Now is not the time to encumber the oil and gas industry

Contributed to Edmonton Journal
Tim McMillan
President and CEO
Canadian Association of Petroleum Producers
April 08, 2015

A strong oil and gas sector means a strong Alberta.

The current fiscal regime in the province supports capital investment, and we need to keep it that way to enable growth during a challenging time that is linked to the impacts of global oil price declines on both the industry and the government.

With a 50-per-cent drop in global oil prices since last summer, our industry and Albertans are hurting — from rig workers and service crews, to head offices, small businesses and community corner stores. Now is not the time to consider raising royalties or corporate tax rates.

The downturn has created a challenging economic environment, particularly in Alberta, which produces about 75 per cent of Canada’s hydrocarbons. To ensure sustainability and long-term success, companies are forced to cut the level of capital spending and the size of their workforce.

Canadian oil and gas industry capital investment is expected to total $46 billion in 2015, down 33 per cent from $69 billion invested in 2014. As spending is reduced, the effects are seen or felt across the economy. Industry unemployment is also on the rise, as companies have announced a combined 4,500 layoffs in 2015 alone, with an additional 23,000 jobs lost as a result of lower drilling activity.

And while some groups continue to suggest Alberta should increase the royalties and corporate taxes paid by the industry, adding more costs of any kind would be irresponsible and would put more jobs at risk. We all must focus on protecting jobs and keeping Albertans working as much as possible.

The oil and gas industry employs one in six Albertans, with substantial related employment created in sectors such as hospitality, transportation, food services, consultation, construction and real estate. Each dollar invested in the oil and gas sector creates $3 of value in Alberta’s economy across the province, particularly in rural communities.

According to the recent provincial budget, the oil and gas industry’s resource revenue payments are forecast at $2.9 billion in this fiscal year, down from $8.8 billion last year.

Oil and gas industry payments to Alberta in 2015 represent seven per cent of total government revenue, a number that is forecast to grow to 15 per cent by 2020. These payments continue to contribute to Alberta’s quality of life by helping to pay for public services like health care and education. We also contribute about $1 billion annually in municipal taxes across the province, and have paid nearly $500 million in greenhouse gas-related levies since 2007.

The global investment market for oil and gas is extremely competitive and our industry depends on a combination of domestic and foreign sources to fund annual capital investment programs.

Private capital naturally seeks the best return internationally on investment, adjusted for political and social risks, and the fiscal regime in place wherever these sources are looking to invest carries great weight in the decision-making process.

A comprehensive government review of Alberta’s position as a competitive place for oil and gas investment relative to other North American jurisdictions was completed in 2010.

The review considered the role of the fiscal regime, the regulatory framework, technology and innovation, and the overall business climate. Subsequently, the Alberta government implemented several improvements to the fiscal regime that helped strengthen investor confidence in the oil and gas industry.

Maintaining a competitive fiscal regime helps the industry minimize the effects of the downturn and longer term, remain on track to be the supplier of choice at home and in the global market.

Hand-in-hand with fiscal considerations, we need to continue our countrywide focus on diversifying markets for oil and gas products and building the necessary transportation infrastructure that will allow these products to move to market.

Right here at home, Quebec, Atlantic Canada and Newfoundland and Labrador currently import more than 85 per cent of their oil from places such as the U.S., Saudi Arabia, Angola and Azerbaijan. With improved infrastructure and a competitive investment climate, Canada can end its reliance on these foreign suppliers, keeping more of the jobs and economic benefits in Canada.

And over the longer term, despite the downturn, demand for oil will continue to increase in several major global markets. Canada is well-placed to help meet global needs through safe, responsible development and delivery of its natural resources.

If we are going to continue to grow the oil and gas industry — creating more jobs and increasing public revenues to improve our quality of life — we must continue to keep Alberta and the rest of Canada attractive for future investment.