As if low oil wasn’t enough

As if the plunge in oil prices to the lowest levels since 2009 wasn’t enough for Canadian producers, lawmakers have moved forward with planned tax increases.

The New Democratic Party, which won a landslide victory in Alberta’s provincial elections in May, increased the corporation tax rate to 12pc from 10pc, effective 1 July. The move has led to some hefty deferred tax liability charges in the second quarter.

Upstream independent Canadian Natural Resources’ (CNRL) deferred income tax liability increased by C$579mn ($442mn), pushing the firm to a second-quarter loss of C$405mn from a C$1.1bn profit a year earlier. 

Other companies were also hit hard. Canadian integrated firm Husky Energy took a one-off charge of C$157mn and ExxonMobil subsidiary Imperial Oil booked a C$320mn charge. Canadian integrated companies Cenovus and Suncor took charges of C$168mn and C$423mn, respectively.

But a fall in operating costs and reduction in capital expenditure (capex) is helping them offset the twin impact of low oil prices and the tax rate. Suncor’s operating costs were 18pc lower than a year earlier at $28/bl, while Husky’s costs fell to C$17.23/bl of oil equivalent (boe).

Suncor has lowered its capex guidance for the year to C$5.8bn-C$6.4bn from C$6.2bn-C$6.8bn earlier. Husky’s capex budget is C$3bn-C$3.1bn compared with C$5.1bn last year. Cenovus is cutting by 40pc to C$1.8bn-C$2bn.

The lowered capex will not impact output because projects approved before oil prices started declining last year will help sustain growth. But the tax increase may discourage future investment.

“This charge effectively translates into lower future cash flows and, therefore, lowers reinvestment in the business,” CNRL chief financial officer Corey Bieber says.

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