There is no hiding the bullish mood in Canada’s upstream oil and gas sector.
You don’t have to dig too widely or too deep to find confidence in a turnaround, with companies posting impressive gains on the stock markets, riding forecasts for a Trump-inspired resurgence tied to the incoming president’s pro-energy, infrastructure-heavy campaign promises.
“With the potential for increased U.S. (oil and gas) demand, coupled with significant supply curtailments, the stage is set for some recovery in commodity prices,” said Matt Barasch, chief Canadian equity strategist with RBC Capital Markets.
And, despite Trump’s threats to renegotiate the North American Free Trade Agreement, the long-held belief in Canada is that it will derive some benefit from whatever gains the U.S. makes.
The RBC commodity team expects crude will continue to rise in 2017, surging to US$61 a barrel by the fourth quarter of the year (far ahead of the C$70 level deemed necessary for a thriving oil sands sector).
Canada’s oil patch has also been celebrating the strong prospects of OPEC’s first supply cut in eight years, combined with a 27 percent third-quarter increase in energy exports to the U.S. as the industry rebounded from the wildfire disruptions in the oil sands region eight months ago.
Projects for revenue growth
Peter Tertzakian, chief energy economist at ARC Financial, wrote in the Globe and Mail that upstream revenue from the petroleum industry as a whole, is likely to climb back above C$100 billion in 2017, compared with C$78 billion in 2016, while predicting that cash flow should more than double from C$20 billion to C$45 billion.
He based those targets on a West Texas Intermediate average for the year of US$55 and C$3.40 per thousand cubic feet for natural gas.
Tertzakian said “two full calendars of fiscal pain have done much to tune up the industry for the future” - a period when costs have moderated, field productivity has increased significantly and the debilitating Canadian crude oil price discounts of 2012 and 2013 have almost retreated back to normal.
He said recent disclosures from more than 20 publicly traded companies point to an average 40 percent lift in 2017, with the biggest spenders concentrating on the Montney shale play in northeastern British Columbia and northwestern Alberta.
However, spending in the oil sands is likely to drop by another 20 percent from a weak 2016, Tertzakian said.
The latest figures from Statistics Canada show capital expenditures were down 30 percent in the third quarter of 2016 from a year earlier, about even with the second quarter, but a solid improvement from the year-over-year drops of 35 percent and 48 percent in the previous two quarters.
Canadian Natural Resources
Those looking for additional hope can find it in Canadian Natural Resources, well known for marching to its own drumbeat.
The multi-faceted company has set a C$3.9 billion capital budget, while emphasizing it is ready to ramp up or back down depending on the market.
The plan includes an increase in exploration and production by C$465 million to C$1.79 billion and C$435 million to debottleneck operations at its Horizon oil sands project, increasing output by 80,000 barrels per day by late 2017 and laying the groundwork for other oil sands ventures.
The company will boost its well count to 563 in 2017, up from 193 last year and expects to generate between C$2.6 billion and C$3 billion of free cash flow.
“A trademark of Canadian Natural is out capital flexibility,” said company President Steve Laut, adding that if oil prices slump, the budget could be cut back by C$900 million.
