The government of Alberta is set to announce new subsidies for oil companies later this month, aimed at boosting production to support the proposed Pacific Link pipeline to the West Coast.
These financial incentives come as major oil producers report billions in profits in their latest financial outcomes, with the industry enjoying one of its most profitable years in the past ten years.
Recent quarterly earnings from Suncor Energy, Cenovus Energy, Canadian Natural Resources, and Imperial Oil collectively exceeded $12.5 billion. According to Studio Energy, the Canadian oil and gas sector is projected to generate revenues surpassing $200 billion by 2026, driven by oil prices that have surpassed $100 US per barrel multiple times this year amid the U.S.-Iran conflict.
This scenario leads some industry analysts to question the necessity of additional subsidies.
“What type of incentives does the oil and gas industry genuinely require?” Janet Annesley, a former executive at Husky Energy and Shell Canada, asked during her appearance on CBC Radio’s Alberta at Noon.
“These companies have the funds, they are repurchasing shares, and distributing substantial dividends to their shareholders. So what more do we Albertans need to do to prompt them to invest here and initiate more projects?”
Annesley stated that Premier Danielle Smith must “make a compelling argument to Albertans regarding the reasons for providing more incentives to oil companies.”
Although oil production is already at unprecedented levels, uncertainty looms regarding whether the industry will generate sufficient crude to warrant the construction of the Pacific Link, which Smith hopes to commence building in the fall of 2027, given the existence of several new and expanded pipeline projects in the pipeline.
According to Smith, the province aims to establish an “alternative enhanced royalty structure” to encourage companies to commit to increasing oil production.
“We anticipate that once this is proposed and they understand the various factors involved, there will likely be considerable interest in filling that pipeline,” Smith remarked to reporters in Fort McMurray, Alta., in September.
Increased oil demand
The forthcoming subsidy is expected to focus on the oilsands sector, as it is the primary contributor to the province’s oil production and new ventures typically have the potential to significantly elevate overall production figures.
The Alberta government currently offers financial incentives to oilsands companies for new projects, which benefit from lower royalty rates during their initial operational years.
A view of Suncor’s Base Plant oilsands mine. Suncor is one of the companies considering whether to proceed with expanding production in the oilsands. (Kyle Bakx/CBC)
Some companies are already suggesting they may expedite the development of new projects.
Imperial Oil is contemplating a decision to advance its Aspen oilsands project before the decade concludes, with CEO John Whelan indicating that this could happen sooner than previously expected.
“We’re assessing whether we want to expedite this,” he mentioned during a conference call with analysts on October 30, while acknowledging the positive impact of provincial and federal government measures supporting the sector.
Suncor’s executives are reviewing their growth strategies for the coming years and considering how they might accelerate their plans if they choose to, according to CEO Rich Kruger.
“We’re evaluating and conducting some initial analyses,” he stated during a conference call with analysts on November 4.
“We’re all eagerly waiting for more information from the province regarding royalties and incentives. All parties are actively collaborating and working diligently together.”
The Oil Sands Alliance has refrained from commenting on the proposed Alberta incentives until an official announcement is made.
Setting a deadline
Some oil companies may be hinting at growth strategies to attract investors and measure their interest. Despite the favorable oil prices, many investors prefer oil companies to focus on generating substantial profits for shareholders rather than investing billions in new projects.
Mark Little, the former CEO of Suncor, noted that many investors are enjoying strong profits and are hesitant to relinquish the cash flow they receive.
Company leaders are “gauging investors’ willingness for expansion,” stated Little, to discern whether they will support growth initiatives or advise against them.
“In my view, the primary uncertainty surrounding growth is not from the [federal government], nor the province, nor funding,” Little explained, “It’s whether investors will back it.”
Former Suncor executive Mark Little, pictured in 2022, asserts that the current Alberta royalty system is effective. (Kyle Bakx/CBC)
The last significant oilsands project was completed nearly ten years ago, prompting Little to emphasize the necessity for the industry to invest in its long-term viability.
“I refer to it as the ‘liquidation phase’ because our focus has been on production, minimizing expenses, and returning cash to shareholders,” he remarked.
An aerial view of an oilsands mine north of Fort McMurray, Alta. Oil production continues to increase as companies expand and improve existing facilities. (Bob Grieve/CBC)
Little expressed that the Alberta government’s plan to introduce a new incentive is “puzzling,” given that the existing royalty system is already intricate, adaptable, and effective. However, he acknowledged the potential benefit of the provincial government setting a deadline for companies to develop their owned properties.
Oilsands production continues to rise as companies pursue expansion projects and enhance their current operations.
Lennie Kaplan, a former senior manager with the Treasury Board, believes that some form of incentives is essential for companies to invest billions in developing new large-scale oilsands projects.
“These endeavors require substantial capital,” he commented, referring to the investment needed.
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To achieve its objective of doubling oil production, Kaplan estimates that the Alberta government would need to allocate $115 billion in incentives from 2027 to 2050, which includes $95 billion in royalty relief and an additional $18 billion in construction subsidies. Under a scenario with stable oil prices, as projected by Alberta Energy, the government could expect to collect an extra $250 billion in royalties.
Conversely, in a low oil price environment, the government would need to provide $240 billion in incentives while facing a net fiscal loss of $80 billion.
Kaplan’s analysis also factors in additional elements, such as a rising industrial carbon tax, which he highlighted as significant given the Alberta government’s commitment to achieving net-zero emissions by 2050.
