Too high, gas prices? Obviously, from the point of view of motorists and road hauliers.
From the perspective of shareholders and oil company executives, it’s more of a long-awaited bonanza after a few years of poor performance.
On the Toronto Stock Exchange, the sector index for energy companies is up 28% since the start of the year, while the market index S
In fact, investors in companies in the sector were thus anticipating the impact of the sharp rise in hydrocarbon prices on the next results of the companies in which they are invested.
And they weren’t disappointed.
About ten days ago, the integrated oil company Imperial Oil, known to Canadian motorists for its network of 2,400 Esso and Mobil gas stations, opened the first quarter 2022 results parade with the announcement of a net profit. up 198% – almost tripling – to $1.17 billion.
This is a record amount of profit “in more than 30 years” at Imperial Oil, in a first quarter of the year.
Most recently, on May 9, it was the turn of Suncor, which extracts oil from the oil sands in Alberta and operates the network of 1,584 Petro-Canada gas bars, to announce a dramatic increase in quarterly net income of 259 %, at $2.95 billion.
In the same breath, Suncor’s Board of Directors decreed a 12% increase in the quarterly dividend paid to shareholders, to a record 42 cents per share. This dividend amount corresponds to a cash yield of 4.1% per annum on the market value of Suncor shares.
Energy industry analysts say with oil prices rebounding sharply to a seven-year high, “Canadian oil producers have been presented with a unique opportunity to reinvent themselves as powerhouses. to generate cash flow”.
“For [equity] investors in oil companies, rates of return on capital are obviously a priority. For the directors of these companies, the main question is what is the best way to put money in the pockets of the shareholders,” say energy analysts at Desjardins Capital Markets in Calgary, in their recent Oil
Moreover, no offense to motorists and truckers, this episode of good returns in the petroleum fuel industry seems set to last.
“Meanwhile, Desjardins analysts said, U.S. oil supply growth remains constrained because producers face material and labor availability constraints. Also, investors in these companies continue to push for increased financial returns for their shares, rather than investing to increase production. »
Against this backdrop, the Calgary-based Desjardins analysts conclude, “with the economic impacts of COVID-19 largely behind us, and oil production capacity still constrained among OPEC member nations, the outlook for oil prices stay strong.”
Overview of Results Posted by Major Petroleum Fuels Merchants in Canada
Mining, refining, wholesaler and retailer with 2400 Esso and Mobil service stations
Q1 2022 revenue: C$12.68 billion (81% YoY)
Q1 2022 net profit: CAN 1.17 billion (198% YoY)
Year-to-date stock market return: 71% (Toronto)
Annualized dividend yield of stocks on the stock market: 2.1%
Extraction, refining (notably at the Montreal East refinery, with a capacity of 137,000 barrels/day), wholesaler and retailer with 1,584 Petro-Canada service stations
Q1 2022 revenue: C$13.48 billion (55% YoY)
Q1 2022 net profit: CAD 2.95 billion (259% YoY)
Year-to-date stock market return: 68% (Toronto)
Annualized stock dividend yield on the stock market: 4.2%
Refining, wholesaler and retailer with 2147 gas stations Ultramar, Crevier, Husky, Pioneer, Esso, Chevron, etc.
Q1 2022 revenue: CAD 7.6 billion (80% YoY)
Q1 2022 net profit: CAN 68 million (88% YoY)
Year-over-year stock market return: -14% (Toronto)
Annualized stock dividend yield on the stock market: 3.6%
Refining (Sarnia, Ontario), wholesaler and retailer with 1300 Shell service stations in Canada
Excerpt from Shell plc Global Results (London)
Gross Refining Profit: US$16/barrel in Q1 2022 (433% YoY)
Year-to-date stock market return: 61% (London)
Annualized stock dividend yield on the stock market: 3%
Convenience stores, wholesaler and retailer of petroleum fuels with 8040 service stations (Canada and United States) Shell, Esso, Irving, Mobil, BP, etc.
Motor fuel sales revenue (Canada and United States, quarter to January 30, 2022): US$10.5 billion (57% year-on-year)
Gross profit from motor fuel sales (Canada and United States, quarter to January 30, 2022): 1.23 billion US (32% in one year)
Year-to-date stock market return: 31% (Toronto)
Annualized stock dividend yield on the stock market: 0.8%
Refining (15 refineries in North America, including that of Lévis with a capacity of 235,000 barrels/day) and petroleum fuel wholesaler
Q1 2022 revenue: US$38.5 billion (85% YoY)
Q1 2022 net profit: US$967 million (compared to a loss of US622 million a year earlier)
Year-to-date stock market return: 56% (New York)
Annualized stock dividend yield on the stock market: 3.2%
The astonishment continues over the weeks: the price of gasoline continues to rise above the symbolic mark of $2 per litre. Motorists filled up at 205.9 cents per liter on Wednesday. Has a point of no return been reached? How should consumers behave now? Experts speak out.
Pierre-Olivier Pineau, professor at HEC Montréal and holder of the Chair of Energy Sector Management: The evolution of oil prices is very difficult to predict, because the events that affect the market are unpredictable. Pandemic, war and other events transform the market balance by reducing demand (e.g. COVID-19 related lockdowns) or destabilizing and reducing supply (invasion of Ukraine). One thing is certain, however, the price of oil depends as much on demand as it does on supply. The demand for petroleum products is very strong right now, with the post-lockdown economic recovery and the modes of transport we use. With the upcoming holidays, the demand for gasoline is also greater than during the rest of the year, so prices should remain high for the months to come. Especially since the supply of oil should not be more abundant. Uncertainty will remain high with the situation in Ukraine. OPEC is not going to produce more and it is difficult for other producers to increase production much.
Mehran Ebrahimi, professor of management at the University of Quebec in Montreal: For consumers who travel, for example, the prices of plane tickets already sold will not change. And airlines have sold out many of their tickets for travel this summer. But one-third to one-half of the price is made up of the price of kerosene. It directly eats away at profits. The sector is coming out of a pandemic on its knees. If the situation continues, the airlines will not be able to support this price increase for long. For the moment, they are doing everything not to abort the recovery. It is obvious that sooner or later there will be a price correction.
Mehran Ebrahimi: The industry is disrupted by the geopolitical context… and the oil companies are taking advantage of it and swimming in obscene profits. As always, they benefit greatly. We often hear arguments like “we’re tapping into the strategic reserves”. But concretely, countries can replace Russian oil, others can increase their production. We’re transferring wealth from the middle class to the oil companies, who can’t get enough of it. Billions per quarter! There, we are in a logic where the government does not intervene. We’re served up heated arguments: instability, low level of production…but sooner or later, we’ll get to price elasticity.
Nicolas Ryan, Director of Public Affairs, CAA-Quebec: That said, at the pumps, the margins aren’t horribly high right now. Last November, we saw 20 cent markups for gas stations. After removing taxes and operating cost, there were 15 cents per liter left. Now, that is no longer the case. The margin is about 8 cents per liter sold. Minus taxes and operating costs, they are left with about 3 cents per liter sold. People often ask what Quebec can do to fix the problem of the hike, but it’s global.
Pierre-Olivier Pineau: High prices obviously contribute to inflation, but should be important signals to adopt more energy-efficient habits. This is an ideal opportunity to start an energy transition: change your transport habits, optimize the use of existing modes. We have very low energy productivity in Canada: we generate much less wealth per unit of energy used. So we know it is possible to do better – and this is a great time to question and improve.
Nicolas Ryan: The instinct is often to say: what can others do for me? But the consumer is the first who can have an impact on his wallet. Consumers are offered tips on how to save. There is eco-driving, i.e. accelerating gently, driving more slowly, thinking about the mobility cocktail… This is not necessarily possible in all regions of Quebec, but in major centres, yes. You might wonder if you have to take the car all the time. You can ensure the optimal maintenance of your vehicle, because a poorly maintained car (soft tires, for example) can consume 25% more gasoline. Finally, you can choose a more economical car model. Currently, we are at the tipping point of the number of compact cars and SUVs. The waiting list for electric vehicles is long, but it’s time to shop around.