Global energy sector to get spending boost, but oilsands not so much

CALGARY Global spending in oil and gas is expected to rise in 2017 for the first time in two years, a new report says, although spending in Canada’s oilsands will remain piecemeal as investors cool on longer-term developments.

Consultancy firm Wood Mackenzie said in a report released Wednesday that global investment in the exploration and production end of the sector will rise by three per cent this year, to US$450 billion.

That would mark the first time upstream spending has grown since 2014, when commodity prices began their sharp decline.

But the uptick in spending will likely come in a form that is starkly different from most of the past decade in Canada’s oilsands, as major producers target cheaper developments.

Total global spending on longerterm developments will remain low compared to past years, while investor returns for the year could be substantially higher amid “a shift in capital allocation away from complex mega projects towards smaller, incremental projects in the Canadian oilsands and deep water,” Wood Mackenzie analyst Malcolm Dickson said in a release.

Canada’s oilsands are expected to be among the regions most deeply impacted by dwindling investment, as investors favour companies offering quicker returns like those operating in U.S. shale basins.

“It’s not going to be negative, but I wouldn’t expect the positive effect to be as pronounced as it would be in other basins, like let’s say the Permian in the United States,” said Calgary-based Wood Mackenzie analyst Stephen Kallir.

Oilsands players are in turn targeting smaller developments to keep pace. Husky Energy Inc. has a backlog of 10 oilsands projects in the 10,000-to-15,000 barrel-perday range at its leases near Lloydminster, Alta., that it could build in coming years, according to Kallir.

The strategy is part of an ongoing shift away from the costly megaprojects that oilsands companies pursued when prices were higher, which are typically categorized as being around 100,000 bpd or larger.

Husky and others, including Suncor Energy Inc., have begun focusing on building smaller, incremental facilities with nearly identical designs.

In Husky’s case, the smaller developments at those leases has “allowed them to keep capital costs down,” Kallir said.

Meanwhile, a handful of other incremental expansions are moving forward. Cenovus Energy Inc. is moving ahead with its 50,000bpd phase G expansion at its Christina Lake lease. Canadian Natural Resources Ltd. announced in the third quarter of 2016 that it was pressing ahead with its Kirby North expansion to raise production from 10,000 bpd to 50,000.

Adding to the challenges faced by oil producers more broadly in 2017, the Wood Mackenzie report estimates that cost-cutting in the oil and gas sector will more or less plateau as service companies begin raising their prices.

“I think we’ve seen the trough in regards to service pricing,” Kallir said.

The analyst expects capital costs among service firms to fall by a modest three to seven per cent over the year.

Globally, the US$450 billion in spending in 2017 is still 40 per cent below the 2014 average, suggesting companies are still hesitant to shell out cash amid lingering concerns over market uncertainty.

 

About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on January 12, 2017, in economic impact, oil, political. Bookmark the permalink. Leave a comment.

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