A tax on share buybacks will hit the oil and gas sector. Was that the whole point?

This week Ottawa announced its plans to introduce a tax on share buybacks, at a time when oil and gas companies have yet again reported windfall profits and additional share buybacks.

Buybacks are when publicly traded companies buy back a portion of their own shares on the stock market, at market prices. They are a way to reward existing investors, but also tie up cash that could be used to grow a business — or, in the case of oil and gas companies, pay for climate mitigation measures.

Cenovus, which launched a share-buyback program in November 2021, has since bought around 118 million common shares and delivered about $2.5 billion in returns to shareholders. The company's share buyback program is about to expire; it plans to apply for another one. 

Canadian Natural Resources has returned about $5.1 billion to investors so far this year in share repurchases, up from approximately $940 million it spent on repurchases by this time last year. 

Suncor has repurchased approximately $4.6 billion of its common shares this year, up from $1.7 billion by the end of September last year.

And ConocoPhillips has repurchased $6.5 billion of shares this year, up from $2.2 billion by this time last year, and has raised its existing share repurchase authorization by $20 billion.

With the new two per cent tax announced for 2024, Ottawa expects to bring in $2.1 billion over five years, and encourage companies to reinvest their profits in their workers and businesses.

But is the oilpatch being directly targeted by this tax, or does it just happen to be among the industries most affected — if not the industry most affected — by something the government would have done regardless?

Just days before the tax was introduced, Environment Minister Steven Guilbeault posted a video on Twitter criticizing the sector for how it's spending record-breaking profits.

"As Canadians see those profits, we need to see investment into cleaner energy, instead of share buybacks," he said.

"Dollars must start flowing," the minister said, into the plans energy companies have already announced for reducing emissions.

That follows a report earlier this fall from the Pembina Institute, criticizing the sector for spending too much on dividend payments and share repurchases, and not enough on decarbonization. (The Pathways Alliance, a group of large oil companies who've pledged their own net-zero targets, has disputed this characterization.)

"I think this is a recognition that we're not seeing these companies invest their record profits in reducing emissions, which is what needs to happen," said Jan Gorski, program director for oil and gas at the Pembina Institute. 

But Martin Pelletier, a Calgary-based senior portfolio manager with Wellington-Altus Private Counsel, isn't so sure. He said the government likely had its eye on the oil and gas sector given how well it's doing, but believes its aim was more so to emulate a U.S. policy that could generate some extra government revenue, rather than to send a particular message.