Windfall profit taxes sure garnered lots of headlines in 2022. Many European countries enacted windfall profit taxes on the oil and gas sector, and many others debated them. In the US, President Biden did refer to them as a possibility at one point, although that hasn’t seemed to gain much traction as of yet. Many people wondered if Canada might enact a windfall profit tax, although perhaps what they didn’t know is that we already have one. Well ok, maybe not a tax exactly. But we do have a graduated royalty system in all the provinces in Canada that means that as commodity prices go up, producers pay a higher royalty rate. It’s actually a system designed for times like these. And it works.
Back in June of 2022, CAPP put out this excellent FAQ on royalty rates and estimated at the time that Canada was set to “see a year-over-year growth of 283% in royalties collected from the four producing oil and gas provinces. In Alberta alone, based on the province’s most recent fiscal report at the time, that would mean “$16.17 billion in revenues from non-renewable energy resources.” That number would represent the highest amount of royalties collected. Ever. For an industry that often doesn’t get much love from traditional media, this is an enormous contribution to the public coffers. The oil and gas industry won’t promote this themselves, but they are quite literally providing the money for hospitals, schools, healthcare and social services, among other things.
Thanks to BOE Intel, we can show the impact on the financials of producing companies that we have collected data for. “Compare mode” also allows you to select whatever producers you would like to compare across various data points. In the chart below, we have just selected a few households names to give you an idea. If you would like to learn more about BOE Intel and its upcoming launch, you can click on the link.
The median royalty rate for the producers in our dataset has increased to $11.50/BOE in Q3 2022, which is up from $4.40/BOE in Q3 of 2021 and up from $1.40/BOE in Q3 of 2020 (see chart below). That means that the median producer has seen royalty rates go up 161% in a year, and 721% over the last two years. That is some windfall profit tax.
Based on the data, it is obvious. We don’t need a windfall profits tax in Canada, we already have one.