Canada’s oil nationalism

Cries of “O Canada” have not all been of the patriotic kind recently. An independent panel has recommended that Alberta jack up the province’s tax-take from the energy sector. Stocks in Canadian oil majors have plunged as a result.

Reports of the sector’s doom are much exaggerated, but it is easy to see why the reaction has been so dramatic. Alberta’s reserves may be second only to Saudi Arabia’s – albeit in the form of oil sands rather than conventional crude. To some, they offer hope of countering the market power of the Organisation of the Petroleum Exporting Countries.
Sudden change in fiscal regimes is bad for planning. Yet it is hardly surprising that a resource-rich government wants a bigger slice of the pie when oil is topping $80 a barrel. At an estimated 64 per cent share of the value of oil sands projects, Alberta’s “take” would remain moderate compared with the likes of Venezuela and Russia. And the Canadians are at least being upfront about simply wanting a bigger cheque, rather than hiding behind professed environmental concerns.

The silver lining is that this measure could cool a sector suffering rampant cost inflation – and cut speculative valuations on potential takeover targets – by making potential new entrants think twice.

Financial Times