Another tough year ahead for oilpatch, but recovery is on its way: Conference Board

, Income

Two consecutive years of cost cutting, higher crude oil prices and expanding production will set the stage for a return to black after 2016, the Conference Board says.

CALGARY — If Canada’s oil and gas sector can survive another tough year, good times will return in 2017 and revenue and profit could soar by 2020, according to the Conference Board of Canada.

But that’s a long time if you don’t have an income.

Conditions in Canada’s oilfields are so dire “the last two drilling seasons were pretty much nonexistent,” said Mark Salkeld, president of the Petroleum Services Association of Canada (PSAC).

In one of two energy sector forecasts made public Thursday, the drilling industry association predicted conditions will get worse this year, with only 3,315 wells expected be drilled in Canada, down by 1,835 wells from expectations last November. In 2014, 11,204 wells were drilled.


“What a lot of people don’t realize is when the oil and gas sector is not working, oilfield services companies are tools-down and there is no cash flow,” Salkeld said in a statement. “This is unlike our customers, the producers, who can still generate some revenue, however dismal, from production,” he said.

Salkeld complained “lack of progress on gaining access to tidewater for our oil and gas products is hindering Canada’s growth and position on the world stage as a responsible energy developer.”

In its forecast, the Conference Board noted the big unknowns are indeed related to policy decisions — whether pipelines and liquefied natural gas terminals are allowed by governments to move ahead.

The oil side of the industry suffered unprecedented losses in 2015 – more than $7 billion — and will see further losses of close to $3 billion in 2016, the board predicted.

But two consecutive years of cost cutting, higher crude oil prices and expanding production will set the stage for a return to black after 2016.

Profits are expected to increase from less than $1 billion in 2017 to more than $5 billion by 2020. Revenue could exceed $100 billion by then, an unprecedented level, from $61 billion in 2016.

The board expects WTI to rise from US$39 per barrel in 2016 to US$65 by 2020. It projects Western Canadian Select (WCS), the benchmark for Canada’s crude bitumen blend, will increase from $35 per barrel in 2016 to $63 by 2020.

Investment will continue to contract this year, but as revenue recovers, it will expand and return to 2014 record levels of nearly $41 billion by 2020.

Lack of export pipelines could mean lower realized prices for Canadian oil and the cancellation of projects altogether, the board said.

Unless new pipelines are built, rail shipments out of Western Canada could rise to one million barrels a day by 2020 — a quarter of production would be shipped on oil trains.

On the gas side, producers are also facing another year of tough conditions, the board predicted.

Collective losses will continue in 2016, nearly matching the $1.1 billion lost in 2015, but the sector will return to profitability in 2017, reaching healthy profit levels — $1.2 billion – in 2020.

Revenue will also rise, from $15 billion in 2016 to $24 billion in 2020.

The board doesn’t expect the liquefied natural gas industry to start exporting by 2020.

“While the LNG market is expected to expand over the forecast, a slew of new liquefaction projects, primarily in Australia and the United States, are slated to come online,” the board said. “Unfortunately, prospects for Canadian LNG export projects continue to fall behind in the LNG race, given a series of recent setbacks and further potential delays.”

Financial Post

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