The chief executive of Cenovus Energy Inc. CVE-T says the federal government’s plans to eliminate future fossil fuel subsidies are little more than political rhetoric.
Environment Minister Steven Guilbeault on Monday released conditions under which it will allow subsidies to the oil and gas industry. He couldn’t say how much financing would be affected, but officials said government programs that could be affected by the guidelines control about $1-billion in public money.
Cenovus CEO Jon McKenzie told an investor call Thursday when asked about Ottawa’s plans that he’s not aware of any subsidies that are direct and unique to the sector.
“I’ve been in this industry for a lot of years, and many of those years have been spent in finance. And I certainly remember writing a lot of cheques to the provincial and federal governments, but I don’t remember receiving a lot of cheques in return,” Mr. McKenzie said.
Cenovus spent almost $4.5-billion on royalties and taxes in 2022, he added – the company’s single largest expense, far outweighing capital expenses and shareholder returns.
“We certainly hear political rhetoric with regard to oil and gas subsidies, we’re just really not sure what it means because, again, we’re not really aware of any oil and gas subsidies for the industry.”
Green groups counter that the sector can access cash that flows through Crown corporations such as Export Development Canada. Environmental Defence, for example, says that about $19-billion in financing for fossil fuels flowed through EDC in 2022, compared with about $2-billion that came from other sources.
The federal government is developing the final regulations of a plan to cap greenhouse-gas emissions from the oil and gas sector, which it says will likely be published by mid-2024.
Cenovus, along with the other major players in Alberta’s oil sands, has pledged to bring its production emissions to net-zero by 2050. Central to that plan is a massive project to capture carbon emissions from various operations and build a pipeline to sequester them underground at a hub near Cold Lake, Alta.
While the company beat its quarterly profit estimates, helped along by better-than-expected production margins, its net income for the April-June, 2023, quarter fell 66 per cent from a year earlier to $866-million, mainly because of a sharp fall in crude prices.
The wildfires that ravaged Alberta in May and June forced Cenovus and other companies to shut down production. As a result, Cenovus lowered its 2023 production outlook to between 775,000 and 795,000 barrels per day (bpd).
Like many oil and gas companies, Cenovus is also focused on paying down its net debt so it can increase shareholder rewards.
Mr. McKenzie said that could happen some time between November and January, depending on oil prices, at which point 100 per cent of free cash flow will be paid back to shareholders.
But not all of them love that plan.
Cole Smead, CEO of U.S.-based Smead Capital Management and an enthusiastic holder of Cenovus shares, told The Globe and Mail on Thursday that increasing dividends is “money you can’t get back.”
Instead, he would prefer that Cenovus become a force of consolidation in the Canadian oil and gas sector by buying marginal assets to “take advantage of the foolishness in the energy equity markets” and increase returns.
“I think everyone’s afraid to look stupid, that’s the real truth. Nobody wants to go do a deal and wake up six months later and have to be asked by the media or investors, ‘Why in the hell did you do that?’ ” he said.
“The only way to get fabulously wealthy in this life is the willingness to look stupid. Because it doesn’t mean you’re right, but you’re doing something unique when others aren’t.”
His wish is unlikely to become true, however. Mr. McKenzie told investors on Thursday’s call that Cenovus plans to stick to its knitting with its asset portfolio for the time being.
“Over the next few quarters, it’s really about demonstrating the earnings and cash flow capability of these assets, running them in a safe and reliable condition, and demonstrating the profitability of what we’ve built,” he said.
“Don’t expect us to do anything different.”