Albertans have heard it time and time again: it’s a tough time for the province’s oil and gas industry.
There are the suggestions from the prime minister that Alberta is in “crisis” as a result of low energy prices. The country’s natural resources minister has weighed in too, noting that “Alberta hurts.” There are headlines declaring “tough times” for oil producers and warning that the Alberta government is on a path toward “fiscal disaster.”
With so many gloomy headlines, one would be forgiven for thinking that the major oil companies operating in the province — the so-called ‘Big Five’ — are hurting, too.
But are they?
In November, the Edmonton-based Parkland Institute released a report that suggested the opposite.
The Big Five, which the report says control 79.3 per cent of Canada’s productive capacity of bitumen, are still posting profits, and in some cases they’re sizeable — with profit margins of upward of 13 per cent, according to the Parkland Institute.
In Canada, the Big Five are Suncor Energy, CNRL, Cenovus, Imperial Oil and Husky Energy.
The report compares the Big Five’s gross profits with the government of Alberta’s income for 2017, which was $47.3 billion. According to Parkland’s analysis, the Big Five, taken together, brought in almost the same amount in aggregate profits in 2017 — $46.6 billion.
That means Alberta’s income for the whole province is roughly equivalent to the total profits of the five largest energy companies, according to Parkland’s calculations.
The Parkland report pointed out that, “in 2016, the average profit margin for all industries in Canada was 7.8 per cent. Three of the Big Five — Suncor, Cenovus and CNRL — had net profit rates above 13.5 per cent in 2017, and Cenovus’s profit margin was an impressive 19.4%.”
Parkland suggests that the profit margins for some of the country’s largest energy companies far exceed that of the majority of other businesses.
Spring is annual-report season, so The Narwhal took another look at the Big Five in Canada to see how they fared in 2018.
We also looked at each company’s executive compensation, available through annual management circulars, and the amount these five companies paid in royalties to the Alberta government, using data obtained through the Extractive Sector Transparency Measures Act (ESTMA).
The latter information has only recently been made available to the public through the Extractive Sector Transparency Measures Act, which came into force in 2015.
The Narwhal previously looked at royalties paid by four of the Big 5 — Suncor, Cenovus, Canadian Natural Resources Limited and Imperial Oil — and found they collected $10.14 billion in profits in 2017, while Albertans collected $2.37 billion in the form of royalty payments.
Using ESTMA data, The Narwhal found that Alberta’s collections from the major oil companies amounted to a royalty rate of approximately 23 per cent, while other countries in the world see government returns that are much higher — including Saudi Arabia (85 per cent), Norway (78 per cent), China (63.5 per cent) and Australia (58 per cent)
Suncor is the biggest player in Canada, with the most assets, highest revenue and most employees of the Big Five, according to the Parkland Institute. The company opened a brand-new open-pit mine, Fort Hills, in the oilsands last year. Suncor is headquartered in Calgary.
Gross revenues: According to the company’s 2018 annual report, released at the end of February, its revenue increased last year, up to nearly $40 billion from just shy of $33 billion the year before.
Assets: The company continues to have some $89 billion in assets.
Executive compensation: In 2018, Suncor CEO, Steven Williams — who retired this year — received $14.5 million in total compensation (including stock options and bonuses). Williams’ base salary was $1.466 million.
Profit margin: According to the Parkland Institute’s report, Suncor had a profit margin of 13.9 per cent in 2017.
Company comment: Sneh Seetal, a spokesperson for Suncor, did not provide additional comments to The Narwhal.
Cenovus was formed in 2009 when energy giant Encana split into two companies — Cenovus, an oil company, and Encana, a gas company. Cenovus operates two projects in the oilsands, Christina Lake and Foster Creek, and holds permits for future developments. The company is headquartered in Calgary.
Gross revenues: According to the company’s 2018 annual report, the company’s gross revenue increased last year, up to $20.8 billion, up 22 per cent over 2017. 2017 revenues were up 55 per cent compared to 2016.
Assets: Cenovus has more than $35 billion in assets, according to its latest annual report — a 14 per cent increase over 2017.
Executive compensation: CEO Alexander J. Pourbaix — who took over in late 2017 — was paid $6.6 million in total compensation in 2018. Sonja Franklin, a spokesperson for Cenovus, told The Narwhal by email that “only 15 per cent of Mr. Pourbaix’s total direct compensation is fixed; the rest is variable based on performance and stock price. Mr. Pourbaix’s base salary remained unchanged in 2018.” Pourbaix’s base salary is $1 million.
Profit margin: According to Parkland’s figures, Cenovus had a profit margin of 19.4 per cent in 2017.
Company comment: Sonja Franklin, a spokesperson for Cenovus, told The Narwhal by email that “In 2017, we had operating earnings of $126 million, which is close to breaking even. … Like many of our peers, we were significantly impacted by the decline in global commodity prices after 2014. As a result, over the past few years we’ve been focused on reducing our costs, increasing efficiency, exercising capital discipline and reducing debt, while maintaining safe and reliable operations.”
Canadian Natural Resources Limited (CNRL)
CNRL is an integrated oil and gas company. According to Reuters, the company has a stake in tens of thousands of natural gas wells across Alberta. Royal Dutch Shell, based in the Netherlands, announced last year that it was selling its eight-per cent stake in CNRL as part of its plan to divest from the Canadian oilsands. The company is headquartered in Calgary.
Gross revenues: CNRL also posted increases last year, with product sales up to more than $22 billion in 2018, a 21 per cent increase over 2017.
Assets: The company has more than $71 billion in assets, according to its latest annual report.
Executive compensation: CNRL does not have a CEO. Its top-paid executive, executive chairman Norman Murray Edwards, took home $10.6 million in total compensation in 2018. Executive vice-chairman Steve Laut (formerly the president) took home $5.8 million in total compensation. Their base salaries are $1 and $503,012, respectively.
Profit margin: According to Parkand’s figures, CNRL had a profit margin of 13.6 per cent in 2017.
Company comment: Julie Woo, a spokesperson for CNRL, told The Narwhal by email “we are declining to comment for your story.”
The American energy giant Exxon Mobil Corp holds a majority stake in Canada’s Imperial Oil, which has been operating in the sector for more than 130 years. Imperial Oil owns a 25 per cent stake in Syncrude, among the largest crude-oil producers in Alberta’s oilsands, as well as in other oilsands projects. The company is most recognized for its retail brands of gas stations: Esso and Mobil. Exxon Mobil is headquartered in Texas; Imperial Oil is headquartered in Calgary.
Gross revenues: According to the company’s 2018 financial and operating results, released at the end of February, the company’s gross revenue increased last year, up 20 per cent to nearly $35 billion from $29 billion the year before.
Assets: The company has more than $41 billion in assets, according to its latest financial statements.
According to the company’s filings with the Securities and Exchange Commission, annual bonuses were granted to 55 Imperial Oil executives in 2018, for a total cost of $3.8 million, up 12 per cent from 2017.
Profit margin: According to Parkand’s figures, Imperial Oil had a profit margin of 1.7 per cent.
Company comment: Lisa Schmidt, a spokesperson for Imperial Oil, told The Narwhal by email that “unfortunately we won’t be able to accommodate an interview.”
The family of Hong Kong’s richest man, recently retired billionaire Li Ka-shing, owns a majority stake in Husky Energy Inc, controlling some 70 per cent of its shares. The company is headquartered in Calgary.
Gross revenues: According to Husky’s 2018 annual report, the company’s gross revenue increased last year to $22.5 billion, up nearly 20 per cent over 2017.
Royalties paid to the Government of Alberta: According to data obtained through ESTMA, Husky Energy paid $39 million in royalties to the Government of Alberta in 2016. Mel Duvall, a senior spokesperson for Husky, told The Narwhal by email that Husky Energy “paid $67.6 million in royalties to the Alberta government in 2017.”
Assets: The company has more than $35 billion in assets, according to its latest annual report.
Executive compensation: According to Duvall, CEO Robert J. Peabody “received a base salary of $1.5 million in 2018 and total compensation, including share-based awards and various incentives, of $7.9 million.”
Profit margin: According to Parkland’s figures, Husky had a profit margin of four per cent in 2017. Duvall told The Narwhal by email that profit margin “isn’t something we report. Net earnings were $1.5 billion in 2018.”
Company comment: Mel Duvall, the spokesperson for Husky, provided the following comments to The Narwhal by email: “We often say we are agnostic to the price of oil because when oil prices are low, we generate more value in our downstream (refining) sector, and when they’re higher, profits swing to the upstream (production) side of the business.
Yes, we have seen quite a substantial drop in operating costs in recent years as a result of a variety of factors. Perhaps the most significant is that we have increasingly shifted our production away from conventional oil and gas towards lower cost, longer-life thermal projects.
On a company-wide basis, our operating costs have fallen from about $16.12 per [barrel of oil equivalent] in 2014 to about $14 per barrel of oil equivalent in 2018.
Unfortunately, the Alberta government-mandated production quota program did result in a slight uptick in operating costs in the first quarter of 2019 as we had to shut in close to 20,000 bbls/day of production.
Over the past decade, Husky has deliberately transformed its operations to become a low-cost producer. At the same time, we have exercised stringent financial discipline and Husky now has one of the strongest balance sheets in the industry. Our tight integration between our upstream production base in Western Canada and our refining business, largely based in the U.S. Midwest, means we can capture value whether it lies in upstream production or in producing products the market needs, such as gasoline, asphalt, jet fuel and diesel.”
Doesn’t mean ‘workers are going to be fine’
Earlier this year, the Wall Street Journal proclaimed “the world’s largest Western oil companies shrugged off a 38 per cent plunge in oil prices during the final months of 2018 to post some of their biggest annual profits in years.”
According to the Journal, which examined the profits of the Big 5 American oil and gas companies, “collectively, the companies have restructured their businesses, sold off assets and positioned themselves to thrive even when crude prices swing up and down wildly.”
The Big Five in Canada, Parkland says, have worked hard to diversify by investing in downstream assets and by cutting production costs — whether through automation or, as Husky puts it, through “stringent financial discipline” — and use their gross profits to maintain their economic power.
”Those Big Five, they’re going to be just fine,” Ian Hussey, research director at the Parkland Institute and an author on the report, told The Narwhal.
“That does not necessarily mean Albertans overall — workers — are going to be fine,” he said.
“It doesn’t mean we’re going to maintain the number of jobs we have in oil and gas.”
This article is part of a collaboration between The Narwhal, the Corporate Mapping Project, Publish What You Pay Canada and the Natural Resource Governance Institute. The Corporate Mapping Project is jointly led by the University of Victoria, Canadian Centre for Policy Alternatives and Parkland Institute. This research is supported by the Social Sciences and Humanities Research Council of Canada.