ND P taxes bite into oilpatch
Husky, MEG raise corporate tax charges
• The largest companies in Alberta are beginning to account for the recent increase in corporate taxes — and the hike is taking a big bite out of their earnings.
On Tuesday, Husky Energy Inc. reported a one-time charge of $157 million as a result of the province’s new tax rates and MEGEnergyCorp. increased its deferred income tax liability by $11.4 million.
Alberta Premier Rachel Notley increased the corporate tax rate from 10 per cent to 12 per cent in June, roughly a month after her New Democratic Party swept the longruling Progressive Conservatives from power.
Despite the tax charge, and a looming oil and gas royalty review, Husky president and CEO Asim Ghosh said during a conference call that the company is “committed to working constructively with the Alberta government as we do with all governments where we have operations.” Similarly, MEG president and CEO Bill McCaffrey said he was “pleasantly surprised” with Premier Notley’s commitment to protecting jobs and understanding that companies like his create jobs in Alberta.
After accounting for the tax charge, which Husky’s chief financial officer John McKenzie said “will unwind itself over a period of years,” the company’s net earnings for the second quarter were $120 million — an 80-per-cent drop from the $628 million in net earnings the company pulled in during the same period the year before.
Much of that drop in earnings is a result of the yearlong oil price rout, which is dragging down Canadian energy companies’ financial performance across the board.
The benchmark oil price rallied on Tuesday — slightly — to US$47.98 per barrel. But the West Texas intermediate benchmark slipped from roughly US$60 to below US$50 per barrel between June and July, eviscerating last month’s oilpatch optimism that the commodity’s price had found a floor.
In its second-quarter results, MEG reported earnings of $63 million, a 74-per-cent drop from the $249 million the company earned in the second quarter of 2014.
Despite the price collapse, both Husky and MEG were able to beat analysts’ financial and operational expectations for the quarter.
Husky began producing from its 10,000-barrel-per-day steam-based Rush Lake heavy oil project and its 15,000 bpd expansion project at White Rose offshore from Newfoundland during the quarter.
The company’s total production was 337,000 barrels of oil equivalent per day during the second quarter, roughly flat with the 334,000 boe/d it produced in the same period last year.
In a research note, BMO Capital Markets analyst Randy Ollenberger wrote that he believes “the market will respond positively to the results, as the company exceeded expectations both financially and operationally on the strength of the downstream (refining) segment.”
Similarly, MEG managed to drive down its operating costs and beat production forecasts for the quarter, despite the company’s evacuation of its employees as a result of an out-of-control wildfires burning near its oilsands project north of Cold Lake, Alta.
“Overall, a solid quarter as the company continues to deliver stellar operating results,” National Bank Financial analyst Kyle Preston said in a research note. “However, we expect the above-average debt levels will continue to weigh on the stock in the current weak oil price environment.”
Nonetheless, McCaffrey said in a conference call that his company would “continue to deliver growth in a lower oil price environment.”
Executives at both Husky and MEG said they would focus on small, brownfield projects while oil prices remain low.