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February 2020

Vol. 25, No.07 Week of February 16, 2020

Ray of hope in Canada: first oil sands capex gain since 2014

Gary Park

for Petroleum News

Reeling from a double whammy of stumbling oil prices, stemming mostly from the expected impact of the spreading coronavirus infections, and a drastic slide in Western Canadian heavy crude values, it’s hard to imagine much good news.

But there has been some, with predictions of the first increase in oil sands investment since 2014.

The Canadian Association of Petroleum Producers has forecast capital spending in the sector will rise by 8.4% this year to C$11.6 billion, crediting a corporate tax reduction in Alberta where the government has also eased oil production limits, and Saskatchewan’s decision to boost oil output by 25% to 600,000 barrels per day over the next 10 years.

That is expected to generate a rise in overall upstream investment to C$37 billion, which, regardless of the modest oil sands turnaround, is still far from the C$81 billion posted in 2014 (when oil sands outlay was C$33.9 billion).

However, Tim McMillan, chief executive officer of CAPP, praised some “hard work” by the Alberta government of Premier Jason Kenney to “put Canada back in a position where it can start to attract appropriate levels of capital again.”

Energy Minister Sonya Savage said the lowering of corporate taxes to 10% this year from 12% and a scheduled further reduction to 8% in 2022, sends out a message that “Alberta is open for business and results (like the gain in capital spending) proves our plan is working.”

Cautious optimism

CAPP said there is cautious optimism that badly needed pipeline expansions - Enbridge’s Line 3 and Keystone XL - will improve access from Alberta to U.S. refineries, ending years of delay.

Cenovus Chief Executive Officer Alex Pourbaix said his company expects to make a final investment decision later this year on two “significant” expansion phases at its oil sands operations.

The Petroleum Services Association of Canada, PSAC, has joined the upbeat mood, raising its 2020 target for well completions across Canada to 4,800 wells, up 7% from 2019, although overall drilling activity this year is forecast to dip by 2%. It estimates 2,460 wells will be drilled in Alberta, an improvement of 14% from its original target.

“On a positive note, three major oil sands companies are planning higher activity this year with some production quotas relaxed,” said PSAC President Gary Mar, although he noted that many upstream companies have made a strong start to 2020 because of work deferred from the fourth quarter of 2019, adding that will not translate into increased activity for the rest of 2020.

Commenting on the widening gap between West Texas Intermediate and Western Canadian Select heavy oil prices, Peter Tertzakian, executive director at the ARC Energy Research Institute, said that a combination of US$50 for WTI and US$20 for WCS represents a “danger zone for companies.”

RS Energy Group Vice President Al Salazar told the Calgary Herald the spread of coronavirus could lower oil consumption in China by 300,000 bpd in the first quarter, adding it is less clear what the impact could be on global consumption.

He said the snowball effect of drastic cuts in air travel and the “fear factor” could accelerate the trend.

Surge Energy Chief Executive Officer Paul Colborne said his company has already deferred drilling five wells and about C$6 million of capital spending until later this year.

“We’re already adapting to WTI prices dropping because if you don’t adapt you will run up your debt,” he said. “We can wait and see if crude bounces back.”

- GARY PARK






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