Finding new sources of investment for future energy exploration and improving Alberta’s poor track record in helping startup companies source early-stage capital are critical factors in ensuring this province’s economic health continues, says the head of a group that oversees Canada’s securities industry.
As more and more Alberta-based oil companies are either acquired or converted into income trusts, money that was once pumped back into searching for and exploiting reserves in the maturing Western Canadian Sedimentary Basin is evaporating, Terry Salman told a Calgary Chamber of Commerce audience last week.
“I can name at least 15 Canadian energy companies that have been acquired by U.S. companies in the last three years. Familiar names like Gulf, Anderson, Canadian Hunter, Berkeley and Northrock are gone, to name just a few,” said Salman, chair of the Canadian Investment Dealers Association, a self-regulating organization that represents and regulates the activities of investment dealers.
Foreign firms have a global investment focus, he added, and while they can invest in exploration and development in Alberta, there is no guarantee that they will. “And if they choose to invest elsewhere, the implications for the Alberta economy will be significant.”
Historically, mid-sized oil and gas producers placed high importance on reinvesting profits into exploration and development, whereas income trusts are intent on maximizing cash flow to investors, Salman noted.
He suggested a number of remedies to help oil and gas juniors thrive, including royalty reductions for startups and small producers, to tax forgiveness and allowing companies to retain initial cash flows through tax deferrals.
“We must do everything we can to promote a healthy capital markets environment so that these micro-caps can grow up and take their place as the next generation of mid-sized producers,” he added.
He praised efforts by the Alberta Securities Commission and Canadian securities administrators to harmonize security laws across the country as a “good step” in reducing the costs of accessing capital in public markets, but said more action is needed in the venture capital area.
“Current escrow provisions, which restrict principals from selling their shares immediately, are a deterrent” for startup companies, he observed. “Additionally, restricting the amount that can be raised through the Venture Exchange’s capital pool program to just $700,000 severely limits its usefulness.”
Alberta has also taken the lead in spending on research and development on a per capita basis, Salman said, while initiatives such as the recently announced private-public partnership program will help replace revenue lost through lower taxes.
The IDA supports tax-credit incentives, including an R&D tax credit of 10 per cent, to boost investment in both small business and the oilpatch. It is also lobbying for:
* Lowering corporate tax rates to below those of the U.S. to give Canadian companies a competitive advantage.
* Equalizing tax credits to level the playing field for investors in both public and private companies.
* A uniform tax rate for all industries. Protection of the environment should be balanced with the need to foster development, says the IDA.
“Everything from taxes to red tape to infrastructure must be assessed and reviewed if we are to encourage growth and unlock the potential of the Alberta economy,” Salman added.
Meanwhile, the IDA applauded steps taken by the federal government in last week’s budget to support small business and the resource sector through the tax system.
“We are pleased that the government has responded positively on RRSPs, capital taxes and tax measures in support of small business, but we are mindful that longer-term productivity and competitiveness gains for Canada will require further progress on the tax front,” said IDA president and CEO Joe Oliver. “We hope that the heavy spending commitments contained in this budget will not constrain future progress in this area.”