Benchmark West Texas Intermediate crude closed at US $ 65.67 on Wednesday, more than 20% lower than in early November before the new strain of the virus arrived. As news of omicron began to spread around the world last Friday, fears that the variant could affect economic recovery after the pandemic caused a sell-off in markets, with energy stocks hit the hardest. . It was a reminder of how much uncertainty persists in Canada’s oil sector and why companies are cautious despite recent impressive earnings as oil prices hit levels not seen in seven years.
Alberta’s oil production in October was 119 million barrels, an unprecedented monthly record, according to Statistics Canada.
At the same time, however, Statistics Canada says oil and gas capital spending in the first three quarters of 2021 was $ 8.5 billion, still 32% lower than in the same. period in 2019 before the pandemic.
The industry also spent less than a third of what it did in the same period of 2014. That year, capital investment in Canada’s oil field reached a record high of $ 81 billion. of dollars.
Concerns about the pandemic remain high
“We don’t expect it to return to 2014 levels when it broke all records,” said Rob Roach, deputy chief economist at ATB Financial. “But we haven’t even come back to where we were during the 2015-16 recession. “
Roach said a number of factors are helping to limit capital spending, including lingering concerns about the trajectory of the pandemic and its impact on oil prices. In addition, he said the industry had other areas of concern, including current and future pipeline capacity and transportation restrictions, as well as the risk that OPEC + could change course and flood the market again. of oil.
The threat of climate change and the risk of government policy limiting future production and demand are also a factor, Roach said.
In the midst of such uncertainty, Roach said, it’s no surprise that we aren’t seeing a boom in new projects and hires. Even if the price of oil skyrockets next year – some analysts have suggested that global oil prices could reach US $ 120 next summer – sentiment for the 2014 boom is unlikely to return.
“Even if we got these awards, we would still face the same limitations,” Roach said. “How long will this last, will OPEC change its mind on a dime and the price will drop, and what are we doing in the long term about climate change?” “
Instead of spending, many Canadian oil and gas producers have spent much of the past year paying down debt, said Scott Norlin, analyst at Wood Mackenzie. And after being forced to cut dividends in 2020, companies have also taken advantage of this year’s high prices to restore shareholder value. (Suncor Energy Inc. and Cenovus Energy Inc. are among the companies that recently doubled their dividend.)
Norlin said he believes industry spending will increase in 2022, as companies hit their debt targets and start reallocating capital to new projects. But he predicts that total spending for 2022 will still only hit around $ 31 billion.
“That doesn’t mean there won’t be growth, but I don’t think there will be these massive, massive growth rates,” Norlin said. “With the price going up there’s always that knee-jerk reaction to bring in rigs and try to drill as much as you can, but the traders have done a really good job (this year) staying disciplined. Especially in Canada, they sort of learned to live within cash flow limits. “
The Canadian Association of Energy Contractors said last week it expects 6,457 oil and gas wells to be drilled in 2022, an increase of more than 25% from 2021 and a return to pre-pandemic levels.