The well hasn’t run dry: deal makers set sail for North Sea

It was dubbed the “Hallowe’en massacre”. But Canada’s decision to impose swingeing new taxes on its oil and gas trusts could see millions of dollars heading towards the North Sea.

The profits of Canada’s energy income trusts are not taxed at the corporate level as long as a high percentage of profits are paid as dividends to investors. Canada’s finance minister, Jim Flaherty, has proposed changing this with a new tax scheduled for 2011 that will remove many of their advantages.


But crucially, investments in overseas assets will not be affected, giving the trusts a huge incentive to look for new investment opportunities abroad. And the North Sea is right in their sights.

Jim Kinnear, president and chief executive of Pengrowth, one of the biggest trusts, says his industry is fighting the tax change. But he admits: “Certainly it [the proposal] gives us an incentive to invest overseas. We are a low-risk operation so we would look for assets in politically stable areas with relatively stable taxation regimes, such as Europe, Australasia. It seems crazy that we are incentivised to invest overseas but that is what the new tax does.”

Independent