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By Lauren Krugel, The Canadian Press on August 6, 2015.
CALGARY – Canadian Natural Resources is warning that Alberta’s corporate tax hike will hit employment, though both company executives and Premier Rachel Notley agree the steep drop in crude prices is a much bigger challenge.
The Calgary-based oil and gas giant posted a net loss of $405 million during the second quarter, mostly because of a $579-million charge related to the higher tax rate.
All things being equal, the higher tax tab means $579 million less will be invested over the lifespan of Canadian Natural’s assets, chief financial officer Corey Bieber said in an interview.
That figure translates into 4,100 fewer “position years” of direct, indirect and induced employment in that time span, he said, citing a study by a third-party consultant.
The study wasn’t undertaken specifically to look into the impact of the tax changes, but is part of work the company routinely does as part of the regulatory process for its projects, said president Steve Laut.
Unlike many of its peers, Canadian Natural has not announced staff layoffs since crude prices began their sharp decline from above US$100 a barrel a year ago to around US$44 on Thursday. Rather, top brass are taking a pay cut and company-wide pay increases have been scrubbed.
Notley, speaking to reporters in Edmonton, said Albertans accept that higher corporate taxes are going to hit the bottom lines of companies.
“Albertans clearly considered that issue very thoroughly in the last election,” she said. Given the province’s fiscal challenges, Albertans realize it’s necessary to “pull up our socks and tighten our belts” and “everybody needs to chip in.”
She said the tumbling price of crude is having a much bigger impact on employment than the tax increase to 12 per cent from 10 per cent, which came into effect on July 1.
Bieber agrees with that assessment.
Between the first six months of 2014 and the first six months of 2015, Bieber figures the price drop had around a $2.3-billion impact on cash flow.
“The bottom line is, reduced cash flow leads to less ability to reinvest in the business and ultimately that’s what drives growth of the economy,” he said.
Canadian Natural is one of a number of major Calgary oil company to take a tax charge against its second-quarter results.
Last week Canadian Oil Sands (TSX:COS) said its deferred tax expense was $120 million during the quarter, while Imperial Oil (TSX:IMO) took a $320-million charge. A $315-million tax expense at Cenovus Energy (TSX:CVE) was mainly due to the Alberta tax hike, as well.
Without the tax expense and other items in the mix, Canadian Natural said its adjusted earnings from operations were $178 million, compared to $1.15 billion a year earlier.
The Alberta government is setting up expert panels to look into the province’s royalty rates and climate change policy. Notley said more details will be coming out next week.
Laut said until there’s clarity on what kind of additional costs may arise from both reviews, it can’t pin down 2016 spending plans.
He sees work on the Horizon oilsands expansion continuing and more drilling off the shores of Cote d’Ivoire in West Africa.
“But other than that we have to wait and see how the world shakes out.”
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