Newspaper article The Canadian Press

Foreign Investment Rules Hurting Oilsands, Especially Small Players: Study

Newspaper article The Canadian Press

Foreign Investment Rules Hurting Oilsands, Especially Small Players: Study

Article excerpt

Investment rules hurting oilsands: study

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CALGARY - Rules imposed on foreign state-owned investment in the oilsands are having some unintended consequences in the oilpatch, says a new study by the University of Calgary's School of Public Policy.

The report analyzes share prices of oilsands companies since the regulations were announced in December 2012. That's when the Harper government approved Chinese-owned CNOOC Ltd.'s $15-billion takeover of Calgary-based Nexen Inc., but imposed limitations on further ownership of oilsands resources by state-owned firms.

The study shows that between the announcement and March of this year, oilsands stocks were about 20 per cent lower than what would have otherwise been expected. For junior firms, it was about a 30 per cent hit.

"The findings of this paper indicate the federal government's policy change has resulted in the material destruction of shareholder wealth," the study's authors wrote.

The biggest impact has been on junior oilsands companies, whose stocks dropped by as much as 50 per cent in the first half of 2013, diverging greatly from where oil prices and the wider stock market were heading at the time. Senior and intermediate players showed steadier performance.

"There's a significant cost and that cost is borne disproportionately by juniors," Eugene Beaulieu, director of the school's international economics program, said in an interview.

The study was co-authored by Matthew Saunders, a senior analyst with early-stage oilsands firm Laricina Energy.

Small oilsands companies rely on outside investment to grow their operations much more than their larger counterparts. Much of that financing comes from joint ventures in which a partner buys a ownership stake in a project and reaps a proportionate share of its returns.

In theory, those types of deals are still allowed under Ottawa's new rules, provided the foreign state-owned entity doesn't have control. Put in practice, that investment seems to be slowing.

"Joint ventures and other kinds of investments that weren't targeted by the policy have been affected," said Beaulieu. "It wasn't intended by the policy, but it seems to be having that effect. …

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