Latest news with #CharlesSt-Arnaud
16-07-2025
- Business
Oil industry continues focus on returning cash to investors over new big projects
While Alberta's oilpatch continues to make billions of dollars in profits, much of that money is finding its way into shareholder's pockets rather than toward major expansions of their operations. At the time of the last boom, oil producers poured a large portion of their earnings back into capital spending. In 2014, for example, oil and gas investment in Canada ranged around $80 billion. Today, it's closer to $30 billion, according to the latest numbers (new window) from the ARC Energy Research Institute, which models the entire Western Canadian Sedimentary Basin. It means that in recent years, a flood of cash hasn't sparked a surge of new projects in the province. Suncor's Fort Hills mine, the last major oilsands facility, opened in 2018. The real change in behaviour was really more around before 2020, where companies were putting a lot more of their cash flow into [capital expenditures] and growth, said Jackie Forrest, executive director of ARC. "After the 2020 period, it really shifted to today. Only about half of the cash flow is going toward [capital expenditures] and growth. The other half is going to shareholders. The governments are also a very significant stakeholder that is receiving almost as much as the shareholders. Of course, that benefits all Canadians through royalties and taxes. Canadian oil industry statistics: historical data and forecast | See interactive chart here (new window) The graph above shows after-tax cash flow, which is the money oil companies have left after covering their costs, including to governments. They use it to pay down debt, invest in projects, buy other assets, or give money back to shareholders through dividends and stock buybacks, said Richard Masson, an executive fellow at the University of Calgary's School of Public Policy and the former CEO of the Alberta Petroleum Marketing Commission. Masson noted companies are reinvesting about half of their after-tax cash flow, which is a higher ratio than during the early pandemic years. But most of that money goes toward maintaining current production, not expanding it, he said. There's only small amounts of that that are actually growth capital, he said. It's not bad, he added, but we haven't been able to really grow the industry because we haven't been assured of market access and good prices. What's at play? Charles St-Arnaud, chief economist at Alberta Central, the central banking facility for the province's credit unions, said available data for non-Canadian oil producers show similar patterns. They're also reinvesting less of their revenues into their operation, he said. St-Arnaud said there are many international factors at play here, one of them being forecasts such as from the International Energy Agency, which show oil demand plateauing somewhere in the 2030s and then gradually coming down. Does it make sense globally to invest massively in expanding oil production in this context? he said. Charles St-Arnaud is the chief economist at Alberta Central, a group representing credit unions in the province. Arnaud said the oil and gas industry may have reached a "mature phase" where companies are focused on optimizing existing operations rather than expanding production. Photo: Submitted by Charles St-Arnaud Masson, meanwhile, said future investment depends on a number of factors. It depends entirely on the resource, and on market access, and on access to capital, and on skill of the workforce, he said. "Canada is one of the more competitive places in the world for investment, and we have a lot of running room left. Even in a world that sees peak oil in the mid-2030s, because even then, almost all the actual forecasts, which are different than scenarios, most forecasts see a very shallow decline out past 2050. Enlarge image (new window) Pumpjacks operate in the Permian Basin east of Carlsbad, N.M., on May 20, 2025. Photo: AP Photo / Susan Montoya Bryan At the same time, global investor expectations have shifted, Masson said. "That grew out of the Permian [Basin] in Texas (new window) , where it was growing so rapidly, so much investment was happening, that shareholders kept adding more funds to the industry, but they weren't getting any returns," he said. Eventually, they got fed up with that and said, we need to see more cash coming back. And that trend spread from New York across Canada as well, where Canadian companies had to compete by returning cash to shareholders. Masson said industry leaders also continue to cite regulatory uncertainty, including when it comes to legislation like Bill C-69, also known as the Impact Assessment Act, and the proposed emissions cap, as barriers that are holding back new investment. Steady, but not busy In Fort McMurray, Alta., the heart of Alberta's oilsands, the volatile nature of the province's boom-and-bust oil industry has been witnessed first-hand over decades. These days, it seems things are neither boom nor bust. For Owen Erskine, owner of Mitchell's Cafe in downtown Fort McMurray, the past few years have been steady, but not busy. I don't think we've seen as much of a personnel boom as in years past … we're seeing more oil at some points, but I think they're kind of at a bit of a bottleneck where it comes to investment and that sort of thing, Erskine said. We're not seeing a crazy huge [rush of] out-of-town people coming into the city right now. Owen Erskine, who owns Mitchell's Cafe in downtown Fort McMurray, Alta., said things are steady in the oil sector with some big projects underway, but it's not the kind of boom that brings in waves of out-of-town workers. Photo: CBC / Kyle Bakx Erskine, who has lived in Fort McMurray going on 36 years, said the community is well-acquainted with the nature of the industry. What we're seeing now is, like, since the last couple of busts, we don't have such an intense boom, he said. The busts have become a little bit less jaw-dropping, especially as a small business like we are. The 'mature' phase Oil has been a boon for the province, but it also means that Alberta is heavily dependent on an income stream that will face challenges as the energy transition continues, according to St-Arnaud. [The government has] been very proactive at ensuring that those revenues are still there and protecting those revenues, because it's a big source of funding for the government, he said. If it's not there, there will be a very tough choice. And a very hard conversation is, do we keep the level of services or increase tax? In St-Arnaud's view, the industry may have reached a mature phase where companies are focused on optimizing existing operations rather than expanding production. As much as I was saying that the mid-2000s to the mid-2010s was the startup phase, well, we're in a mature phase where we're producing, he said. Those companies are making a very good return on those investments, and they don't see the need to expand dramatically. Jackie Forrest, the Executive Director of the ARC Energy Research Institute in Calgary, said investors have started to question whether they were likely to get their money back with companies always reinvesting capital. Photo: CBC / Colin Hall Masson, meanwhile, said the recent Trans Mountain pipeline expansion has helped, but is already nearing full capacity (new window) . Building new infrastructure, especially pipelines to the West Coast, could take up to a decade, making long-term planning difficult. It'll probably carry on in that range, $30 to $40 billion, for the future, until we know what we have for market access and we see some of the federal policies that the CEOs are talking about get changed, he said. The year ahead could also test how oil companies prioritize their money if prices drop, Forrest said. If we do get prices in the below $60 [US] or in the $60 [US] range, I think you're going to start to understand what the priority is, she said. And I think the shareholders are going to be a pretty big priority in terms of, if cash flow is more scarce, what they do with it. With files from Kyle Bakx
Calgary Herald
21-05-2025
- Business
- Calgary Herald
Varcoe: Weak growth, rising prices make job 'a lot hard harder,' as central bank governors meet in Banff
Article content In Canada, data released this week indicated the year-over-year inflation rate increased by 1.7 per cent in April, down from a 2.3 per cent hike in March. Article content The drop was powered by lower pump prices, which tumbled 18 per cent from a year earlier as the federal government ended the national carbon tax and oil prices dipped. Article content Without the effect of energy and the carbon tax, the inflation rate increased by 2.9 per cent, up from 2.5 per cent in March — and consumers continued to feel the pinch at the grocery store. Article content 'On the surface, it looks OK, but when you dig and look under the hood, there'd be reason to be concerned,' said Alberta Central chief economist Charles St-Arnaud, noting core inflation was above three per cent. Article content 'It puts the Bank of Canada in a very hard situation, because we've seen the labour market be on the weaker side . . . Normally, the bank could cut to provide support, but with inflation being at the top end of the inflation target — and maybe above — it starts to be harder for them to justify cutting.' Article content Article content Over the past year, the Bank of Canada has reduced its key policy rate from five per cent down to 2.75 per cent, although it has left it unchanged since the last adjustment in March. Article content With the economy slowing and unemployment rising, it sparks questions about the best approach to deal with rising prices. Article content During a speech in Calgary in March, Macklem was asked about the risk of stagflation facing the Canadian economy. Article content 'The reality is new tariffs, combined with retaliatory tariffs, mean a weaker economy and higher inflation,' he told the audience. Article content 'A weaker economy is going to put downward pressure on inflation. New costs, new tariffs, a weaker exchange rate, supply chain disruptions, those are all going to put upward pressure on inflation. So we're looking at both of those pressures.' Article content South of the border, the U.S. gross domestic product contracted during the first quarter, and the Federal Reserve decided earlier this month it would not reduce interest rates. In April, the U.S. inflation rate was 2.3 per cent compared with a year earlier. Article content Article content Analysts believe a trade deal reached between the U.S. and the United Kingdom this month could help ease the uncertainty on the trade front compared with early April, after the White House unveiled its reciprocal tariffs, which were later paused for 90 days. Article content Article content But at his company's investor day meeting this week, JPMorgan Chase & Co. CEO Jamie Dimon spoke about trade concerns still creating risks. Article content 'I think the chance of inflation going up and stagflation is a little bit higher than other people think,' he said. Article content Poloz, who was Bank of Canada governor from 2013 until 2020, noted the U.S. baseline tariff rate of 10 per cent that the United Kingdom agreed to is still relatively high. Article content And he equated the uncertainty and effect of tariffs on the economy to 'throwing sand into the gears of a beautiful Ferrari. It just doesn't work as well as before.'
