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Even in an industry where competent communicators are about as rare as Liberals in downtown Calgary, Cenovus Energy CEO Alex Pourbaix’s comments stood out. After announcing a $1.6-billion profit in the first quarter of 2022 — one that allowed his company to triple its dividend to shareholders — he rattled his can in the direction of the federal government over its tax credit for carbon capture and storage (CCS) projects. “These are multibillion-dollar projects,” he told analysts on a conference call Wednesday. “We have to have certainty that they are investable, and that we can manage those investments over the entire commodity price cycle.”
Translation: Ottawa needs to make its existing CCS tax credit, which is already worth billions of dollars, even more generous. Beginning in 2022, companies like Cenovus are able to claim a credit of up to 60 per cent for direct air capture projects and 50 per cent for more conventional carbon capture technology. But Pourbaix and the other members of the Oil Sands Pathway Alliance, which includes the six major oilsands producers, apparently have their eyes on the even more generous incentives in Norway, where the government is covering as much as two-thirds of the up-front cost on a major new CCS project.
There’s a catch here, though, one that people like Pourbaix would probably rather not mention: the Norwegian government has a much bigger stake in the companies it’s subsidizing. The Longship project will sequester carbon dioxide from two potential sources (a cement factory and a waste-to-energy plant co-owned by the City of Oslo) through a pipeline and into permanent storage under the North Sea by a trio of oil companies led by Equinor. And the Norwegian people still control 67 per cent of Equinor, along with an equivalent proportion of its profits.
In Canada, on the other hand, companies like Cenovus and the rest of the oilsands players are owned entirely by private shareholders. Those shareholders are doing very well right now and stand to do even better in the future as fossil fuel companies continue to pay down debt and direct even more of their massive free cash flows to dividends and stock buybacks. Imperial Oil just posted the highest first-quarter profit in over 30 years, one that will allow it to buy back up to $2.5 billion of its own shares.
Don’t just take it from me. RBC Capital Markets estimated the four largest oilsands companies will generate $47 billion in free cash flow (that is, cash after funding its operating activities) in 2022 and 2023. That’s basically two-thirds of the total estimated cost of the transition to net-zero emissions for all of the oilsands companies — in just two years. Meanwhile, the transition itself is expected to play out over more than two decades.
So yes, they can easily afford to pay for their carbon capture and storage projects. But the disconnect between their ongoing campaign for more corporate welfare and the reality of their record profitability raises an important question: is it time for the taxpayer to get a bigger piece of the action?
A pro-oil investment firm CEO named Shubham Garg seemed to inadvertently provide an answer to that question in a recent tweet. “Canadian oil companies enjoy much higher ‘free cash flow’ during times of high commodity pricing when compared to peers in other countries,” he wrote. “Large tax pools further reduce the tax burden and make a very compelling case for investing in [Canadian] O&G.”
CEOs like Pourbaix have been making that case to investors lately, which fundamentally undermines their appeal for more government subsidies. "I suspect, over the long term, much as we've seen in other jurisdictions, we're going to require a real collaboration," he said during his recent quarterly conference call. But collaboration isn’t a one-way street, and if companies like Cenovus want more government money, they should be asked to give the government a bigger share of their success. According to recent data from Rystad, Norway’s government has received nearly $100 in revenue per barrel of oil produced so far this year. In Canada, it's less than $20.
So yes, it’s time for a real collaboration between industry and government on carbon capture technology. Maybe that takes the form of a joint venture between the Oil Sands Pathway Alliance companies and the federal government, one where the taxes paid are informed by the price of oil these companies receive. Or maybe it’s a windfall tax on their profits, one whose revenues are funnelled back into renewable energy and low-carbon solutions in Canada.
What it absolutely cannot be is the sort of blank cheque that CEOs like Pourbaix seem to be looking for right now. Their recent (and record) profits speak for themselves, and their ongoing attempts to cry poverty should fall on deaf ears. If the government's billion-dollar carrots don’t get them to move more quickly on emissions reductions, maybe it’s time for the sticks.