U.S. border tax could hurt energy industry, warns CNRL president
Measure predicted to have ‘big impact’ on loonie as threat spooks oilpatch execs
A U.S. border adjustment tax, if implemented, could be a wash for Canada’s energy industry, the head of Canadian Natural Resources Ltd. said Thursday.
Steve Laut said a border adjustment tax, which U.S. President Donald Trump’s administration is considering, could both hurt Canadian heavy oil prices and the value of the loonie relative to the U.S. dollar.
“Almost all of our costs are in Canadian dollars. So the border tax would probably have a big impact on the Canadian dollar, would drop our costs, and what would happen to our actual profitability and netbacks after that? We may be indifferent,” Laut said on an earnings call to discuss its quarterly results.
The threat of the tax, which would make Canadian exports more expensive relative to items produced in the U.S., has spooked executives in Calgary’s oilpatch as well as economists. Oil is Canada’s largest export and the vast majority of the volume produced here is shipped to the U.S.
“It has been a concern for the market, I mean we’ve seen the stocks take a 20 per cent hit since the border tax issue raised its head,” BMO Capital Markets analyst Randy Ollenberger said, adding that Laut’s comments “ring true” that there could be an offsetting exchange rate effect from the tax.
The National Energy Board released data Thursday showing an average of only 62,668 barrels per day, or two per cent, of Canada’s total oil exports of 3.3 million bpd went to countries other than the U.S. last year.
Oil executives, such as Suncor Energy Inc. president and CEO Steve Williams, have played down the risk, saying that former Exxon Mobil Corp. chief Rex Tillerson’s appointment as U.S. secretary of state is evidence of the administration’s understanding of Canada’s role in supplying the U.S. with oil.
Laut said it was too early to definitively tell how a possible border adjustment tax could affect the Canadian oil and gas producers, or even whether or not a border adjustment tax was coming at all.
CNRL’s financial results, released Thursday, showed the company produced an average of 859,577 barrels of oil equivalent per day in the fourth quarter of 2016, which marks a seven per cent increase from the same period a year earlier.
The company reported growing production at its Horizon oilsands mine and better-thanexpected earnings and cash flow, and CNRL’s share price jumped 5.3 per cent to close at $40.50 on the Toronto Stock Exchange.
Citi Research analyst Robert Morris said in a research note that CNRL would outperform “its ‘oilier’ large-cap” peers after the company reported earnings. CNRL pulled in $566 million in net earnings in the fourth quarter, a more than 330 per cent increase from the $131 million in earnings from the same period a year earlier.
The company also announced it would boost its quarterly dividend 10 per cent to 27.5 cents per share and that it would buy back 2.5 per cent of its outstanding shares. Laut said during an earnings call that CNRL’s preference is to use cash to boost dividend payments, but the company’s share price made the dividend buyback attractive.