Canadian oilpatch likely to surpass 2022’s production record, but only slightly

Canadian oil and fuel corporations are anticipated to extend spending in 2023, however analysts say it is going to be one other yr of modest progress and never a return to growth instances.

For Canada’s vitality trade, 2022 was the yr that lastly snapped a decade of weak commodity costs and introduced prosperity again to the sector. With the lifting of worldwide pandemic restrictions, the battle in Ukraine, and the cumulative influence of years of under-investment in oil and fuel, vitality costs hit file highs in 2022 and Canadian corporations reaped file income.

But most of those income went to paying down debt and rewarding shareholders, not into main building or infrastructure initiatives. And despite the fact that commodity costs are anticipated to stay wholesome in 2023, that theme is prone to stay.

“The oil producers have become far more financially disciplined over the last six or eight years,” mentioned Philip Petursson, chief funding strategist at IG Wealth Management, including the specter of a looming recession in 2023 is one issue stopping oil and fuel corporations from getting carried away with spending plans.

“What we know is that in an economic downturn, oil demand falls,” Petursson mentioned. “So I think (companies) are going to want to be a little more measured and not say `hey, oil prices are just going to trend higher — let’s go all in in 2023.’ “

In Alberta alone, over the primary 10 months of 2022, crude manufacturing averaged 3.7 million barrels per day — an all-time file because of surging international demand, in keeping with ATB Financial.

Experts say manufacturing will likely be even increased in 2023, based mostly on the already launched capital budgets and manufacturing steering of oil and fuel corporations. Many corporations have been capable of pay down giant quantities of debt in 2022, so could have extra cash circulation obtainable subsequent yr so long as commodity costs maintain round that US$75 per barrel mark.

In addition, the Trans Mountain pipeline growth is anticipated to be full by the top of the yr, providing further transportation capability for oil corporations and rising the potential for export progress.

The Canadian Association of Petroleum Producers says it additionally expects investments in pure fuel and liquefied pure fuel to develop by way of 2023, because the LNG Canada export facility close to Kitimat, B.C. continues to progress towards a 2025 completion date.

Petursson mentioned he expects Canadian oil manufacturing in 2023 will exceed 2022’s file — however solely by a hair.

“I think it will nudge a little higher because of projects already in place,” he mentioned. “But I don’t think you’re going to see the ‘drill, baby, drill’ mentality of decades ago.”

Jonah Reznick, a senior analysis analyst with Wood Mackenzie, mentioned the 2023 capital budgets unveiled to this point by Canadian oil and fuel corporations present “significant” will increase in anticipated capital spending — within the vary of 5 to 6 per cent on common — year-over-year.

But he mentioned a lot of that is because of smaller initiatives, and cannot be in comparison with the mega-projects and speedy trade growth that passed off through the growth years of pre-2014.

“If you take it net of inflation, I don’t think we’re seeing tremendous capital spend,” Reznick mentioned. “Producers aren’t responding with historical types of responses, even though we’re seeing robust commodity fundamentals.”

In 2023, the trade will possible proceed to deal with shareholder returns and holding their corporations financially viable, Reznick mentioned. He added that along with international financial uncertainty, Canada’s oil and fuel sector is dealing with more and more aggressive greenhouse fuel emissions discount targets. The federal authorities is at the moment within the strategy of creating a legislated cap on emissions from the sector, one thing the trade opposes.

Mike Belenkie, CEO of Advantage Energy Ltd., — a mid-sized producer closely weighted in direction of pure fuel, with property within the Montney area of Alberta — mentioned his firm is planning to develop at a fee of 10 to 12 per cent over the following a number of years.

“We’ve probably never been in a stronger position than we are today. Our debt’s very low, our production is growing, our team is steady and in very stable execution mode,” Belenkie mentioned.

But he added that he blames years of federal authorities coverage — together with a carbon pricing system that he says places Canadian producers at a aggressive drawback to their U.S. counterparts, and a regulatory and political surroundings that makes it tough to construct main initiatives — for constraining the general trade and placing an finish to the period of enormous initiatives.

“Over the last decade, most of the companies that were weak have died off and fallen away. And the companies that are left behind are fairly strong and have the ability to weather a lot of volatility,” Belenkie mentioned.

“But most of the industry has almost given up on the notion that we will ever be able to deliver more energy to the world,” he mentioned, including he would not perceive, for instance, why the Canadian authorities is not working to develop LNG capability on the east coast to assist handle pure fuel shortages in Europe and scale back reliance on coal.

“We now operate within a heavily constrained industry. And we’ve abandoned almost all illusions that those constraints will come off.”

This report by The Canadian Press was first revealed Dec. 27, 2022.