Record oil gains ‘enough to clench’, says NL minister
After Newfoundland and Labrador’s energy secretary handed out more than $280 million in cash to oil companies during the COVID-19 pandemic, he says it’s hard to watch the same companies post record-breaking profits.
Andrew Parsons took over the energy portfolio in August 2020, about a month before the global oil price slump prompted Husky Energy — which has since been merged with Cenovus — to announce it was considering abandoning its oil field off the province’s east coast. On Thursday, Cenovus reported 2022 sales of $11.4 billion — nearly double its 2021 sales.
“It’s frustrating when you hear about a project dying and then hand out multi-billion dollar profits. That’s enough to make your fists clench,” Parsons said in a recent interview as other companies began reporting on their merits. “But that’s the nature of things… we have to find a way to do business with them.”
Oil and gas companies have posted stunning gains over the past two weeks, renewed environmentalists’ calls for governments to reconsider subsidies and incentives for fossil fuels. But with another oil project on the horizon for Newfoundland and Labrador – Equinor’s proposed Bay du Nord oil field – Parsons said the government will still take precautions if they clearly benefit the province.
As the pandemic pushed oil prices to historic lows, Newfoundland and Labrador eventually donated $284.5 million to oil and gas companies operating offshore. The money came from a $320 million transfer from Ottawa aimed at bolstering the sector.
Cenovus was awarded $41.5 million to continue work on a project that would extend the life of its White Rose oil field. Suncor also threatened to stop work to keep its Terra Nova field afloat, so the province gave it $205 million in cash and took a $300 million royalty cut.
On Tuesday, Suncor reported net income of $9.1 billion for 2022, more than double the previous year’s $4.1 billion.
ExxonMobil, the largest shareholder in the Hibernia oil field off the coast of St. John’s, reported earnings of $55.7 billion at the end of January, surpassing its previous record of $45.2 billion set in 2008 . Newfoundland and Labrador gave Hibernia $38 million from the federal government pot in late 2020.
Equinor also reported healthy returns for 2022, with net income of $28.7 billion versus $8.6 billion last year. The company is still deciding whether to proceed with Bay du Nord.
Vanessa Corkal, senior policy adviser at the International Institute for Sustainable Development in Winnipeg, says the massive gains show fossil fuel companies don’t need subsidies or incentives from governments. These include tax breaks, license fee adjustments and money to support companies’ efforts to reduce their greenhouse gas emissions, she said in a recent interview.
With the war in Ukraine driving oil prices to new heights while pushing countries away from Russian oil and gas, these companies are perfectly positioned to invest in the transition to a net-zero future, she added.
“We need that clear signal from governments that this is the expectation,” Corkal said.
She acknowledged that the situation is complicated for provinces like Newfoundland and Labrador, where the economy is smaller and less diversified. Oil production accounted for 13.7 percent of the province’s GDP in 2020, making it the second-biggest contributor according to the province’s most recent budget.
“Overall, I think in Canada we really need to differentiate what’s in the best interest of a company and what’s in the best interest of Canadians,” she said. “And I think the oil and gas industry has done a really good job of painting those two things like they’re the same thing.”
Outside of the pandemic subsidies, Newfoundland and Labrador offers a financial incentive for exploration. The program allows companies to take back exploration license deposits that would normally be held by the province and reinvest them in new drilling.
The province pledged last April to “accelerate the phase-out of fossil fuel subsidies.”
Parsons said the elimination was still ongoing.
As for Bay du Nord, Equinor must meet stringent emissions targets imposed by Ottawa, including a net-zero goal by 2050 if it proceeds with the project. The federal government has pledged to end “inefficient” fossil fuel subsidies by the end of the year, but that doesn’t include money to help companies cut emissions.
Parsons said any request from Equinor will impact the province’s bottom line.
“I’m not opposed to looking at anything, but again there has to be a business case,” he said. “And it becomes harder for us to be interested in helping them when companies are reporting their earnings results and posting record earnings.”