Updated 14 September 2022

The question of the influence of the oil industry on Alberta’s political economy and democracy has been a longstanding question for Alberta political analysts. Kevin Taft’s 2017 book Oil Deep State and Ian Urquhart’s 2018 Costly Fix are classic reference texts. In the following article, reprinted with permission of The Conversation (link to article here) I use public finance data, corporate reports, and production data to estimate the impact of rising oil prices on the province’s finances. As oilsands production has eclipsed conventional oil production and as ownership of the oilsands have increasingly become concentrated in four large companies, the implications for Alberta’s tenuous democracy are obvious. This influence will be one of the great challenges of Alberta’s newest premier.

On Monday 12 September this article was republished in newspaper edition of the the Globe and Mail on page A6.

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The Big Four oilsands companies’ influence threatens Alberta democracy, argues political scientist

Published: August 21, 2022 9.09am EDT

Over the past five years, ownership of oilsands production has become hyperconcentrated 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 per cent of Alberta’s daily production of 3.3 million barrels of bitumen, a type of crude oil found in oilsands deposits.

Not only that, but it is the oilsands that have driven Alberta’s economy and finances for the past two decades. According to Alberta’s 2022 budget, oilsands production will make up 87 per cent of the province’s total oil production, as conventional fields empty.

In the face of growing environmental concerns and regulatory requirements, some international companies have decided to exit the oilsands. Between 2016 and 2019, foreign oil companies Chevron, Shell, BP and Statoil sold their oilsands holdings.

But other major Canadian producers, like CNRL and Cenovus Energy, have doubled down. They see the emission-intensive extraction operation as a golden opportunity to dominate an increasingly single-industry province.

As a political scientist who has worked in a large Alberta-based financial institution and the provincial treasury department, I am familiar with the booms and busts of Alberta’s economy and its correlation to provincial finances. The financial dependence of the Alberta government on bitumen royalties has increased enormously over the past several years.

An industry flush with cash

By comparing the amount of bitumen royalties and corporate income taxes from the Big Four to Alberta’s total revenue, it is possible to estimate the province’s fiscal dependency on these companies.

The numbers show that no province, other than perhaps New Brunswick with its dominant Irving family, comes near Alberta’s level of corporate fiscal dependency.

The revenue expected from the Big Four oilsands producers in 2022, assuming an average per barrel price of $115, will be a staggering $116 billion — about 25 per cent of Alberta’s GDP.

During the first half of 2022, Imperial Oil, Cenovus Energy, CNRL and Suncor Energy have 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, the federal government.

During the first six months of 2022, the Big Four paid an estimated $8 billion in royalties to the Alberta government. Most of their $6.8 billion in income tax expenses went to the federal government, with the remaining 30 per cent going to the Alberta government.

Since Alberta has the lowest corporate tax rate in the country, this creates an enormous incentive for these companies to create as much taxable income as possible. The taxes and royalties so far this year amount to about $10 billion, which would easily pay for Alberta’s K-12 education system.

Lining the government’s pockets

The concentration of economic and financial power in the Big Four means Alberta’s next premier must heed the needs of these massive oilsands players. As oil prices rise, the financial dependency of the provincial treasury on the Big Four will grow.

Alberta’s 2022 budget adopted a very conservative oil price estimate of US$70 per barrel, which deliberately understated the expected surplus. It estimated bitumen royalties would return $10.3 billion during the fiscal year.

For every dollar above this US$70 per barrel estimate, an additional $500 million in oil royalties will flow 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 roll in.

Using this conservative oil price forecast, Alberta’s budget estimated its total revenue will be $52 billion. In reality, its revenue will likely be much higher.

The Big Four contribute about 20 per cent of Alberta’s total revenue. At US$100 per barrel, the Big Four contribute about 30 per cent of the province’s revenue and, at US$116 per barrel, the contribution exceeds 30 per cent. This gives these companies an enormous amount of control over Alberta’s finances and, by extension, politics.

Pathways Alliance

The Big Four’s political influence has most recently manifested in its dominant position in the Pathways Alliance. This lobbying consortium — known as COSIA — consists of the Big Four, ConocoPhillips and MEG Energy.

According to their website, COSIA’s purpose is to reduce greenhouse gas emissions from oilsands production and achieve net zero greenhouse gas emissions. The Pathways Alliance sees oilsands production carrying on for nearly three decades and beyond.

Central to this lobby effort has been successfully convincing Ottawa to give the firms a tax credit in the 2022 federal budget. This sets a dangerous precedent — if Ottawa itself is willing to grant the wishes of the Big Four, what chance will the Alberta premier have in refusing similar requests?

The fiscally 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 residents and the planet is another matter entirely.

Supplemental information

The above article relies on numerous assumptions and the tables below walk through the base information upon which the numbers in the article are derived. All errors and omissions are my own.

The table below is based on production information from Oil Sands Magazine showing potential production of 3.8- million bbl/day. Budget 2022 estimates bitumen production of 3.3-million bbl/day with another 441,000 barrels of conventional production (p. 14) The budget also estimated bitumen royalties would be about three quarters of total resource royalties. Using these numbers it is possible to obtain a fairly accurate estimate of bitumen royalties from the Big Four. These then can be compared against the published financial reports of the companies.

Big Four	Oilsands Potential Production/Capacity	% of Oilsands Production	Budget 2022-23 Est.  Bitumen  Production bbl/day
Cenovus	500.000	13.25 %	436,672
CNRL	1,001,500	26.54%	874,654
Imperial	583,750	15.47%	509,814
Suncor	1,077,275	28.54%	940,831
Totals	3,162,525	83.80%	2,761,972

In the case of income taxes I assume that 30 per cent of income tax reported paid by the Big Four goes to the Alberta government and use first half financial results.

Company	Q2-2022 ($millions)	Q-1- 2022 ($millions)	H1-2022 ($millions)
Cenovus	841	543	1384
CNRL	1030	976	2006
Imperial	430	280	710
Suncor	1413	899	2812
Totals	4041	2779	6820

The budget estimated bitumen royalties would be about three quarters of total resource royalties. Using these numbers it is possible to obtain a fairly accurate estimate of bitumen royalties from the Big Four. These then can be compared against the published financial reports of the companies.

Scenario	Oil Price (USD/bbl)	Total Bitumen royalties ($billions)	Est. Corporate Income Tax- Big Four ($billions)	Own Source Revenue ($billions)	Est. Big Four Revenue of Total Own Source Revenue (%)
Base Budget 2022-23	70	10.3	2	52	20%
Medium	100	22.5	3.5	74	30
High	116	27.5	4.0	87.3	31%

In medium and high scenarios, an additional $4 billion and $8-billion in corporate and personal income taxes added to additional bitumen royalties. I estimate the Big Four pay about 80 per cent of its royalties to the Alberta Crown.

Total Royalties paid by Big Four

Company	Q2-2022 ($millions)	Q1-2022 ($millions)	H1-2022 ($millions)
Cenovus	1,582	1,185	2,767
CNRL	2,337	1,455	3,792
Imperial	430	280	710
Suncor	1,680	1,132	2,812
Totals	6,029	4,052	10,081

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