NDP’s historic win puts an end to four decades of PC majority in Alberta, uncertainty spooks energy stocks
The New Democrat Party (NDP) will take control in Alberta, raising concerns in the local energy sector about the future business environment.
The NDP majority government’s surprise win in yesterday’s election puts an end to 44 years of Progressive Conservative (PC) majority governments. The news sent the S&P/TSX composite index down by triple digits Wednesday morning and caused heartburn in Calgary.
The NDP committed to bring tax hikes to Alberta’s top 10% of income earners and to raise the corporate tax during its campaign, in order to raise more money for health care and education, reports BNN. The party also said that it planned to re-examine Alberta’s fossil fuel royalties, with a view toward raising the amount companies must pay to the government for their production.
Uncertainty is Hurting Producers
The potential hike in royalties is not the biggest concern right now though, says Jeremy McCrea, an energy analyst from Altacorp Capital. The royalty could be as high as 10% to 12%, says McCrea, but no one is entirely sure yet what the final number will be and that uncertainty is what is really causing instability. McCrea says that companies will likely choose to focus on operations in other provinces while the details get worked out.
Oil sands operators were hit especially hard after the announcement of the NDP victory, says McCrea. Alberta’s new NDP Leader Rachel Noltey has said she opposes pipelines like Keystone because they export jobs out of the Canadian economy. This position, plus Canada’s push to become a leader in reducing carbon emissions, and the uncertainty about royalties are combining to have a powerful effect on oil sands operators.
“The sooner we can get clarity on what to expect from the new government on royalty rates, the sooner oil and gas companies can get back to drilling,” one analyst told BNN.
Noltey has promised to work with Alberta’s energy sector, but business leaders are still worried, Calgary Chamber of Commerce CEO Adam Legge told BNN. “An NDP majority – that was definitely a surprise,” he said.
“We have to find a way to work with (the NDP) in a positive way to reflect the needs of business and our economy,” Legge said.
The fear of being squeezed by higher royalty payments combined with higher corporate taxes and increased carbon penalties, or the introduction of a new carbon tax, sent Alberta’s energy sector into a panic.
Legge said the New Democrats “must understand … that a royalty review would just be the wrong thing to do in a very fragile environment.”
Interviewed on BNN, Brian Schmidt, CEO of Tamarack Valley Energy, said that the last time a royalty review was held in Alberta, there was an exodus of capital investment from the province. Schmidt emphasized the difficulty that is already being experienced in the sector from the $50 drop in oil prices that North American producers are trying to manage their companies through.
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