Turnaround has doubters

Canadian oil patch posts big first-quarter profits, tight balance sheets touted

Gary Park

for Petroleum News

There’s been a rebound in the Canadian petroleum industry, with six of the top shelf producers posting combined profits of C$3.2 billion in the first quarter against a flow of red ink totaling C$9.7 billion a year earlier.

Canadian Natural Resources reported net earnings of C$1.38 billion (versus a loss of C$1.28 billion in the opening phase of the COVID-19 pandemic); oil sands powerhouse Suncor Energy’s profits climbed to C$821 million against a year-earlier net loss of C$3.5 billion; Imperial Oil had net income of C$392 million (versus a loss of C$188 million); Tourmaline Oil, Canada’s largest natural gas producer, was on the upside by C$248 million (versus a loss of C$35.8 million); Cenovus Energy had profits of C$220 million, against a loss last year of C$1.8 billion; and ARC Resources raked in C$178 million.

Eight Capital analyst Phil Skolnik told the Calgary Herald that the combined results reflect a “massive recovery,” partly achieved by the surge in oil prices and partly stemming from corporate decisions to restrain capital spending.

Instead, the larger outfits chose to return money to shareholders, buy back shares and leave the smaller and mid-sized producers to nudge their budgets upward, if only slightly.

The cautious approach

Cenovus Chief Executive Officer Alex Pourbaix said that surviving the past year has “really taught us the advantages and benefits of running with an under-valued balance sheet.”

Canadian Natural President Tim McKay has his fingers crossed that OPEC will help keep oil at around US$60 a barrel, but he warned there is still likely to be “some volatility.”

For now, McKay said his company is focused on paying down debt, while sticking to its 2021 capital budget of C$3.2 billion.

The edginess in the industry surfaced in the first quarter of this year with the number of working rigs averaging 186, far below expectations of 250.

Bob Geddes, president of Ensign Energy Services, said his company’s loss of C$44 million in the opening quarter mirrored a consensus among producers to delay any increase in their drilling programs until the second half.

“I would only say the winds have started to build a little bit in the right direction,” he said.

CWC Energy Services logged the second highest operating hours for its service fleet since the company was formed in 2005 and is now counting on a “pretty decent summer” said Chief Executive Officer Duncan Au.

Subsidy benefits not clear

CEWS allows employers to receive a 75% subsidy for payroll costs, although there is a ceiling on the employee handouts.

In an exhaustive investigation, the Globe and Mail discovered that not all companies played by the unwritten rules, with subsidies flowing not just to those who were struggling, but to many who were strong enough to withstand the pandemic downturn. As a result, the CEWS payouts have climbed far higher than first anticipated.

In the early stages of the rescue program, the government estimated the total cost would be C$73 billion, then lowered that target to C$48 billion. But the federal budget released in April pegged the end total at C$110.6 billion.

What has emerged from CEWS is an explanation for the low-key response by big oil patch names to federal loan offers and their reluctance to criticize the government of Prime Minister Justin Trudeau for failing to deliver on its promises of assistance for the industry.

Instead, many companies seized the opportunity to grab a handful of cash from CEWS. Canadian Natural collected C$193 million and Imperial (69.6% owned by ExxonMobil) raked in $155 million. Suncor was also identified as one of the beneficiaries.