May 9, 2016
Do opportunities outweigh obstacles in the Canadian oil market? With almost no competition for these assets, many believe that investment opportunities should be investigated. In their article for IPBA Journal, Osler partners Peter Glossop, Frank Turner and Christopher Murray write, “While the industry currently faces some challenges, such as a lack of access to export markets beyond the United States, there are also significant opportunities.”
One of the biggest benefits of investing in Canadian oil is the transaction structure. While other countries often limit the contractual rights of investors, Canada doesn’t and direct interests can be acquired. The transaction structure can also be tailored for individual businesses.
Investors are seeing many key changes, including one to the investment review process. In 2015, the Investment Canada Act made a switch from ‘book value’ to ‘enterprise value’ for the monetary threshold for review. Now, net benefit reviews are only required for businesses with an enterprise value threshold of C$600 million and above.
Royalty rates have also been modified for Canadian wells. A new royalty rate regime will go into effect January 1, 2017. The regime applies to new wells only and is said to, “emulate a revenue-minus-cost standard that uses the average industry drilling costs rather than individual well or project costs.”
To learn more about Canadian oil, climate change and market access, read Peter, Frank and Christopher’s article, “Investment in Canadian oil and gas: time to look again?” [PDF] in issue 81 (pages 28-33) of IPBA Journal, March 2016.