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Aerial shot of Athabasca oil sands.
Canada’s move to stop foreign state-owned firms from investing in its oil sands have pushed down shares in local companies, knocking their value between 20% and 30% since the rules came in, a new study from the University of Calgary says.
The report analyzes share prices of oil sands companies since December 2012, when the regulations were first announced, to March this year, concluding junior oil sands companies are the ones that have suffered the most.
Small miners’ stocks plummeted by as much as 50% 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.
Source: “The impact of foreign investment restrictions on the stock returns of oil sands companies.” June 2014.
Canada’s oil sands are said to need roughly $100 billion in investment over the next five years. The study warns that having removed such a significant source of funding could make those projects even more expensive, becoming a drag on shares.
“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.
Source: “The impact of foreign investment restrictions on the stock returns of oil sands companies.” June 2014.
Juniors rely on outside financing to grow their operations much more than their larger counterparts. Much of that investment comes from joint ventures, in which a partner buys a stake in a project and then gets a proportionate share of its returns.
Those sorts of transactions, at least in theory, are still allowed under Ottawa’s new rules, provided the foreign state-owned entity doesn’t have control. In reality, the rules are causing investment to slow down, the report concludes.
3 Comments
Mark
More investment is not required. The excessive discounts on WCS is because there is over-investment into Canada’s oilsands sector relative to transportation capacity, labour availability, etc. The market is doing its job by discounting firms that over-invest.
LAMB
First, Canada has been too lax on allowing foreign companies into Canada to buy up our resource companies which were then shut down in favour of that foreign company’s own facilities. For example, XSTRATA acquired Falconbridge, then shut down the Timmins Zinc Refinery and sent the zinc concentrates off to their own refinery off-shore. 400 Canadian jobs were lost AND no Canadian government ( Ottawa or Ontario) objected. Canada needs MORE control over it’s Resource sector. Most readers do not remember FIRA (Foreign Investment Review Agency). During the time ( 1970’s ), foreign companies were HAPPY to get 49% of a project, leaving 51% under Canadian control. It NEVER stopped investment.
As for Oil Sands, there is enough current investment, the Juniors are not needed – indeed, if they cannot survive, they probably should not have been in the industry in the first place.
The way I see it anyhow.
VPS
This seems a highly biased study aimed at benefiting one particular foreign country CHINA. The sum of the whole story is that. So that, China can take away all Canadian jobs to China, export all our resources to China at will and steal all Canadian technology. All this in the garb of socialism where the people are not paid enough, are oppressed, and all the money is going into the pockets of few powerful people. Where there is rule of law and ethics you can run business by ethical practices, but where there is no such thing what do you expect to get by allowing the state owned companies of China to own all of Canada? Canada must protect its interests and Canadian jobs.