Prudence rules Canada’s upstream

Gary Park

For Petroleum News

Spending among Canada’s E&P companies in 2012 and the budget plans for service companies are reinforcing the upstream industry’s cautionary outlook.

Of the numbers emerging from about half of the top 100 producers for last year, 27 have added to their original budgets and 26 have made cuts.

Influenced by those trends, the service sector appears destined to pull back from its 2012 investments, figuring the rigs and related equipment are more than enough to carry the industry through this year.

As 2012 wound down, Encana led the spending increases in dollar terms at US$600 million, followed by oil sands player MEG Energy at C$380 million and Vermilion Entergy at C$315 million for its interests which span the globe, plus two key Bakken players, Crescent Point Energy up C$300 million and PetroBakken, posting a C$275 million increase.

The heaviest cuts were made by gas-weighted companies, led by Canadian Natural Resources at C$750 million, Talisman Energy at US$400 million, Penn West Petroleum at C$250 million and Progress Energy Resources at C$195 million.

C$580 million decline

The latest cash flow figures covering the first nine months of 2012 showed the biggest gainers were Imperial Oil at C$558 million, Cenovus Energy C$521 million and Suncor Energy C$393 million.

Overall, the 100 producers posted a slight decline for the nine months at C$38.63 billion compared with C$38.94 billion in the same period of 2011.

But the bottom line numbers for the third quarter explained the uneasy mood within the industry, with total net income for the 100 companies off 74 percent at C$1.63 billion, compared with C$6.37 million for a year earlier, with Encana reporting the largest decrease, falling US$459 million to US$1.24 billion.

The pace-setting production gains for the third quarter were booked by Crescent Point, up 27,373 barrels of oil equivalent per day, Cenovus 24,690 boe, ConocoPhillips Canada, which is in a 50-50 oil sands joint-venture with Cenovus, 20,833 boe and Pengrowth Energy 19,716 boe.

On the oil and liquids front, Canadian Natural led the pack, boosting its third-quarter output by 65,268 barrels per day to 469,168 bpd, followed by Cenovus at 37,857 bpd, ConocoPhillips at 30,000 bpd, Crescent Point 24,395 bpd and Pengrowth 10,415 bpd.

Cuts in service sector

Precision Drilling slashed its 2013 program to C$485 million from its original 2012 budget of C$1.14 billion, which was later trimmed to C$920 million.

Brian Purdy, an oilfield services analyst for Global Hunter Securities, said the budgets are reflecting unchanged activity levels, suggesting that the equipment added in 2012 is probably sufficient to meet the fracturing and drilling demands expected this winter.

Western Energy Services mirrored that view, targeting C$60 million for 2013 after spending aggressively on rigs over the past two years, although it is counting on its 44 deep-drilling rigs being fully booked through winter.

Ken Mullen, president of Savanna Energy Services, which has set a flat program of C$107 million for the year, said the challenge facing most producers is to get a fix on what lies ahead after the second quarter.

Mark Salkeld, president of the Petroleum Services Association of Canada, said service companies are fairly confident that can ride out the next year or so without adding new field equipment.

However, in a research note, investment banker Peters & Co. said the conclusion of the Encana joint venture with a unit of PetroChina along with the CNOOC takeover of Nexen and the Petronas acquisition of Progress Energy Resources, are a positive sign for the service sector, especially in the Duvernay and Montney formations.

But it acknowledged that uncertainty still persists because of concerns over wide crude oil price differentials, natural gas liquids pricing and gas fundamentals.

The firm said that mood is likely to stretch in this year’s second half, delaying the chances of a recovery in 2014.