A dramatic jump in oil prices linked to the promise of lower global production is fuelling hope that the Canadian oil sector may soon recover from a two-year economic slump.
Observers say they are optimistic that Saudi Arabia, the top exporter in the Organization of the Petroleum Exporting Countries (OPEC), is committed to cut exports to reduce a global oil glut that has depressed prices and contributed to thousands of layoffs in Western Canada.
They are also taking heart from news on the weekend that 11 producers from outside OPEC, including Russia, have agreed to reduce output.
Scott Saxberg, CEO of Calgary-based Crescent Point Energy Corp., says he is already working on ways to remind his company’s investors that spending to grow production is back in vogue after two years of cutting costs and limiting drilling.
Crescent Point recently announced a $1.45-billion budget for 2017 to grow output by about 10% – but Saxberg says it will spend even more to add more wells in the second half of the year if benchmark prices remain above US$50 per barrel.
“Every dollar change in WTI (West Texas Intermediate crude) adds $50 million of cash flow, so it really positions us to add to that growth depending on the effect of these cuts,” he says.
Kevin Neveu, CEO at Precision Drilling Corp., says North American drilling budgets are starting to rise on oil price optimism, although much faster in the United States than in Canada.
“We are bullish and commodity prices rising do help,” he says. “It appears that OPEC and even non-OPEC countries have the intention to push the price firmer.”
He says the Calgary-based company now has 72 drilling rigs working in Canada, up from about 60 at this time last year, which translates into about 250 more jobs.
Martin Pelletier, a Calgary-based money manager with TriVest Wealth Counsel Ltd., says the Saudis are fully intent on inflating the oil price.
“You can see that in their actions and OPEC and non-OPEC co-ordination,” he says.
A Saudi plan to sell shares in 2018 in the national oil company, Saudi Arabian Oil Company based in Dhahran, provides plenty of motivation for it to avoid the cheating that has derailed previous agreements on production cuts, according to Pelletier.
Benchmark U.S. oil prices rose on Monday to spike at over US$54 per barrel for a time, exceeding recent price assumptions published by some Canadian oil and gas companies.
Calgary-based Suncor Energy Inc., for instance, forecast US$52 per barrel in setting its 2017 capital spending budget at about $5 billion. Cenovus Energy Inc., also based in Calgary, is basing its budget of $1.3 billion on a price of US$47.25 per barrel.
In its recent quarterly update, the Alberta government raised its 2016-17 WTI forecast by US$3 to US$45 per barrel.
The Canadian Association of Petroleum Producers estimates at least 44,000 direct jobs have been lost in Canada’s oil and gas industry since the downturn started in 2014.