Canadian oil money looks for home in US
Calgary, Alberta — Canadian capital is on the move to the United States. Petroleum industry investment in particular is on the increase, with Alberta-spun independents leading the way to stake out new well sites in the Dakotas, the Rocky Mountain states, and in the glamour spots of Louisiana, Texas , and California.
The "grass is greener on the other side" philosophy traditionally has been rampant in petroleum industry circles. And since the cyclical ups and downs of the industry, active on both sides of the international boundary, seldom coincided, money, equipment and personnel wandered freely between western Canada and the US.
The influx of massive American Investment and expertise into Alberta, Saskatchewan, and British Columbia peaked in the 1960s and gradually ebbed away during the 1970s. Today, the flow of investment dollars and people is the other way.
But it's an orderly process, set in motion by fairly sophisticated speculators who play several angles in the international energy stakes.
The often rumored wholesale flight of Canadian funds south of the border appears, after closer investigation, to be largely baseless talk.
Nearly all the companies active in the US are simultaneously stepping up their domestic commitments. The corporate expansion into the US usually stems from carefully laid plans for diversification in a nomadic industry with perennial fears of having all its eggs in the same basket. The Canadian independents on occasions have had foreign adventures forced on them by sudden changes in economic conditions and legislation.
While individual corporate investments this year range from less than $1 million to $100 million, few companies regard their US interests as a lifeline in the event "something went sour up here."
The seed money of most Canadian companies is the place in the United States, and most of their operations there are self-supporting. The second wave of Canadian investment now sweeping the US is going largely into real estate and petroleum industry support services.
Despite the immense infrastructure of the US petroleum industry at home, most Canadians bemoan the quality of skills and services available to them south of the border. In fact, the Canadian presence in the US petroleum industry is already big enough to attract and support Canadian service companies, especially in the seismic and geophysical sciences. The high-rise office-tower boom in Denver, for example, is to a large extent financed by Canadian investors and in many cases are occupied by Canadian clients.
Some experts estimated Canadian investment in US commercial real estate about
Canadian petroleum industry investment is much harder to gauge because of the more complex nature of the ownership and operations of the business. However, industry sources say that up to $500 million of direct financing of US ventures by Canadian companies occurred in the latter half of 1979, and the "pace is quickening."
The chief attractions of US involvement for Canadian companies, regardless of size, include high crude oil and natural gas wellhead prices and instant marketing opportunities.
In some parts of the Pacific Northwest and Midwest new oil is fetching a staggering $43 to $46 (US) per barrel when sold on the spot market and an average of $34 (US) per barrel when sold through regular channels. By comparison Canadian-produced oil is worth a mere $14.75 per barrel and it is unlikely to approach either world prices or the still higher American spot market prices for many years. New gas found in the energy hungry states of Montana and Washington is worth between $3 and $4 (US) per thousand cubic feet -- sometimes more -- and as important as the rapidly escalating wellhead price, the fuel begins to flow to market "as soon as the well is completed."
Canadian gas at present is worth about $1.75 per thousand cubic feet at the wellhead (export gas is sold at $4.75). But up to 10 trillion cubic feet of gas found in the past three years has nowhere to go and some producers "are getting desperate," caught between a mounting surplus of fuel and a lack of cash.
Canadian oilmen also like the lower land acquisition costs in the US southwest and West Coast than in Alberta, although elsewhere in the US such expenses are comparable with western Canadian costs.
Despite the fact that their well-success ratio is twice as good in Canada as in the US, Canadians and their American counterparts "get to keep more" of the wellhead revenues because of the much lower royalty and tax levels. Most US oil is still produced under 12.5 percent royalty and even after state taxes and the numerous "overridings" have been taken into account, the total levy seldom exceeds one-fifth of the wellhead values.
Canadian governments by comparison would take at least half of the gross wellhead revenues whether calculated under liberal or conservative taxation proposals.