Canadian Taxation of Oil Producers Should Be Moderate

Buy-recommendations Imperial Oil (IMO), Petro-Canada (PCZ), Suncor (SU), Encana (ECA) and Canadian Oil Sands Trust (COSWF), among other oil sands and heavy oil producers, are likely to overcome any probable penalty as a result of global warming concerns.

Alberta Premier Ed Stelmach’s proposed reduction of 12% in carbo dioxide emissions would cost perhaps $0.20 a barrel according to our rough calculations (see Royalty Trust Weekly, March 23, 2007). A clean air act that cleared a vote in a House of Commons committee in Ottawa would include a tax on emissions that might amount to $0.60 a barrel initially as we understand it.

Press reports suggest that final action in Canada’s parliament may trigger an election to replace the current government.

From a practical point of view, as long as the world gets a large portion of its energy from burning coal, currently about a third, the restrictions on sources of refined oil products ought to be moderate. Meanwhile the renewed uptrend in six-year price of oil and natural gas as well as the ratio of natural gas price to oil continues by the 40-week average measure (see charts below).