Spring hopes evaporate this summer

Oil patch investment, exploration spending lag comparable 2007 activities in Canada as prices and company earnings climb

Gary Park

For Petroleum News

A surge of second-quarter optimism in Canada’s upstream, amid a healthy revival of natural gas prices and the relentless rise in oil prices, disappeared almost as fast as it surfaced.

Despite the major shale gas action in British Columbia and Nova Scotia and a push to develop the Bakken oil formation in Saskatchewan, there was little action to fuel hopes of a widespread recovery.

Leading E&P companies put a damper on things by re-investing only about three-quarters of their record C$19.7 billion in cash flow, although their actual capital spending was a healthy C$14.6 billion – up about C$5.3 billion from the same quarter of 2007 and C$3.4 billion above the opening quarter of 2008.

But the re-investment lagged well behind what has been the industry norm of spending most of or more than the cash collected from operations.

Field spending totaled more than C$13 billion, up marginally from the first quarter and about C$3 billion from the same period last year, much of it driven by the oil sands sector.

The largest increases over a year ago were posted by Petro-Canada, up C$1.36 billion; Canadian Natural Resources, up C$674 million; and EnCana, up C$546 million – all of them engaged in major oil sands-related projects.

Acquisitions went into sharp decline at C$1.28 billion, off C$3.43 billion from the first quarter, but the first half total of almost C$6 billion was C$760 million ahead of the pace set in 2007.

Combined producer profits were C$6.5 billion, an increase of C$350 million from the opening quarter, but C$750 million under the same three-month period in 2007, with the pack led by Canadian Oil Sands Trust, which turned a 2007 second-quarter loss of C$395 million into an C$892 million profit; Husky Energy climbed to C$1.36 billion from C$642 million; and Imperial Oil surged to C$1.15 billion from C$436 million.

But there is still no cause for glee in some of the most telling industry benchmarks.

To the end of August, permits issued for new wells tallied 14,434, trailing last year by seven licenses.

Approvals for new gas wells in British Columbia and Saskatchewan are ahead of last year’s pace, but Alberta has dragged the overall count down, issuing 5,645 permits, down 728 from last year and 5,263 from the peak in 2005.

The four Western Canadian provinces approved 4,552 oil well permits, a gain of 7 percent from 2007, with Saskatchewan almost matching Alberta at 2,069 permits against 2,256 in the usual stronghold.

In the eight months, an average 388 rigs, or 45 percent of the total fleet, were active in Western Canada and northern Canada, up from 42 percent in 2007, with Alberta dropping to an average 262 rigs from 266 last year.