Why provincial regulations matter
We’ve heard mention of changing royalty structures and resource extraction regulations, both provincially and nationally. These items make a massive impact on the decisions to develop a project in a jurisdiction and/or to stop a project and move it elsewhere.
As an example, here are the oil and gas development maps for Alberta and Saskatchewan for 2003. The deposits don’t/didn’t magically end at the border, but the developments did. This development line has been attributed to government policy at the time.
Here is the 2003 development map (source, 49 North Resources):
If we zoom in on one area, the line is very clear.
According to the Saskatchewan Geological Survey, here is what the map could look like:
Which brings us to today, where Alberta just passed a new carbon tax – thus making Saskatchewan look more attractive for project development since the extraction/production costs were increased in Alberta. After all, the price paid to the producer for the oil is about the same whether it comes from AB or SK, but the cost to get it out is different; and companies will spend their dollars where the cost of extraction is the lowest and where they feel comfortable that these costs won’t change in the future.
The below segment from an article in today’s paper (see below) reflects these concerns.
- 9 Jun 2016
- The StarPhoenix
- DAN HEALING
- The Canadian Press
Alberta’s new carbon tax prompts fierce debate on oil, gas competitiveness
CALGARY The impact of Alberta’s new carbon levy on the oil and gas industry was hotly debated in Calgary on Wednesday, a day after it was passed by the NDP government.
Alberta Energy Minister Marg McCuaig-Boyd, who spoke at an industry conference, insisted the province can compete with neighbouring Saskatchewan, which doesn’t have a carbon tax.
“We’re still pretty competitive overall in Canada,” said McCuaigBoyd. “We’re one of the lowest (tax) jurisdictions and, I always have to remind people, we don’t have a provincial sales tax.”
But Gary Leach, president of the Explorers and Producers Association of Canada, said the carbon tax could drive investment away to other provinces or the United States. “We’re competing in a North American market,” he said. “The price for our energy exports is set outside of Alberta. We don’t set the prices. So to the extent where our industry is shouldering a competitive burden that our competitors are not, that is a serious concern.”
Beverly Gilbert, national commodity tax leader for law firm Borden Ladner Gervais, said there’s no question that Alberta producers will face higher costs and a “huge compliance burden” as a result of the carbon tax.
“They will be paying this nonrefundable tax that people in Saskatchewan will not be paying, for instance, on things like venting and flaring,” Gilbert said. “That makes us less competitive.”
Gilbert acknowledged, however, that the fact that Alberta has no provincial sales tax gives it a substantial advantage that producers in other provinces don’t have.
The carbon levy, to take effect Jan. 1, is one element of a climatechange strategy intended to reduce Alberta’s carbon footprint. It is expected to bring in $3 billion in 2017-18.