Superpower? Not yet
GLOBAL OIL & GAS: HOW DO CANADIAN PROVINCES FARE
CALGARY • On the road to becoming a global energy superpower, Canada still needs to convince some international investors it can go all the way.
Manitoba was the only Canadian jurisdiction to make it into the Top 10 most attractive global locations for oil and gas investment, according to the results of the Fraser Institute’s annual
Global Petroleum Survey published this week. The prairie province ranked fifth while Holland and Denmark were the only other jurisdictions outside the United States to top the think-tank’s ranking of 147 locations worldwide.
Based on responses from 623 executives representing 529 companies, Saskatchewan was found to possess the second-most attractive investment climate in Canada, 13th globally, and Alberta, home to the vast majority of the country’s energy industry, came in third nationally and 21st globally.
Gerry Angevine, senior economist at the Fraser Institute’s Calgary-based global resource centre who originally conceived of the survey six years ago and has been its principal co-ordinator since, said the goal of the survey is to provide feedback to governments on how investors react to regulatory and royalty rate adjustments.
“Look what’s happened to the results for Alberta since 2009,” he said in an interview.
“Once they announced the government was going to move back pretty much to where they were in terms of royalties we saw some improvement.”
Then-premier Ed Stelmach decided in 2007 to raise the province’s resource royalty rate, which determines how much of their revenue producers owe to Edmonton, by an astounding one-fifth. By 2009 when the higher rates went into effect, producers immediately began moving investment into neighbouring jurisdictions with more attractive fiscal regimes, like Saskatchewan and even British Columbia, and Alberta’s ranking began to plummet.
Since announcing plans to return royalty rates back to pre-2009 in 2010, Alberta’s ranking has steadily climbed back up from a low of 92nd in 2009 to 51st last year, finally breaking back into the top 25 this year in 21st place.
“[Alberta] realized that by becoming less competitive, money was going elsewhere so when they turned back the clock and began to sing a different tune and said ‘look, we’re going to lose this revenue by lowering royalties more or less back to where they were, but economic activity is going to be boosted and through personal income tax and corporate tax we’ll probably in time more than recoup the losses in royalties,’ ” Mr. Angevine said.
“Canada is looking good and if you go back a couple of years [in our survey] we’re looking maybe even a little bit better [but] within Canada we’ve got some stories.”
Quebec and New Bruns- wick are at the centre of those stories: The two eastern provinces each fell substantially in the latest ranking, to 101st and 102nd respectively. Politically unstable regions such as Lebanon and Azerbaijan were generally seen as more attractive locations for oil and gas investment, ranking 70th and 71st, than the two Canadian jurisdictions.
Opposition to shale resource development and moratoriums on exploration recently imposed by the Quebec City and Fredericton legislatures have been cited as the primary cause of growing pessimism among global investors, though Mr. Angevine isn’t concerned those views might taint the rest of Canada’s overall attractiveness.
“In terms of what is happening in New Brunswick and Quebec, I think those are unique circumstances,” he said. “Through time these things can be addressed by governments and changed [because] if they want shale gas development they should be able to figure out what they have to do.”
If a jurisdiction wants to rise through the ranks, Mr. Angevine said it is a good idea to examine the taxation and regulatory policies of regions that tend to receive top marks such as Oklahoma or Texas, noting the most important factor in determining whether a jurisdiction lands in the light blue ‘‘most attractive’’ quintile or the darker blue ‘‘second quintile’’ is how investors regard the regulatory environment.
Alberta’s plan to streamline the regulatory approval process for certain oil sands projects, which has been in the works for the past two years, is helping warm investors to the idea of returning to the province, Mr. Angevine said.
In the meantime, if Saskatchewan and eventually even Alberta want to join Manitoba among the top 10 worldwide anytime soon, Mr. Angevine believes they must continue with regulatory reform.
“We’re not saying there shouldn’t be regulation. Not at all. But if the regulatory role is turning investors off and they’re going to other jurisdictions because of that, then what can be done?” he said.