Budget 2024

Tax and spend fiscal plan will inhibit growth

As published in the The Globe and Mail

While there is no question 2022 has been a strong year for oil and gas companies, including Cenovus, we aren’t that far removed from a commodity price collapse that led to negative earnings in 2020. Our industry is used to these volatile ups and downs.

This year’s earnings, at a time of high inflation, have some claiming the industry is only taking care of itself. That cannot be farther from the truth. When we’re successful, we also contribute significantly more to the Canadian economy. This is even more important in a year that has been financially tough for many Canadians.

Cenovus and our peers have a responsibility to make prudent business decisions – including paying down debt and providing returns to our investors, especially after they stuck with us when we were losing money. Many of those shareholders are investing on behalf of Canadians, providing for their retirement through pension plans and mutual funds.

Canadians also benefit from our success through our contributions to governments. This year, according to an analysis by Peters & Co., oil and gas producers in Canada will pay an estimated $50-billion to the federal and provincial governments in royalties and taxes. To put that number in perspective, $50-billion would cover more than two-thirds of the funding that was needed to run all Canadian hospitals in 2021 – at a time when there was unprecedented demand for services as front-line health care workers performed heroically under the strain of the pandemic.

The benefits to Canadians of a strong oil and natural gas sector don’t end there. Individual oil and gas companies also make significant social investments in the places where we operate. Cenovus, for example, is on pace to contribute more than $30-million this year to non-profit and other organizations that help our communities thrive. One of our partnerships is a $50-million Indigenous housing initiative working with six Indigenous communities near our oil sands operations to build much-needed homes. We also support the Nature Conservancy of Canada, Indspire and many more locally focused organizations.

The Peters & Co. analysis also points out that this year the oil and natural gas sector is expected to make capital investments of about $40-billion, money that circulates back into the overall economy. This supports the hundreds of thousands of people employed indirectly through supply chains that touch every province and territory, and employed directly by the industry. These supply chains include significant and growing numbers of Indigenous-owned companies that help promote economic self-sustainability in their communities.

Critics allege we aren’t spending enough on reducing emissions, not spending fast enough or shouldn’t seek government funding for it. But the truth is Cenovus and our peers have already spent billions on initiatives to address emissions in past years – and we’ll be spending billions more to accelerate our decarbonization work.

We’re aggressively investing in methane reductions in our conventional oil and natural gas operations. And Cenovus co-founded Pathways Alliance, a collaboration between Canada’s six largest oil sands companies, with the goal of reaching net-zero greenhouse emissions in the oil sands by 2050.

But decarbonizing all of Canada’s heavy industrial sectors, not just ours, is a massive job. It’s just not realistic for industry to go it alone.

The Pathways Alliance recently announced that the first phase of its decarbonization projects will require investing more than $24-billion by 2030, includinga foundational carbon capture and storage project, and others related to energy efficiency, power and steam cogeneration, use of hydrogen and electrification.

This year’s earnings put us in a stronger financial position, but we are looking at multidecade investments that can’t be funded based on one or two good years.

To be successful we need to work with all levels of government to land on achievable public policy objectives and strong financial support. There is not a major carbon capture and storage (CCS) project anywhere in the world going forward without significant government involvement.

We applaud recent positive steps taken by governments in Canada, such as the federal CCS Investment Tax Credit and other mechanisms to encourage investment in clean tech, as well as the Alberta government’s creation of multiple CCS hubs. We’re ready to move forward with our additional planned emissions reduction projects as soon as governments finalize the various policies that have been announced to support these massive initiatives.

Critics who only focus on this year’s strong earnings ignore reality: A strong oil and gas industry – one investing not only to strengthen its businesses and communities but in projects that will reduce emissions – will continue to contribute to the Canadian economy in a significant way for a long time to come.