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.
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.
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.