alberta government’s policies.
Mike de Jong, Abbotsford West MLA and Liberal finance minister, says TD had every right to warn clients about the potential dangers of NDP promises to review hydraulic fracturing in northeast British Columbia, raise the provincial carbon tax more quickly, and actively oppose construction of Trans Mountain Expansion.
Does he think it’s unusual for banks to warn clients in the middle of an election, which could be construed as meddling by other parties – and voters?
“A little bit, but I think more and more agencies recognize that they have a duty when information becomes available, to analyze it, and to provide people with a non-political analysis and opinion on what is likely to occur. That’s what you see here,” he said in a telephone interview.
“TD Securities’ document provides a particular focus on the oil and gas sector but we’re beginning to see other types of analysis that focus on the impact the NDP approach would have to other parts of the economy.”
Keith Brownsey disagrees.
“With a bank like this it’s unusual. With other businesses and business groups, no, it’s not unusual, but with a bank, it is,” the Mount Royal University political scientist said in a telephone interview.
“It’s not unusual even with oil and gas companies, but with banks – because they have to work with any government that’s elected – they want the business, plain and simple.”
Brownsey also thinks that, as he understands the contents of the report, which he only knows of through media reports, the TD appears to be attempting to sway votes in the BC election to protect the fees it will earn by participating in the Trans Mountain Expansion IPO.
“It is an apparent conflict of interest. There’s no question of that. They’re simply looking out after their own interests as the financiers for Kinder Morgan and Trans Mountain by issuing reports that ‘all will be lost if the New Democrats win,'” he said.
Elections are rough and tumble affairs, and this one is no different. According to the CBC poll tracker, the Liberals are almost 8 points behind the NDP and have only a 10 per cent chance of forming the next government.
Expect more of these types of controversies as British Columbia approaches the final week of the campaign, with the Liberals hoping to sway votes with attacks on the NDP, which will be looking to avoid the last minute collapse that sank Adrian Dix’s campaign in 2013.