Over the past five years, ownership of oil sands production has been concentrated in four companies: Cenovus Energy, Canadian Natural Resources Limited (CNRL), Imperial Oil Limited and Suncor Energy.
These four producers – known as the Big Four – account for about 84% of Alberta’s daily production of 3.3 million barrels of bitumen, a type of crude oil found in oil sands deposits.
Not only that, but it is the oil sands that have boosted Alberta’s economy and finances for the past two decades. According to Alberta’s 2022 budget, oil sands production will account for 87% of the province’s total oil production as conventional fields empty out.
Faced with growing environmental concerns and regulatory requirements, some international companies have decided to withdraw from the oil sands. Between 2016 and 2019, foreign oil companies Chevron, Shell, BP and Statoil sold their tar sands holdings.
But other major Canadian producers, such as CNRL and Cenovus Energy, have doubled. They see the emissions-intensive mining operation as a golden opportunity to dominate an increasingly single-industry province.
As a political scientist who worked at a major Alberta financial institution and the provincial Treasury Department, I am familiar with the ups and downs of the Alberta economy and their correlation with provincial finances. The Alberta government’s financial reliance on bitumen royalties has increased dramatically in recent years.
An industry full of cash
By comparing the amount of bitumen royalties and corporate income taxes of the Big Four to Alberta’s total revenues, it is possible to estimate the province’s tax dependence on these companies.
The numbers show that no province, other than perhaps New Brunswick with its dominant Irving family, comes close to Alberta’s level of corporate tax dependency.
The expected revenues of the big four oil sands producers in 2022, assuming an average price per barrel of $115, will reach a staggering $116 billion, or about 25% of Alberta’s GDP.
In the first half of 2022, Imperial Oil, Cenovus Energy, CNRL and Suncor Energy reported net income of $17.1 billion.
What is less understood is what this vast increase in revenue means for the Alberta Treasury and, to a lesser extent, for the federal government.
In the first six months of 2022, the Big Four paid approximately $8 billion in royalties to the Alberta government. Most of their $6.8 billion in income tax expenditures went to the federal government, with the remaining 30% going to the Alberta government.
Since Alberta has the lowest corporate tax rate in the country, this creates a huge incentive for these companies to create as much taxable income as possible. So far this year, taxes and fees are about $10 billion, which would easily pay for Alberta’s K-12 education system.
Line the government’s pockets
The concentration of economic and financial power in the big four means that Alberta’s next premier must consider the needs of these massive oil sands players. As oil prices rise, the provincial treasury’s financial dependence on the Big Four will increase.
Alberta’s 2022 budget adopted a very conservative oil price estimate of US$70 per barrel, which deliberately underestimated the projected surplus. He estimated bitumen royalties would bring in $10.3 billion in the fiscal year.
For every dollar above that estimate of US$70 a barrel, an additional $500 million in oil royalties will go to the government. At US$100 a barrel, an additional $9 billion in bitumen royalties would be paid, but with oil prices averaging US$116 since April 1, an additional $23 billion in oil and gas royalties could arrive.
Using this conservative oil price forecast, Alberta’s budget estimated its total revenue to be $52 billion. In reality, his earnings will likely be much higher.
The Big Four contribute about 20% of Alberta’s total revenue. At US$100 per barrel, the Big Four contribute about 30% of the province’s revenue, and at US$116 per barrel, the contribution exceeds 30%. This gives these companies enormous control over Alberta’s finances and, by extension, politics.
The political influence of the Big Four has recently manifested itself in its dominant position within the Pathways Alliance. This lobbying consortium – known as COSIA – is made up of the Big Four, ConocoPhillips and MEG Energy.
According to their website, COSIA’s goal is to reduce greenhouse gas emissions from oil sands production and achieve net zero greenhouse gas emissions. The Pathways Alliance predicts oil sands production will continue for nearly three decades and beyond.
At the heart of this lobbying effort was success in convincing Ottawa to give businesses a tax credit in the 2022 federal budget. This sets a dangerous precedent – if Ottawa itself is willing to grant wishes. of the Big Four, what chance will the Premier of Alberta have of refusing similar requests?
The financially dependent Alberta government will continue its battles against Ottawa on behalf of the Big Four. Whether or not this is good for Alberta’s democracy, its people and the planet is another matter altogether.