Keeping Alberta down

With continued obstruction of pipeline construction and regulatory uncertainty, 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.

This was reflected in this year’s iteration of the Fraser Institute’s Global Petroleum Survey, released last week, 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.) and make a jurisdiction attractive or unattractive to investment.

While Alberta’s overall score in the survey 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 and this year moved up to 33rd of 97 jurisdictions. Despite Alberta’s slight rise, the province remains Canada’s second-least-attractive jurisdiction to invest in. Tellingly, 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 within Canada’s borders, Alberta’s rank is also well behind attractiveness in the eyes of oil and gas investors?

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. On Wednesday, a leaked provincial government document emerged that ostensibly projected lands, suspending onerous regulations, dropping international greenhouse gas obligations, allowing oil exports and promising to cut taxes on business. The Republicans’ latest tax plan calls for a reduced corporate tax rate, from 35 to 20 per cent. The current direction of the Trump administration will likely only exacerbate the U.S. advantage over Canadian jurisdictions, including Alberta, in terms of investment attractiveness.

This raises a key question: 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 relative to U.S. 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.