One analyst is saying that the Canadian oil’s past woes have contributed to a resurgence
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What doesn’t kill you makes you stronger – at least that’s the conviction one of an analyst says that the energy industry is staging a comeback.
“[A]fter two-and-a-half years of being dragged on the pavement, the North American industry is getting up and back into the race this year,” said Peter Terzakian, chief energy economist and managing director at private equity firm ARC Financial Corporation, in a commentary on the Financial Post. “Capital budgets, rig counts and cash flows are all headed up. Companies with quality rocks underneath prime postal codes are already singing… And developing natural gas reserves in BC and Alberta is proving to be viable at much lower prices than hitherto thought.”
Terzakian gave four main points to explain his positive outlook. “The 2014 [downturn] has had ‘lower-for-longer’ prices than after the [2008] financial crisis,” he began. “[T]he longevity of the malaise has forced companies to high-grade prospects, streamline operations, innovate for efficiency and cut out excess costs.”
He went on to cite innovation in the industry as a driving force. Canadian energy companies are embracing the benefits of pad drilling and multi-stage hydraulic fracturing. Rig productivity figures show producers in the early stages of technology disruption, with learning curve effects comparable to some US plays being realized.
The lower loonie is also seen to favor Canadian oil companies. With the Canadian dollar descending to 75 cents relative to the greenback, a US$50 barrel of oil will be worth $70 in Calgary.
Finally, Terzakian pointed out that supply chain issues have been sorted out as well. “Canadian production growth was clogging pipelines, backing up production and creating deeply discounted oil prices earlier this decade,” he said. “But new rail terminals, optimized pipe flows and slowing oilsands growth have since taken the ‘sale’ sign off most grades of oil. Some sclerotic transport issues persist, but American markets are paying almost full price for Canadian oil compared to five years ago.”
While the outlook for this year is generally positive, Terzakian acknowledges that there may be challenges, including environmental regulations, cross-border tax differentials, and alternative energy systems.
“But I know one thing: The oil and gas business has never been an easy one throughout its 150 year history. And yet it always manages to get back in the race,” he concluded.
Related stories:
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“[A]fter two-and-a-half years of being dragged on the pavement, the North American industry is getting up and back into the race this year,” said Peter Terzakian, chief energy economist and managing director at private equity firm ARC Financial Corporation, in a commentary on the Financial Post. “Capital budgets, rig counts and cash flows are all headed up. Companies with quality rocks underneath prime postal codes are already singing… And developing natural gas reserves in BC and Alberta is proving to be viable at much lower prices than hitherto thought.”
Terzakian gave four main points to explain his positive outlook. “The 2014 [downturn] has had ‘lower-for-longer’ prices than after the [2008] financial crisis,” he began. “[T]he longevity of the malaise has forced companies to high-grade prospects, streamline operations, innovate for efficiency and cut out excess costs.”
He went on to cite innovation in the industry as a driving force. Canadian energy companies are embracing the benefits of pad drilling and multi-stage hydraulic fracturing. Rig productivity figures show producers in the early stages of technology disruption, with learning curve effects comparable to some US plays being realized.
The lower loonie is also seen to favor Canadian oil companies. With the Canadian dollar descending to 75 cents relative to the greenback, a US$50 barrel of oil will be worth $70 in Calgary.
Finally, Terzakian pointed out that supply chain issues have been sorted out as well. “Canadian production growth was clogging pipelines, backing up production and creating deeply discounted oil prices earlier this decade,” he said. “But new rail terminals, optimized pipe flows and slowing oilsands growth have since taken the ‘sale’ sign off most grades of oil. Some sclerotic transport issues persist, but American markets are paying almost full price for Canadian oil compared to five years ago.”
While the outlook for this year is generally positive, Terzakian acknowledges that there may be challenges, including environmental regulations, cross-border tax differentials, and alternative energy systems.
“But I know one thing: The oil and gas business has never been an easy one throughout its 150 year history. And yet it always manages to get back in the race,” he concluded.
Related stories:
Natural resources fuel 2016 Canadian equity funds surge
Where are oil prices heading?
