Job Creation or Job Loss?

Significant restructuring and consolidation of the Alberta oil sands industry have occurred since the 2014 global oil price crash. Four companies now dominate oil sands production in the province: Suncor Energy, Canadian Natural Resources Limited (CNRL), Cenovus Energy, and Imperial Oil. Until 2020, the group of oil sands majors — then known as the “Big Five” — also included Husky Energy. After the January 2021 merger of Cenovus and Husky, this oligarchical bloc became the Big Four. The Big Four operate 86% of bitumen production (almost 3.5 million barrels a day). As vertically integrated corporations, the Big Four also own substantial refining and upgrading facilities, and three of the four companies own gas stations.

This report explains how the Big Four are leading the push to automate away even more jobs in the coming years. Yet, these large companies are also among the biggest beneficiaries of the United Conservative Party (UCP) government’s corporate tax cut from 12% in mid-2019 to 8% in mid-2020. The tax cut was sold as a way to create jobs and boost the economy, but that is not what happened. The research shows the Big Four used the tax giveaway to increase executives’ pay and boost cash transfers to shareholders while accelerating automation and cutting jobs.

The Alberta oil and gas industry employed 25,788 fewer workers in 2021 than in 2014 (a 15.5% reduction), with the oil sands majors responsible for 4,039 of these job cuts. In addition to this total, many contractors of the oil sands majors were also terminated. A total of 3,452 jobs — more than 85% of the oil sands majors’ employee terminations — were cut after 2019, the year the UCP gave these companies a tax cut that would amount to a $4.3 billion between 2019 and 2022.

There are two interconnected reasons for these job cuts. First, many of them were the result of decreasing capital spending. Spending is down because of a prolonged period of low oil prices (2015-2020) and because of recent price unpredictability linked to the pandemic and to the Russian invasion of Ukraine. In addition, in 2018 the oil sands industry entered the mature phase of its business life cycle (launch, growth, maturity, and renewal or decline).

Second, and related to decreased capital spending, is the reality that as the oil sands industry has matured, it has increased automation, digitalization, and the use of modular facility designs. These technology and design trends mean fewer engineering, construction, operational, and back-office jobs are now needed to produce increasing volumes of oil.

A decade-long trend of increasing automation was accelerated after the 2014 oil price crash, and this report shows the spread of COVID-19 in 2020 has further accelerated these troubling trends, particularly the digitalization of the Big Four’s oilfield and back-office operations.

Accelerating oil sands automation is happening in the global context of the climate emergency largely caused by the burning of fossil fuels. Leading oil sands companies are speeding up automation to lower production costs by cutting jobs because they will soon be competing in a shrinking market, as the peak of global oil demand is likely to occur in the next five years.

The negative trends of accelerating automation and job cuts mean the Alberta government should reverse its corporate tax giveaway and instead use public funds to support workers and communities traditionally reliant on the oil sands for employment and investment. There is an immediate need for Alberta and Canada to develop and implement long-term sustainable economy programs for workers and communities to secure future prosperity.

The Government’s Own Analysis Shows the Tax Cut Would Not Work as Advertised

The top commitment in the United Conservative Party’s 2019 election platform was a tax giveaway for large profitable corporations, which the UCP advertised as a “job creation plan.” The UCP won a majority government and implemented the tax cut more than twice as fast as promised in the election and subsequently legislated.

The UCP government received expert advice from Alberta Treasury Branch and Finance economists before implementing the tax cut that said the plan would not work as advertised in the party’s election platform — but they ignored the advice.

The expert advice, in short, was that predicting the effects of decreasing the corporate income tax rate is difficult to do with accuracy. Further, predictions are less likely to be reliable when the tax decrease is large (such as a 33% tax cut) and the tax rate drops well below historical ranges (such as 20% below the Alberta rate for 2006-2015 of 10%).

A key consideration provided to the future United Conservative Minister of Finance Travis Toews was: “Corporations have the ability to carry forward their losses, which reduces corporate income tax collections in future years, or carry them backwards, which allows corporations to recover taxes paid up to three years prior” (FOIP #: TBF-2019-G-0090, 31).

Like other large companies, the oil sands majors use this element of tax law to reduce their tax expenses. In fact, all five oil companies received a net recovery of tax funds in 2019 ($2.6 billion as a group) and 2020 ($6.6 billion). This means that, for two years in a row, the five big oil sands producers received more money through the tax system than they paid in.

In 2021, the Big Four paid net income tax expenses of $5.2 billion. In sum, for 2019 through 2021, the big oil sands producers received $4 billion more from the tax system than they paid in. 

The UCP’s Tax Giveaway for Fewer Jobs

The oil sands majors have all terminated employees since getting a tax handout from the UCP in 2019. Suncor (including Syncrude) cut 1,182 employees after 2019, CNRL cut 445, Imperial cut 600, and Cenovus (including Husky) cut 1,225. In total, the oil sand majors cut 3,452 employees after 2019.

Most of the job cuts after 2019 are because of automation and the Cenovus/Husky business combination. The group had fewer employees in 2020 during the height of the pandemic, but what should concern the United Conservative government and all Albertans is that the bloc of large producers cut 2,298 employees in 2021 when oil prices were climbing.

Oil and gas employment in Alberta was 142,012 jobs in June 2019, the month before the UCP’s corporate tax cuts began. The Alberta industry cut 10,968 jobs by February 2020, the month before COVID-19 was declared a global pandemic. At the end of 2021, the Alberta industry employed 139,004 workers; that is 3,008 fewer jobs than before the UCP’s tax cut began.

CEO and Shareholder Pay

While the oil sands majors have been cutting jobs on the frontlines, CEOs and shareholders have remained very well compensated. The 2021 average CEO pay for the four firms was about $12.8 million. The average pay increase in 2021 was $3.3 million.

The CEO pay at three of the four companies went up in 2020 despite all four businesses recording large net losses due to the pandemic. The compensation of CNRL’s Murray Edwards went up by $750,000, Cenovus’ Alexander Pourbaix’s pay increased by $465,000, and Imperial Oil’s Bradley Corson received a raise of almost $1 million. Suncor’s board decided to reduce salaries for themselves and executives, including a $285,000 cut to CEO Mark Little’s base salary.

For two years in a row, the Big Five’s shareholders were paid more than double what the companies paid to governments in royalties and income tax. In 2019, the group paid its shareholders $10.4 billion, paid royalties of $4.2 billion, and had net income tax recoveries of $2.6 billion. In 2020, the group paid its shareholders $5.5 billion, paid royalties of $1.9 billion, and had net income tax recoveries of $6.6 billion.

In 2021, the Big Four paid their shareholders $10.9 billion, while paying royalties of $7.9 billion and net income tax expenses of $5.2 billion.

Boom-Time Capital Spending Levels Are Not Expected to Return

The combined capital spending (CapEx) of the Alberta oil sands, crude oil, and natural gas industries peaked in 2014 at $60.6 billion ($33.9 oil sands; $26.7 crude oil and natural gas). A 2022 forecast from the Alberta Energy Regulator (AER) indicates oil sands CapEx will be about 40% of the 2014 peak throughout the 2020s. For the crude oil and natural gas industries, the AER expects CapEx to be 65-70% of the 2014 peak throughout the 2020s.

The oil sands majors’ CapEx peaked in 2014 at $31.7 billion. The group’s CapEx was down $12.7 billion (40%) in 2019, $21.4 billion (67%) in 2020, and $18.7 billion (59%) in 2021. No new oil sands mining megaprojects are being developed or proposed. The UCP’s tax giveaway has not changed that fact.

Going forward, oil sands producers as members of a mature industry are expected to deepen efficiency gains through automation and digitalization. Automation is a broad term that includes advanced machinery, such as driverless haul trucks in oil sands mines. Automation can also be understood to include digitalization. I listed “digitalization” alongside “automation” because it is also a broad term that includes many advanced computing technologies, such as cloud computing, artificial intelligence, machine learning, and sensors to generate huge amounts of data across a company’s operations.

Automation Will Result in Further Job Losses

The Alberta oil and gas industry employed 25,788 fewer workers in 2021 than in 2014 (a 15.5% reduction). Nationally, industry employment dropped by 41,336 (18.3%) in this period. These jobs are probably not coming back, and more job losses are expected because of accelerating automation.

Automation and digitalization are widespread in the oil and gas industry in Canada and around the world. An August 2020 forecast from Ernst & Young and Petroleum Labour Market Information indicates automation and digitalization may result in 46,108 job losses in the Canadian upstream oil and gas sector by 2040, or 54.4% of the upstream jobs that existed in 2019. Exploration, production, and oil sands jobs are included in the upstream sector.

More than 40% of the jobs in ten of the 14 job-family categories could be eliminated by 2040. Equipment operators, drilling operations, and trades are the three job families that are expected to have the highest percentage of job cuts. Heavy equipment operators, drilling and service labourers, and machinists are among the specific types of workers that are anticipated to be most impacted by automation and digitalization by 2040.

Recommendations

Corporate tax giveaways do not work; the United Conservative’s term in office has proved it. Our government needs to be held to account so they stop lining the pockets of their corporate buddies while working families struggle to make ends meet and public services go under-resourced. Instead of handing more than a billion dollars a year in public funds to four profitable oil companies, the Government of Alberta could have hired more than 10,000 nurses, emergency medical responders, teachers, and educational assistants.

The Government of Alberta needs to start acting on behalf of Albertans as the owners of our natural resources. We give oil and gas companies access to our bitumen, conventional oil, and natural gas with the expectation that they will create jobs and invest in our economy, not cut jobs and capital spending by investing in automation. Since this has been the industry’s approach to business for several years, the provincial government needs to consider other ways for Albertans to fairly benefit from our natural resources, including higher corporate taxes and royalty rates.

Besides Alberta, the other three western Canadian provinces have corporate tax rates of 12%. Alberta should align with its western peers and return to a 12% tax on the profits of large corporations.

Alberta’s oil sands royalty rates are generous in several respects. Changes are required so Albertans can start receiving a fair share of our resource wealth. For example, in the post-payout period of an oil sands project, the royalty rate only rises to 40% of the project’s net revenues when West Texas Intermediate is at $120 a barrel. Albertans, as the resource owners, should earn at least 50% of net revenues when oil prices are high. The Government of Alberta should also consider lowering to $90 the price threshold for when the maximum royalty rate applies.

It is also recommended that the Government of Canada ensure a fairer deal for all Canadians by joining its peers in the United Kingdom, Spain, and Italy in imposing a temporary windfall tax on the excess profits of large corporations in certain sectors, such as oil and gas, utilities, and banking, during periods of high commodity prices. The proceeds from the tax on excess profits could go toward supporting households struggling with the surging cost of living.