Wildfires driving down oil & gas profits

Wildfires in Western Canada during the first half of the year reduced oil production capacity in those provinces, which ate at profits within the industry.

Last week, Statistics Canada published quarterly financial statistics for enterprises for the second quarter of 2023.

In their update, they reported that net income before taxes for Canadian corporations had fallen from $167.05 billion in the first quarter of this year to $163.8 billion in the second quarter, a drop of $3.3 billion, or 2.0%.

Since the second quarter of 2022, however, the decline is even more pronounced, dropping $12.25 billion over the past year, from $176.03 billion. That’s a decline of nearly 7%.

The financial sector saw a 4.5% increase in before tax profits, rising $21 billion from $46.87 billion in the first quarter to $48.97 billion in the second quarter.

Over the last year, the financial sector rose $3.68 billion, from $45.29 billion in the second quarter last year.

The fact that the financial sector is seeing profit growth while the non-financial sector is losing profits shouldn’t come as a surprise to anyone.

After all, the financial sector is probably the sector most likely to benefit directly from the 10 interest rate hikes the Bank of Canada has introduces since early last year.

After all, as interest rates rise, they get to charge customers more for financing, which increases revenue. And as long as expenses don’t rises significantly, they should see an increase in profit., which is basically revenue minus expenses.

Now, that being said, some financial institutions are seeing a reduction in expenses.

For example, RBC announced back in May that they were cutting their workforce by 1%, and they plan to cut an additional 2% in this quarter.

BMO said in June that they were laying off 4% of the workers in their capital markets division. Laurentian Bank also made a June layoff announcement, but theirs would affect 10% of their workforce.

With more money coming in from revenues and less money going out in worker wages, it shouldn’t come as a surprise that profits are up.

The story with the non-financial sector is less rosy though.

Last quarter, net income before taxes for the non-financial sector was $114.81 billion. That’s down $5.38 billion from the previous quarter and down $15.93 billion from the second quarter of 2022.

Statistics Canada claimed that of the 39 non-financial industries, 13 saw a reduction in net income before taxes.

The oil and gas sector drove most of that drop in profits, losing $3.94 billion between the first quarter and second quarter of this year and just barely over $13 billion between the second quarter of 2022 and the same period this year.

The $6.2 billion in profits that Canada’s oil and gas sector saw in the second quarter of 2023 was the lowest that profits have been in this sector in two years, and they are only a third of what they were a year ago.

According to Statistics Canada, “this drop was largely driven by lower production and sales due to hazardous wildfires across Western Canada”.

I reached out to Anna Maiorino, a communications officer with Statistics Canada for clarification on this.

She said that reduced sales revenue (which results in lower profits) was also affected by lower oil prices. However, she pointed out that oil prices in the second quarter of 2023 have declined by less than the decline seen in the previous 3 quarters.

Maiorino also went on to say that the drop in net income before taxes was due to decreasing production, lower sales, and declining exports, which themselves were affected by the wildfires that forced oil sand companies to close temporarily.  

The next largest decline in profits before taxes was in the petroleum and coal product manufacturing sector, which was down $1.25 billion (or 25.2%) from the previous quarter, mainly attributable to a decline in exports of energy products and a general economic slowdown that resulted in a reduction in the price of petroleum products.

Over the past year, however, profits before taxes in this sector were down $4.45 billion (from $8.15 billion) compared to a year ago, or a loss of 45.4%.


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By Kim Siever

Kim Siever is an independent queer journalist based in Lethbridge, Alberta. He writes daily news articles, focusing on politics and labour.

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