I believe the BAPE report is being looked at or taken the wrong way by many people. We here recognize that the focus is on how to move forward or what steps must be taken to ensure both a healthy industry but more importantly for Quebec that it’s done safely. In Quebec my impression is that the layman views it as a special committee to reveal all the potential issues involved in NG drilling and almost as a forum for, or government provided arena for the environmental groups. These are two very different functions, but I think the important thing is to recognize that a difference exists and each group will view the report differently as well.
Investors have fears about Quebec, the contents of the upcoming report and what it will mean for QEC and the industry as a whole. You have to believe there are still a lot of people that are on the sidelines because of all the talk of moratoriums etc... Rightly or wrongly, the press constantly talks about it so it can’t help but get wedged somewhere deep in everyone’s mind.
My take on the upcoming report is that no matter what it says, the market and the layman will come around to understanding it was “good” for everyone involved and therefore we will get a SP lift.
Here is my thinking... The report will NOT call for a moratorium simply because that is NOT the focus of the BAPE investigation. It’s to help identify how to drill and what rules and regulations should be put in place to do it. A lot of people don’t get that, but a moratorium being eliminated will ease some fears in the market. It WILL call out for a significantly large number, even HUGE number of rules and regulations for the industry and even the creation of new government departments to manage it all. Think about it this way, if you were to collect all the rules and regulations in Alberta over the last 50 years related to oil and gas drilling and make one combined report, it would be huge and even an imposing or fearful task to grasp all the actions, forms and requirements that you would have to be compliant with. That mound of paper or rules is what I think will actually create the "BAPE effect" where the environmentalists, government, official opposition and industry will all come out thinking they “won”.
How is that possible you ask? Quebecers are a bit different, and one of the things I have noticed over the years is that they consider being wrong almost like the Chinese take it as a loss of face. That pile or mountain of rules is going to put a smile on their faces (as much as any environmentalist can) and let them point their metaphorical finger back at the other groups and say “there! That’s what you’ve got to do if you want to drill here!” No loss of face, they were right to fight, and they “won”!
The official opposition can pat themselves on the back and say, “we did good work here, there is no way we’re giving away our resources, and we fought for the good of Quebec!” They effectively “won”.
The government will look at this and say “Absolutely, we will do NO drilling unless it’s done right and this report tells us how it must be done! If the industry can’t do it, so be it, we will protect Quebec’s resources and the future of our children!” They will win some support back, and hope they can get this industry started to generate some income and jobs that would really help them for the next election. Effectively though, this report will make them “win”.
Now one might think that this puts a lot of pressure on the industry, but honestly, I think they will actually be chuckling inside. You may even see Talisman and QEC crack a smile. Anywhere in North America that has drilling now requires a lot of planning, interaction with governments and not the least of which is that mountain of Alberta rules and regulation paperwork I spoke of above. The important thing is though... The industry already does it... Remember, Talisman and QEC are from Alberta... Effectively, for any oil or gas company, this whole report is really a non-event, it’s just going to say you’ve got to do what you’re already doing everywhere else... So you could say they “won” as well.
General retail investors may view it as neutral or even sell-off a bit, but the guys that really matter, the institutional investors with the deep pockets should be sophisticated enough to recognize it as another road block put to rest.
That's my 2 cents.
Brym
