By Rick Telfer
Alberta’s tar sands continue to be enormously profitable for the five largest bitumen-extractive corporations in Canada, according to a new report released on Nov. 8 by the Canadian Centre for Policy Alternatives (CCPA) and the Alberta-based Parkland Institute.
According to the report,“gross profits are the key factor that determines the accumulation strategies of these oligopolistic corporations.”
The report – entitled “Boom, Bust, and Consolidation: Corporate Restructuring in the Alberta Oil Sands” – examined the finances of Suncor Energy, Canadian Natural Resources Limited (CNRL), Cenovus Energy, Imperial Oil and Husky Energy from 2009 to 2017. These “Big Five” companies produce 80 per cent of Canada’s bitumen.
The oil companies enjoyed an economic boom period until an oil price crash in late 2014: the bust. According to the research, a “prolonged glut in global oil markets” led to the price of oil losing “nearly half of its value in the second half of 2014.” Consequently, “2015 was the worst year for Alberta job losses since 1982.”
However, the Big Five still paid $12.56 billion in dividends to shareholders since then, for a total of $31.76 billion over the entire period.
In 2017 alone, the Big Five banked $7.3 billion, paid $6.2 billion to shareholders, and remitted $4.72 billion in government taxes and royalties. In total, the Big Five’s profits were $46.6 billion in 2017.
In comparison, the Alberta government’s revenues totalled $47.3 billion in 2017, and the federal government reported $293.5 billion in revenue for the fiscal year ending in 2017. In other words, the Big Five raked in the equivalent of 98.5% of the Alberta government’s revenue and 15.9% of the federal government’s revenue.
“Despite the 2014 oil price crash and the ongoing hand-wringing over pipelines and the price differential, the reality is that the Big Five oil sands producers have remained incredibly profitable corporations,” said Ian Hussey, the lead author of the report.
“There’s no question that the price crash had a major impact on the industry in Alberta, most importantly on the almost 20,000 workers who lost their jobs in 2015, but the Big Five are doing just fine,” Hussey added.
In response to the report, Ben Brunnen, a vice-president of the Canadian Association of Petroleum Producers, told CBC News that the figures show that “both companies and the governments are sharing in the benefits of the development, which is actually quite consistent with the nature of the royalty and resource development system that was built in Alberta.”
“So I would sort of make the case that [what] we see here is an example of the system working quite well,” said Brunnen. If shareholders are not rewarded in what is “a very competitive market for capital,” investors will take their money elsewhere, he added.
Meanwhile, Hussey explained that the “highly integrated” multinational oil companies – all with “significant assets in the US” – have been able to shift their operations in order to remain profitable.
Additionally, as the report details, “restructuring in the Alberta oil sands industry has consisted of several global oil giants selling their oil sands assets and the acquisition of much of this productive capacity by the Big Five” from 2015 to 2017. This was the post-bust consolidation period.
The report explains that “the Big Five were all vocal on what this phase of consolidation means for the future of the industry, with all five downplaying the possibility of large-scale expansion of productive capacity in the near-term. There will be expansion of production, but largely through increased efficiency of current facilities and because of past investments.”
Given the Big Five’s cost-cutting and slowing investment, the report concludes that the oil production sector has “weak fiscal, investment, employment, and innovation benefits.”
Worse, “if the Big Five are able to continue to steer provincial and federal fiscal, energy, and climate policies, Canada will not be able to live up to its Paris Agreement obligations for the year 2050.”
The Paris Agreement, an international accord which came into effect in Nov. 2016, aims to limit global warming to an increase of 1.5°C in order to avoid catastrophic climate breakdown. The target is widely regarded as ambitious and the agreement is non-binding.
The central problem, according to the report, is that “gross profits are the key factor that determines the accumulation strategies of these oligopolistic corporations.”
Another report released on Oct. 18 entitled “Who Owns Canada’s Fossil-Fuel Sector?” – also by the Parkland Institute and the CCPA – explored the profit-seeking problem in greater depth by determining “who has both an interest in the sector’s continued growth and the economic power to shape its future.”
The authors of the report found that, between 2010 and 2015, 25 investors controlled more than 40 per cent of total fossil fuel industry revenues.
The report concluded that “the financial benefits from fossil-fuel production go predominantly to a relatively small number of corporations, investment funds, wealthy families and governments” who wield immense economic power. A great deal of the industry is foreign-owned, and Canada’s five largest banks – RBC, TD, Scotiabank, BMO and CIBC – rank among the top investors.
“Financial institutions, pension funds and asset managers together own substantial blocs of shares in many of these companies,” explained Bill Carroll, co-author of the study and a professor of sociology at the University of Victoria. “Each institutional investor may own less than 10% of any single company, but as a group they own far more. This places them in a position to exert control as a ‘constellation of interests.’”
To have any chance of achieving the Paris target, the Nov. 8 report concludes that “Canada and other countries need to implement much higher carbon taxes, and fossil-fuel-producing jurisdictions like Alberta need to develop and legislate plans for phasing out hydrocarbon production over the next number of years.”
“Albertans have to ask if it’s worth it to continue to bet on the cost-cutting sector with weak fiscal and employment benefits that has emerged from the crash,” said Hussey, “or if now is the time to put in place the policies to position the province to benefit from the ongoing global energy transition.”