GULF CANADA SEES EXPLORATION SHIFT ABROAD

Major Canadian operators will have to shift more exploration emphasis to non-Canadian plays to survive, says the head of Gulf Canada Resources Ltd. Gulf Canada Pres. Chuck Schultz said he does not believe companies the size of Gulf Canada can replace their liquid reserves from Canadian sources. Schultz said non-Canadian finding costs are as much as 40% less than those in Canada, and rates of return on investment are at least 5 percentage points higher than the 4-5% return in Canada in recent

July 8, 1991

2 min read

Major Canadian operators will have to shift more exploration emphasis to non-Canadian plays to survive, says the head of Gulf Canada Resources Ltd.

Gulf Canada Pres. Chuck Schultz said he does not believe companies the size of Gulf Canada can replace their liquid reserves from Canadian sources.

Schultz said non-Canadian finding costs are as much as 40% less than those in Canada, and rates of return on investment are at least 5 percentage points higher than the 4-5% return in Canada in recent years.

In foreign operations, Gulf Canada is involved in exploration in Indonesia, Malaysia, Australia, Egypt, and Algeria and is pursuing joint ventures in the Soviet Union. The company is spending about $70 million, or about 25% of its capital outlays, on non-Canadian operations, and that percentage is expected to increase.

Schultz said there are still good domestic opportunities for Canadian companies, but some investment capital has already shifted to international exploration from Canadian frontier areas. Gulf Canada and others have suspended exploration programs in the Canadian Beaufort Sea. Exploration activity is minimal off Canada's east coast.

TAX, ROYALTY REDUCTIONS

Meanwhile, Canadian industry associations are campaigning to win tax and royalty cuts on conventional production from governments to improve activity and profits.

The Canadian Petroleum Association wants the Alberta government to base its royalty on operating profits after costs are deducted rather than on revenues.

CPA points out that other extractive industries, such as mining, oilsands operations, and enhanced recovery projects are taxed on profits.

The association said unless the royalty system is changed the industry will continue to shrink and contribute less to the economy. It said the royalty system based on revenues was established when costs were more stable and conventional production was increasing, not declining.

The Independent Petroleum Association of Canada also is seeking royalty cuts.

Alberta Energy Minister Rick Orman has rejected cuts because a drop in his province's royalty income of about $2.2 billion (Canadian)/year would require income tax increases to make up the shortfall.

Statistics Canada, a federal agency, reports energy industry profits declined 59% in the first quarter of this year to $1.1 billion from $2.7 billion in fourth quarter 1990.

The agency blamed falling oil prices after the Persian Gulf war and a warm winter that reduced demand and prices for natural gas.