Profits in Canada’s oil industry are expected to plummet by almost 25% this year from their peak in 2006, according to the Conference Board’s Canadian Industrial Outlook: Canada’s Oil Extraction Industry – Summer 2007.

“Lower oil prices earlier in the year and rapidly rising industry costs will cut into industry profits in 2007,” said Louis Thériault, Director, Canadian Industrial Outlook Service. “But at $13 billion, profits will still be high by historical standards.”

Looking forward, gains in production and improved productivity will allow profits to rise again starting in 2008.

A slight rebound in conventional oil production this year and strong gains in non-conventional activity, such as oil sands mining, will increase total crude oil production by 7.5% in 2007. Production growth is expected to remain strong for the rest of the forecast period thanks to ongoing development of Canada’s oil sands resources.

Rising costs in Canada’s oil sector are becoming increasingly problematic for energy companies. Labour and material shortages in Alberta are pushing the cost of new investment projects to near-prohibitive levels. Cost increases are expected to moderate to 6.7% in 2007, but beginning in 2008, costs are forecast to grow by double digits on average over the next four years.