Lit­tle won­der oil in­vest­ments head­ing to U.S.

Reg­u­la­tory, tax en­vi­ron­ment is work­ing against Canada, write Ash­ley St­ed­man and Elmira Ali­ak­bari.

Calgary Herald - - OPINION - Ash­ley St­ed­man and Elmira Ali­ak­bari are an­a­lysts at the Fraser In­sti­tute.

There’s money out there for the up­stream oil and gas in­dus­try, but in­vestors seem ea­ger to steer clear of Canada. With con­tin­ued pipe­line ob­struc­tion­ism, un­com­pet­i­tive tax rates and in­creas­ing reg­u­la­tory uncer­tainty here at home, in­vestors in­creas­ingly view the U.S. as a bet­ter place to in­vest and ul­ti­mately pro­duce jobs and govern­ment rev­enue.

Ac­cord­ing to the 2018 Fraser In­sti­tute Global Pe­tro­leum Sur­vey, which tracks the per­cep­tions of oil and gas in­vestors by spot­light­ing poli­cies that af­fect in­vest­ment at­trac­tive­ness in­clud­ing roy­al­ties, taxes and reg­u­la­tions, nine of the top 10 most at­trac­tive ju­ris­dic­tions for oil and gas in­vest­ment are in the United States. No Cana­dian prov­ince made the global top 10.

Last year, six U.S. states and two Cana­dian prov­inces (New­found­land and Saskatchewan) made the global top 10 most at­trac­tive ju­ris­dic­tions for oil and gas in­vestors. But this year, the ma­jor­ity of Cana­dian ju­ris­dic­tions dropped in the rank­ings — in­clud­ing Al­berta (ranked 43rd) and Saskatchewan (ranked 18th). In con­trast, most U.S. ju­ris­dic­tions rose in the rank­ings.

So what’s be­hind the boost in in­vestor con­fi­dence for many U.S. ju­ris­dic­tions?

Sim­ply put, in­vestors have a more pos­i­tive view of the reg­u­la­tory en­vi­ron­ment in many states.

In par­tic­u­lar, in the eyes of in­vestors, more than half of the U.S. ju­ris­dic­tions sig­nif­i­cantly im­proved their labour reg­u­la­tions and ad­dressed reg­u­la­tory du­pli­ca­tion since last year. Mean­while, on the reg­u­la­tion front, many Cana­dian ju­ris­dic­tions saw their per­cep­tion scores de­cline.

An Al­berta/Texas com­par­i­son un­der­scores Canada’s un­com­pet­i­tive reg­u­la­tory and pol­icy regimes. To start, Al­berta (again, ranked 43rd) is Canada’s sec­ond least-at­trac­tive ju­ris­dic­tion

In­vestors are send­ing clear sig­nals that Canada has an in­vest­ment at­trac­tive­ness prob­lem.

to in­vest in, whereas Texas (first) is the most at­trac­tive ju­ris­dic­tion in the United States (and the world).

On the tax front, more than 50 per cent of re­spon­dents see Al­berta’s fis­cal terms (roy­al­ties, etc.) and tax­a­tion as de­ter­rents to in­vest­ment com­pared to four per cent for Texas.

And in a stun­ning re­sult (re­lated to Canada’s fed­eral reg­u­la­tory sys­tem), 73 per cent of re­spon­dents cited the cost of reg­u­la­tory com­pli­ance in Al­berta as a de­ter­rent to in­vest­ment this year, com­pared to only 10 per cent for Texas.

More­over, if we com­pare Al­berta’s re­sults to Ok­la­homa (the sec­ond most-at­trac­tive ju­ris­dic­tion based on poli­cies) or Kansas (third), we see sim­i­lar pat­terns.

To un­der­stand why Canada has dimmed in the eyes of oil and gas in­vestors, con­sider how re­cent pol­icy de­ci­sions vary be­tween coun­tries.

In Canada, the Trudeau govern­ment plans to make the reg­u­la­tory ap­proval process even more un­cer­tain and com­plex with Bill 69, which is cur­rently un­der Se­nate re­view.

This bill in­cludes sub­jec­tive assess­ment cri­te­ria — in­clud­ing the so­cial im­pact of en­ergy in­vest­ment and its “gen­der” im­pli­ca­tions — which will likely in­crease uncer­tainty, fur­ther politi­cize the reg­u­la­tory process and lengthen ap­proval times.

Mean­while, the Trump ad­min­is­tra­tion has re­scinded or scaled back sev­eral Obama-era reg­u­la­tions, in­clud­ing reg­u­la­tions on hy­draulic frac­tur­ing on fed­eral lands. The U.S. has also moved away from car­bon pric­ing and in­tro­duced sweep­ing cor­po­rate tax cuts meant to at­tract busi­ness in­vest­ment.

This raises a key ques­tion. Why would in­vestors put money into Cana­dian ju­ris­dic­tions as op­posed to U.S. states, if gov­ern­ments north of the bor­der con­tinue to fea­ture un­com­pet­i­tive tax rates and oner­ous reg­u­la­tions? In short, they won’t.

Over­all, oil and gas in­vestors are send­ing clear sig­nals that Canada has an in­vest­ment at­trac­tive­ness prob­lem. To re­verse this trend, pol­icy-mak­ers in Ot­tawa and the prov­inces should adopt com­pet­i­tive poli­cies and stream­line reg­u­la­tory pro­cesses to re­store in­vestor con­fi­dence.


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