U.S. Oil Giants Exxon, Chevron get boost from tax cut in Canada
(Bloomberg) - A corporate tax rate cut in the oil-rich province of Alberta, where both ExxonMobil and Chevron have operations, boosted Exxon’s second-quarter profit by almost $500 million, according to a statement Friday. Chevron noted a $180 million non-cash tax benefit from the measure in its report.
While a Canadian tax cut benefiting U.S. companies may seem like a misfire in an era of rising trade tensions, the measure is working as intended. Alberta Premier Jason Kenney has made the tax cut a centerpiece of his effort to bring jobs and global investment back to the province, which was hit hard by the 2014 crash in global oil prices and pipeline delays.
The province has seen international companies including Royal Dutch Shell Plc, ConocoPhillips and Total SA sell their local operations, stoking concerns about the region’s competitiveness. The tax supported by Kenney, who took power in April, trimmed the corporate rate to 11% from 12% starting last month. It’s already the lowest in Canada, and will continue to decline in the coming years, reaching 8% in 2022. At that point, it will be lower than in 44 U.S. states, according to Kenney’s office.
The tax cut represents a material improvement in Alberta’s business environment, but it’s still only one part of the fiscal, economic and regulatory conditions that determine a region’s competitiveness, said Rich Kruger, chief executive officer of Imperial Oil Ltd., the Exxon-owned Canadian oil-sands company that benefited from the tax cut. Kruger lauded other moves by Kenney’s government, including changes to the province’s carbon tax and reductions in regulations as helping to improve the environment as well.
“Any step that continues to enhance our competitiveness in a global industry, which oil and gas is because we’ve got to compete globally for capital, is a good step,” Kruger said in an interview. “How fast does it lead to new investment? That’s a different question because we still have other things we’re dealing with, like a lack of pipeline space right now.”
To be sure, Alberta-based oil producers including Suncor Energy Inc. and Cenovus Energy Inc. also reported substantial second-quarter benefits from the measure.
“These tax cuts are a vital part of our plan to reignite the economy, support job creators and get Albertans working again,” Kenney said in a statement after the cuts were signed into law in June. “We are hearing from companies around the world that are looking at Alberta as a prime location for investment, relocation and expansion.”