Petroleum Taxation: A Comparison Between Canada and The U.S.

Abstract

The first part of the paper outlines the present tax systems in the US and Canada. Then, the relative profitability of a petroleum-based investment in the two countries is explored (for both an onshore and offshore discovery). To add to the scope of the profitability comparison, calculations for the U.K. offshore are included. These calculations are based on the most likely geological risks, and the expected size and cost of the discovery for each of the different regions. This highlights the different levels of profitability to be expected from exploration efforts in the various regions; but it does not permit one to distinguish whether the differences in profitability are caused by the taxation system or due to the geological prospects. To overcome this problem the fiscal system of one country is imposed upon the geological, cost, and price characteristics of another country, allowing a comparison of profitability under a “common pool”.This has been done for both the onshore and offshore regions to isolate the differences caused by the taxation system.

I wish to acknowledge my deepest appreciation to the Canadian Energy Research Institute of Calgary for making available to me a recently completed (and still confidential) consulting study, of which I made extensive use of two reports: one describes fiscal systems in six countries, and the other compares oil and gas investment returns in Canada, the U. S. and the U.K.