Five glimmers of hope for Canadian oil and gas

Five glimmers of hope for Canadian oil and gas

By Deborah Jaremko

Nov. 4, 2016, 7:43 a.m.


Expectations for supply and demand to even out in the coming months have helped steady the price of oil in a slightly more encouraging band of $45-$50/bbl for WTI currently, and it is expected to average between $50-$55/bbl next year.

The newfound footing on prices, the realization of efforts to reduce costs and improve efficiency, and the certainty provided through Alberta’s new royalty program are contributing to green shoots for Canadian oil and gas producers and suppliers.

Here are five signs of hope since companies began reporting their Q3/2016 results:

  1. PSAC raises drilling forecast

The Petroleum Services Association of Canada (PSAC) expects a slight uptick in Canadian drilling activity: 4,175 wells in 2017, compared to its final forecast of 3,950 for this year. However, this is still down 63 percent compared to 2014.

However, PSAC says it is hard to find support for any significant ramp up of activity beyond that as Canadian oil and gas continues to suffer the “chokehold” of low prices and lack of access to global markets.

  1. CAPP increases spending outlook for conventionals

The Canadian Association of Petroleum Producers (CAPP) has increased its forecast for capital spending in conventional oil and gas in 2017.

CAPP manager of fiscal and economic policy Ben Brunnen said in a presentation this week that oil and gas industry capital spending is forecast to be approximately $37 billion next year, compared to an estimated $36 billion this year. In Western Canada, 2017 spending is forecast at $22.1 billion, compared to $17.5 billion estimated for 2016.

However, oilsands spending is expected to drop once again in 2017, to $13 billion from about $16 billion in 2016. That’s also down from $23 billion in 2015 and $33 billion in 2014.

  1. Canadian Natural restarts spending on next phase of oilsands growth

Canadian Natural Resources says it will restart construction activities for its Kirby North SAGD project, one of several the industry put on hold in 2015 due to market conditions. The company says it will spend $28 million on engineering and procurement for the 40,000 bbl/d facility next year.

Canadian Natural says it has driven down costs at Kirby North and will continue to seek opportunities to do so as it moves ahead. First steam is expected in Q3/2019 and first oil in Q1/2020.

“In a $45 world, Kirby North creates value for shareholders,” Canadian Natural president Steve Laut said on Thursday.

However, Laut noted that the company’s 2017 capital budget will be characterized by flexibility and will focus largely on shorter-cycle investments outside the completion of its Horizon Phase 3 oilsands mining/upgrading expansion and the work at Kirby North.

  1. Seven Generations increasing capital spend, building third gas plant

Seven Generations Energy expects to average nine rigs in its Montney acreage in 2017, up from six in 2016 as it targets a 50 percent increase in production.

The company plans to increase capital spending to $1.6 billion net year, up from $1.1 billion in 2016.

The 2017 capital program will include engineering and partial construction of the company’s third natural gas processing plant at the north end of the Kakwa field.

“Designed to initially process 250 MMcf/d, construction includes foundational design and ground installation to double the plant’s size as future growth warrants,” Seven Generations says.

  1. Syncrude operating costs at near decade lows, reliability improving

The high cost of operating the massive Syncrude integrated oilsands mining facility has come down significantly, Suncor Energy reported last week. Its part of a trend of cost reduction in both oilsands operations and conventional drilling.

Strong Syncrude production, combined with continued cost-reduction initiatives resulted in average cash costs per barrel for the third quarter of 2016 at $27.65, down from $41.65/bbl in the third quarter of 2015. Suncor CEO Steve Williams pointed out this is the lowest cost achieved at Syncrude in almost a decade.

Syncrude’s upgrader reliability—which has been problematic in the past—is also improving, Suncor noted. It improved to 98 per cent in the third quarter, compared to 67 per cent in the prior year quarter, which included the impact of an upgrader fire.




About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on November 4, 2016, in economic impact, oil, political. Bookmark the permalink. Leave a comment.

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