|
Profits in Canada sagging Conference Board of Canada predicts country’s oil and gas profits at C$20 billion, down from 2005 record of C$25.2 billion By Gary Park For Petroleum News
Without the oil sands, Canadian oil and gas profits would be headed to a cold shower this year as the Conference Board of Canada predicts the industry will rake in profits of C$20 billion, sharply off last year’s record C$25.2 billion.
Even so, the board said strong commodity prices will keep the industry “drenched in profitability” for the rest of this decade.
As part of its outlook for the sector, the research group forecast operating profits for the oil sands will rise to 11.4 percent in 2010 from 10.5 percent in 2005, helping overall profits to average C$21.9 billion a year over that period.
Profit margins, which peaked at 18.1 percent last year, will fall back this year and next to 15.1 percent then average 14.8 percent from 2008 to 2010, reflecting the price of labor and capital, the board said.
Underlying this year’s tailing off is the weakening of gas prices, which will drag profits of gas producers down to C$9 billion in 2006 from C$14.4 billion in 2005.
The combination of the downturn in gas prices and rising field costs has reduced netback from the commodity to the same level as it was when gas was selling for $2-$3 per gigajoule according to Michael Smith, chairman of energy consultant Ross Smith Energy Group. The board said costs jumped 10.4 percent in 2005, including 13 percent for capital and 8 percent for labor. Labor, materials, capital costs to rise Over the forecast period to 2010, the board expects labor, materials and capital costs to rise by an average 4.2 percent a year.
But Louis Theriault, director of the board’s Canadian Industrial Outlook, said “rising global demand and persistent geopolitical risks to supply mean that oil at US$30 per barrel is likely a thing of the past and prices are expected to remain above US$60 through 2010.”
He was in no doubt that the Canadian industry’s future lies in the oil sands as conventional crude and natural gas production taper off over the forecast period by an average 1.8 percent and 0.5 percent a year, respectively.
For last year, oil production dropped by 2.2 percent, largely because of production outages at oil sands plants, but is expected to climb again, lifted by the oil sands and a ramping up of volumes at the White Rose project offshore Newfoundland.
Non-conventional crude, dominated by the oil sands, is projected by the board to experience average growth of 15 percent between 2005 and 2010 and will account for 67 percent of total Canadian output by 2010.
Gas production rose by 2.1 percent in 2005, but because of the maturing of reserves in Western Canada, declines are anticipated over the next few years, trimming the region’s output over the medium term, despite gains from coalbed methane. East Coast offshore production, limited to Nova Scotia, is expected to slump over the forecast period.
Employment in the industry rose by 10.4 percent last year to 124,800 and will grow by another 7.3 percent in 2006 and 1.3 percent in 2007 to reach 135,700.
| 