Investor confidence in Alberta’s oil and gas industry needs a boost

Continued pipeline construction obstruction and regulatory uncertainty are leaving investors skittish about Alberta’s oil and gas industry

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By Kenneth P. Green
and Ashley Stedman
The Fraser Institute

Continued pipeline construction obstruction and regulatory uncertainty mean investors see a gloomy outlook for Alberta’s oil and gas industry compared to some U.S states.

The province also continues to languish near the bottom of Canadian jurisdictions in investment attractiveness in the oil and gas sector.

Ken
Green

This is all reflected in the Fraser Institute’s Global Petroleum Survey 2017, which tracks the perceptions of investors eyeing jurisdictions worldwide. The survey spotlights policies that govern the oil and gas industry (royalties and taxes, duplicative regulations, etc.).

While Alberta’s overall score improved slightly this year, investors remain cautious. Alberta’s investment climate remains far behind 2014 levels, when the province ranked 14th (out of 156 jurisdictions). In 2016, Alberta fell to 43rd of 96 jurisdictions, then moved up to 33rd of 97 jurisdictions this year. The province remains the second least attractive jurisdiction to invest in Canada.

More than 50 per cent of respondents in 2017 see fiscal terms and taxation as deterrents to investing in Alberta.

Not only is Alberta performing poorly compared to other provinces, the province’s international rank is also well behind competitors such as Texas – the most attractive jurisdiction in the world based on policies – Oklahoma (second) and North Dakota (third). This year, six of the world’s top 10 jurisdictions are in the United States, compared to only two in Canada (Newfoundland and Labrador, and Saskatchewan).

So what has damaged Alberta’s attractiveness in the eyes of oil and gas investors?

Ashley
Stedman

Since 2015, the Alberta government has increased corporate income taxes by 20 per cent, implemented a carbon tax and introduced a new slate of environmental regulations, including a cap on emissions from oilsands production.

Across the border, we’ve seen precisely the opposite. President Donald Trump is implementing sweeping energy-sector reforms that cut taxes and regulations. Trump’s administration is opening additional lands, suspending onerous regulations, dropping international greenhouse gas obligations, allowing oil exports and promising to cut taxes on business.

And Trump’s latest tax plan calls for a reduced corporate rate, from 35 per cent to 20 per cent. His administration’s direction is likely to improve the U.S. advantage over Canadian jurisdictions, including Alberta, in terms of investment attractiveness.

So why would investors put their money into Alberta as opposed to U.S. states, if governments north of the border insist on increasing taxes and regulations?

Alberta’s poor ranking in this year’s Global Petroleum Survey, relative to American states, should concern policy-makers. Policy decisions matter. And adding costs and regulatory uncertainty to an industry still reeling from low oil prices is a step in the wrong direction. This will only push future investment away from Alberta while U.S. states ramp up efforts to attract investment.

To improve Alberta’s image in the eyes of investors, the provincial government should pursue policies that are both competitive and stable, for the benefit of Albertans and their families.

Kenneth P. Green and Ashley Stedman are the co-authors of the Fraser Institute’s annual Global Petroleum Survey.


investor confidence, Alberta, energy sector

The views, opinions and positions expressed by columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of our publication.

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