Oil industry continues focus on returning cash to investors over new big projects

While Alberta's oilpatch continues to make billions of dollars in profits, much of that money is finding its way into shareholder's pockets rather than toward major expansions of their operations.

At the time of the last boom, oil producers poured a large portion of their earnings back into capital spending. In 2014, for example, oil and gas investment in Canada ranged around $80 billion. 

Today, it's closer to $30 billion, according to the latest numbers from the ARC Energy Research Institute, which models the entire Western Canadian Sedimentary Basin.

It means that in recent years, a flood of cash hasn't sparked a surge of new projects in the province. Suncor's Fort Hills mine, the last major oilsands facility, opened in 2018.

"The real change in behaviour was really more around before 2020, where companies were putting a lot more of their cash flow into [capital expenditures] and growth," said Jackie Forrest, executive director of ARC.

"After the 2020 period, it really shifted to today. Only about half of the cash flow is going toward [capital expenditures] and growth. The other half is going to shareholders.

"The governments are also a very significant stakeholder that is receiving almost as much as the shareholders. Of course, that benefits all Canadians through royalties and taxes."

The graph above shows after-tax cash flow, which is the money oil companies have left after covering their costs, including to governments. 

They use it to pay down debt, invest in projects, buy other assets, or give money back to shareholders through dividends and stock buybacks, said Richard Masson, an executive fellow at the University of Calgary's School of Public Policy and the former CEO of the Alberta Petroleum Marketing Commission.

Masson noted companies are reinvesting about half of their after-tax cash flow, which is a higher ratio than during the early pandemic years.

But most of that money goes toward maintaining current production, not expanding it, he said.

"There's only small amounts of that that are actually growth capital," he said.

"It's not bad," he added, "but we haven't been able to really grow the industry because we haven't been assured of market access and good prices."

Charles St-Arnaud, chief economist at Alberta Central, the central banking facility for the province's credit unions, said available data for non-Canadian oil producers show similar patterns.