Thanks to increasing oil sands production and record high oil prices, profits in Canada’s oil extraction industry are expected to increase by almost 18% to nearly $23 billion in 2008, according to the Conference Board’s Canadian Industrial Outlook: Canada’s Oil Extraction Industry – Winter 2008.

Investment in upgrading projects and oil sands mines are finally paying off, as non-conventional production is set to accelerate rapidly. In fact, non-conventional oil production will be the main driver behind gains in domestic crude production for the foreseeable future, as conventional production continues to decline steadily. Total crude production will increase by 9.2% this year and is expected to grow steadily over the forecast period.

“With the price of oil expected to stay well above US$80 per barrel for the entire year, industry profits will once again reach new highs in 2008,” said Todd Crawford, Economist. “However, rising industry costs and an expected decline in prices next year, due to additional global supply coming online, should cause profits to weaken in 2009.”

Profits are expected to fall by about 29% in 2009, but will grow again beginning in 2010.

Increasing costs continue to be a concern for the industry. Labour and material shortages are commonplace for energy companies in Western Canada, as companies scramble to obtain the material and labour needed to complete their projects.

Alberta’s royalty increases, which are scheduled to begin in 2009, are expected to have little effect on investments in Canada’s oil industry because the price of oil will remain high.