Foreign investors soon may have an expanded opportunity to invest in Canada's oil industry.
Industry and business groups and members of the Alberta caucus of the governing federal Conservative Party are calling for easing or removal of current restrictions on foreign investment in the energy sector.
There is strong opposition from the political left to block any dilution of current limits on foreign investment in Canada.
FOREIGN INVESTMENTS SCREENED
Investment Canada (IC), a federal watchdog, screens foreign investments to ensure they are in the Canadian interest.
The rules implement a ceiling of $5 million (Canadian) on the value of energy companies that can be bought by foreign investors. An exception can be made if the target company is in financial difficulty.
That rule is currently being tested in two takeover applications now before the federal regulators.
Hong Kong investor Li Kashing wants to buy 43% of Calgary-based Husky Oil Ltd. from parent Nova Corp. to add to the 43% he already owns.
IC also is studying a bid by state oil company Petro-Canada to sell a 17% share of the Syncrude Canada Ltd. oilsands plant to Mitsubishi Oil Co.
FAVORING RELAXED RULES
Federal Energy Minister Jake Epp favors relaxation of foreign investment rules to attract new capital to the industry, battered by lagging oil and gas prices and a high Canadian dollar. He has not spelled out specific proposals Ottawa would consider.
The Canadian Petroleum Association has called for the removal of remaining restriction on foreign investors. CPA Chairman Lorne Gordon says ultimate ownership of shares has little to do with how industry functions.
"Governments have unlimited control of our industry through the National Energy Board and the (Alberta) Energy Resources Conservation Board," he said.
Gordon estimated profits for Canada's upstream industry in 1991 will be about $200 million vs. $1.7 billion in 1990. CPA says industry employment has fallen to about 80,000 this year from 140,000 in 1985.
The campaign for new flows of foreign capital is being supported by Albertan members of Parliament. Doug Fee, vice-chairman of the Alberta caucus, says it would be ideal to have Canadian control of everything in the country. But he said the current reality is that investment is needed to stimulate the economy and create jobs.
Reduction or removal of restrictions have also been supported by the Alberta government, chambers of commerce, and members of the provincial Liberal party.
Liberal leader Laurence Decore says foreign capital does not come with strings attached and goes where the best return is in an increasingly global economy.
OPPOSITION TO CHANGE
The main opposition to any changes in current foreign investment rules comes from nationalistic groups and the federal New Democratic Party. Ross Harvey, NPD energy specialist, says high levels of foreign ownership in the Canadian oil industry simply intensify problems.
Harvey said Canadian controlled companies reinvested 94% of their $34.8 billion cash flow in Canada in the 1980s while foreign controlled firms reinvested only 77%.
He said if foreign firms had invested at the same rate as domestic companies as many as 60,000 industry jobs could have been saved. Harvey said foreign controlled firms exported $23 billion in capital from Canada in the 1980s while domestic firms generated a net capital inflow of $500 million.
Epp said Harvey's conclusions don't tell the whole story. He contends the high level of Canadian reinvestment came substantially from Canadian taxpayers in the form of government incentive programs to encourage industry activity. The energy minister said Canada must be able to draw on a larger pool of foreign capital to revive the energy sector.
Copyright 1991 Oil & Gas Journal. All Rights Reserved.
