Page 5 - NorthAmOil Week 46 2022
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NorthAmOil                                   COMMENTARY                                          NorthAmOil


                                                                                                  The industry has been
                                                                                                  hesitant to invest in
                                                                                                  new growth and the
                                                                                                  tax is not expected to
                                                                                                  change this.



























                         shareholders, they could also tie up financial   The tax “may have the unintended effect of
                         resources that could otherwise be invested in  discouraging investment into Canadian-run
                         growing a business or climate change mitigation  companies while putting the shareholder
                         measures. And while the oil and gas industry is  returns of Canadian investors at risk,” said the
                         investing more in climate change mitigation  CAPP’s president, Lisa Baiton. And industry
                         measures it has generally been hesitant to pour  players have raised the concern that smaller
                         cash into growth over recent years, having seen  companies could be hit particularly hard by the
                         its profits hit hard by the oil price downturns of  planned tax.
                         recent years.                         However, there are other ways for companies
                           Of the leading Canadian oil producers  to return money to shareholders, including div-
                         – which dominate the oil sands in particu-  idend payments. Indeed, some investors already
                         lar – Suncor Energy has bought back around  expect that oil and gas companies will prioritise
                         CAD4.6bn ($3.4bn) worth of common stock  dividend payments in the future in the face of
                         this year, up from roughly CAD1.7bn ($1.3bn)  the new tax on share buybacks. Others, mean-
                         over the first nine months of 2202. Canadian  while, have predicted that there will now be a
                         Natural Resources Ltd. (CNRL) has bought  rush to buy back shares before the tax is imple-
                         back around CAD5.1bn ($3.8bn) in shares for  mented in January 2024.
                         this year to date, up from CAD940mn ($705mn)   It is worth noting that few seem to believe
                         over the same period of 2021. Cenovus Energy  that the new tax will result in additional invest-
                         launched its share buyback programme in  ments in operations. This could be because of a
                         November 2021. Since then, the company has  broader hesitancy among Canada’s oil and gas   There are
                         bought back roughly 118mn common shares  producers when it comes to investing in new
                         and generated around CAD2.5bn ($1.9bn) in  projects. Indeed, there is uncertainty in par-  other ways for
                         returns for its shareholders. While its current  ticular over the fate of the oil sands, which are   companies to
                         share buyback programme is about to expire,  renowned for being particularly emissions-in-
                         the company intends to launch another one.  tensive. Canada is grappling with the question   return money to
                           Tudor Pickering Holt and Co. (TPH) has esti-  of how to deal with those emissions.
                         mated that those three companies, along with   Indeed, the country’s oil industry is also try-  shareholders,
                         ExxonMobil subsidiary Imperial Oil, have spent  ing to address this question as it considers how
                         a combined CAD15.8bn ($11.8bn) on share  to proceed and how to make its operations via-  including
                         repurchases over the first three quarters of the  ble over the long term. While Canada’s leading   dividend
                         year. At the same time, those companies have  oil producers are pursuing a collective net-zero
                         held back from significantly boosting produc-  emissions target for the oil sands, they still hope   payments.
                         tion amid concerns over oil price volatility and  to figure out a way of carrying on their opera-
                         the long-term trajectory of demand.  tions for as long as possible.
                                                               Carbon capture and sequestration (CCS)
                         What next?                           will form a major plan part of this plan. None-
                         Industry groups such as the Canadian Associ-  theless, investing in new oil and gas capacity
                         ation of Petroleum Producers (CAPP) and the  appears to be a risky proposition and the intro-
                         Explorers and Producers Association of Canada  duction of the tax on share buybacks is not
                         have said that the tax puts the industry at a com-  expected to do anything to change the view of
                         petitive disadvantage.               the risk involved.™



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