Page 4 - NorthAmOil Week 46 2022

NorthAmOil COMMENTARY NorthAmOil

Canada’s oil and gas industry

reacts to Ottawa’s share

buyback tax plan

Canada’s oil and gas industry is assessing the potential impact of Ottawa’s

plan to tax share buybacks but is unlikely to be deterred from further
buybacks in the future

CANADA CANADIAN oil and gas companies have unlikely to pass but it nonetheless illustrates a
warned the federal government that a tax on growing appetite for taxing oil and gas company
WHAT: share buybacks could be detrimental to their profits as they rise to new highs while people
Canada’s oil and gas business. However, the planned tax, which is due struggle with high energy bills amid spiralling
industry is assessing the to come into effect in 2024, is unlikely to deter inflation.
impact of an upcoming them from future stock buyback programmes. Ottawa is taking a different approach as
tax on share buybacks. Ottawa unveiled its plan for the 2% tax on corpo- it seeks to impose a tax on share buybacks –
rate stock buybacks earlier this month. something the oil and gas industry has been
WHY: The Canadian government anticipates rais- renowned for recently. But it is possible that
The federal government ing CAD2.1bn ($1.6bn) over a five-year period the country’s oil and gas industry still considers
plans to introduce a tax from the tax. It appears that the tax will have a itself to be targeted by Ottawa as it continues to
on share buybacks. particularly significant impact on the oil and clash with the government of Canadian Prime
gas industry, which has been responsible for Minister Justin Trudeau over the future direc-
WHAT NEXT: the most stock buybacks out of all industries. tion of energy production and decarbonisation.
Canadian oil and gas Indeed, the industry’s initial reaction suggests
companies are unlikely to that some players think the tax is deliberately Big on buybacks
be deterred from future targeted at oil and gas companies, which have Canadian oil and gas companies have been
share buybacks. been reaping high profits on the back of stronger heavily involved in share buybacks recently in
energy prices and demand this year. line with much of the oil and gas industry more
Other countries are planning windfall taxes broadly. This has come about as shareholders in
on oil and gas profits. Indeed, Canada’s neigh- publicly listed companies have exerted increas-
bour, the US, has seen a proposed windfall tax ingly more pressure on oil and gas firms to return
suggested by President Joe Biden. The Biden cash to shareholders. Stock buybacks have been
administration is also planning to introduce a one option for returning such cash to sharehold-
tax on share buybacks, but it would be lower ers, along with higher dividend payments.
then what Ottawa is planning at 1%. The US’ CBC News noted recently that while stock
proposed windfall tax, meanwhile, is considered buybacks represent a way to return cash to

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