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Canada-Alberta jousting Harper, Notley engage in spat over economic policies; CNQ blames tax hikes by province’s NDP administration for financial losses GARY PARK For Petroleum News
Canadian Natural Resources, Canada’s third largest oil and natural gas producer, has apparently decided it is time to emerge from under its shell and lash out at Alberta’s recently elected government.
Noted for seldom going public on any petroleum issue, or discussing its corporate views outside of quarterly conference calls, the company (often referred to by its stock symbol CNQ) is blaming its second quarter net loss of C$405 million on the corporate tax hike imposed by the New Democratic Party administration of Premier Rachel Notley.
And it has found an ally in Prime Minister Stephen Harper, who took the unusual step during a federal election campaign of issuing a blistering assessment of the NDP government.
He said the socialist-leaning NDP, elected less than three months ago, was already “a disaster” and was incapable of producing a budget.
Harper was referring to Notley’s decision to increase corporate taxes by 20 percent, impose higher carbon taxes and target an increase in minimum wages to C$15 an hour from C$10.20 over the next three years, as well as setting in motion a review of oil and natural gas royalties.
Corporate tax increase CNQ took a C$579 million “deferred income tax charge” in the second quarter to account for Alberta’s hike in provincial corporate income taxes to 12 percent from 10 percent.
“This charge effectively translates into lower future cash flows and therefore, lowers reinvestment in the business,” said Chief Financial Officer Corey Bieber.
“Based upon third party research, this lower future capital reinvestment likely equates to about 4,100 fewer person years of direct, indirect and induced employment, with follow-on impact of higher income taxes on future income streams,” he said.
Earlier this year, long before the prospect of an NDP election victory was thought possible, CNQ halted expansion plans for its North Kirby oil sands project, playing a major role in reducing its capital budget for 2015 to C$6.2 billion from C$8.6 billion, while lowering its production guidance by 29,000 barrels of oil equivalent per day to a range of 869,000-916,000 boe per day.
Bieber said at the time that each US$1 per barrel decline in oil prices reduced CNQ cash flow by C$130 million, adding that his company now needs time to get its costs of materials, equipment and labor “back in line with the new realities.”
2016 spending uncertain Company President Steve Laut said CNQ will be unable to project its spending levels in 2016 until Alberta finalizes its intentions on royalties.
But he insisted his company’s dealings with the Alberta government are good, with both sides committed to strong capital investment and job creation.
“Clearly, if the industry is not healthy enough to invest, then there will be less jobs, and obviously commodity prices have a big impact,” Laut said. “But also taxes, royalties and greenhouse gas charges impact the amount of cash the industry has to reinvest.”
Canadian Oil Sands and Imperial Oil have also reported multimillion-dollar second quarter charges connected to tax changes, while Encana warned the new government that investment dollars can always find an outlet in other jurisdictions.
Bite on profits no surprise Notley replied that it should come as no surprise that higher corporate taxes take a bite out of profits.
But she insisted the NDP’s overwhelming election victory was evidence that Albertans believed the corporate sector should strengthen provincial revenues during an economic downturn.
Notley said her environment and energy ministers “have been having good discussions (with the petroleum industry) and I’ve been reaching out to leaders within the industry since pretty much the day after I got elected.”
“For the most part I’ve been quite pleased with their willingness to work with us on these things.”
Dealing with Harper’s jab, Notley said that “like it or not” the federal Conservative party should come to terms with the decision by Albertans that they had “had enough” of 44 years of rule under the provincial Conservatives and opted to “elect a new government.”
She said her government is now occupied with fulfilling its campaign promises, including the raise in corporate taxes and shifting to a progressive income-tax system under which the wealthy “pay a little more.”
Notley noted that Alberta is the only one of Canada’s 10 provinces not to have a provincial sales tax and “continues to have by far the lowest overall provincial taxes in Canada.”
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