A demand rebound for oil coupled with continued discipline from U.S. shale producers bodes well for the Canadian industry
From the oil price collapse of 2014 until the pandemic-driven cratering in demand last year, Canada’s energy industry has faced trying times for the better part of the past decade. But after that long period of darkness, the sector seems to be coming to a new dawn.
As reported by the Calgary Herald, oil markets have been rallying over the past few months. That has been fuelled by a rebound in demand from travel resumptions and economic reopenings, as well as sustained production discipline among OPEC+ countries and U.S. shale producers alike.
Early last week, the West Texas Intermediate benchmark briefly touched a six-year high, closing Friday at US$74.56 a barrel. Western Canadian Select heavy oil prices also reached their highest levels since late 2014, settling at US$61.82 a barrel at Friday’s close.
Citing ARC Energy Research Institute, the Herald said escalating commodity prices are expected to drive $141 billion in total Canadian industry revenues this year, just short of 2014 levels. Reduced costs, increased production levels, and a decrease in companies’ reinvestment compared to the past are also contributing to projected after-tax cash flow levels of $75 billion, an all-time high.
“The debt levels are coming down … a lot of excess cash flow is not going to spending,” institute executive director Jackie Forrest told the Herald. “The industry is looking quite healthy.”
Amid such positive conditions, Western Canada saw 144 active wells last week, nearly quadruple the 27 wells that were active a year ago, as reported by the Canadian Association of Energy Contractors. By many indications, the industry is cutting a much better picture of financial health.
As ebullient as things may seem now, companies have plenty of reason to stay grounded. Only last year, some companies were pushed to the edge – with a few falling into failure – after several years of lukewarm prices, pipeline constraints, and tepid investor interest were capped off with a dramatic collapse in oil markets. Thousands lost their jobs as companies drastically cut costs and spending to survive.
And while ARC Energy Research Institute projects 4,245 oil and gas wells will be drilled in 2021, a 40% rise compared to 2020 levels, that would still represent the second-fewest number of drillings completed since the 2016 crash in oil prices.
Much of the Canadian energy sector’s fate also remains out of its hands. Aside from the pace of the global economy’s recovery, the co-ordinated actions of OPEC and its partners will play a crucial role.
“In Canada, few players are expecting major new oilsands projects to move ahead or production to suddenly surge,” the Herald reported. “Climate concerns, ESG considerations and market access remain ongoing areas of attention.”
