Page 5 - NorthAmOil Week 46 2022

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.™

Week 46 17•November•2022 www. NEWSBASE .com P5