Oil-Sand Woes Set to Deepen as Shaky Petro-Dynasty Risks Defeat

One of the world’s longest-running political dynasties is on the brink of losing power, threatening to make life tougher for companies toiling in Canada’s oil patch.

Alberta’s Progressive Conservatives, in charge of the western province since 1971, trail the two main opposition parties in polls before a May 5 vote. Should they fail to keep the leadership, energy producers stand to lose some of the advantages they enjoyed on taxes, royalties and environmental rules that helped propel the industry to the forefront of Canada’s economy.

A crude-price slump that’s eroding profits for oil-sands companies such as Suncor Energy Inc. is also crimping provincial revenue. To balance the books, Premier Jim Prentice is proposing cuts to health spending and higher taxes for households, while sparing the rattled companies. His plan is backfiring as the unpopularity of the measures paves the way for less oil-friendly challengers to rise.

“One of the reasons we’re in this mess is because the Progressive Conservatives have wasted billions in corporate handouts,” Brian Jean, leader of the Wildrose Alliance that’s second in the polls, said during a televised debate on April 23.

A tougher government for the industry that develops the world’s third-largest pool of proven oil reserves would add to dire prospects for earnings. Producers are set to report the worst quarter in at least a decade, according to data compiled by Bloomberg. Almost half of the companies on the Standard & Poor’s/TSX Energy Index, including Suncor, Cenovus Energy Inc. and Canada Natural Resources Ltd., are expected to post losses.

Producers declined to comment on the election when contacted by Bloomberg, referring questions to the Canadian Association of Petroleum Producers.

Competitive Frameworks

“We support the government maintaining its competitive corporate tax and royalty frameworks and would like to see the province continue to work with industry and other stakeholders to find efficiencies in the energy regulatory system,” Chelsie Klassen, spokeswoman for the association, said in an e-mail.

Rachel Notley of the New Democratic Party, which is leading the polls, plans to raise levies on corporations to 12 percent from 10 percent and has said she would review the royalties oil producers pay to the province if her party is elected to form a government next month.

Notley would rescind government support for Enbridge Inc.’s Northern Gateway pipeline, proposed to cross British Columbia to carry Alberta bitumen to the Pacific, she said in an interview to the Calgary Herald on April 24.

‘Environmental Sensitivity’

“There’s too much environmental sensitivity there and there’s genuine concern by the indigenous communities,” she told the newspaper, adding that Kinder Morgan Inc.’s Trans Mountain and TransCanada Corp.’s Energy East lines are “worthy of discussion.”

The Wildrose’s Jean is proposing more control over the industry’s pace of development and impact on the environment, while attacking the ruling party’s management of public health and favoring of business.

Still, whichever government is formed next month will need the revenues from the energy industry.

“While they may talk tough, they need to ensure the province’s resources are profitably and safely developed,” said Jennifer Stevenson, a portfolio manager at 1832 Asset Management LP’s Dynamic Funds in Calgary. “The province relies on the oil and gas industry to fund the budget and manage employment.”

A Forum Research poll following the debate showed the NDP in the lead with 38 percent, followed by the Wildrose with 25 percent and the Conservatives with 20 percent.

‘Best Option’

“The Progressive Conservatives are probably the best option for the energy industry,” said Jack Mintz, director of the University of Calgary’s school of public policy and member of Imperial Oil Ltd.’s board of directors. “They won’t be eroding the Alberta advantage” of low taxes.

This isn’t the first time energy producers had to worry the Conservatives could be defeated. Days before the 2012 election, voter surveys showed the party under former premier Alison Redford trailing the Wildrose’s 40 percent lead with just 32 percent support. Instead, the party won a 12th consecutive majority, with 44 percent of the popular vote, compared with 34 percent for Wildrose.

Alberta has been led mainly by long-governing parties, with the United Farmers in power from 1921 to 1935 and the Social Credit ruling from 1935 to 1971. Oil and natural gas became the province’s main source of income in the 1970s

Employment Risks

Prentice said the budget he presented in March left corporate taxes unchanged at 10 percent, while boosting levies on income earners, because that made more sense given the risks to employment.

“I know that raising corporate taxes seems like an easy solution, but it will destroy jobs,” he said in last week’s debate. “One of our advantages is low tax rates. That’s why we’re the economic engine of the country.”

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