Low prices are hurting the oil sector, but Canada has some benefits

Persistent low oil prices are focusing attention on spending cuts and layoffs in the Canadian oilpatch, as companies release details of their latest financial performance.

North American benchmark The price of a barrel of crude oil has fallen from nearly $70 US a barrel at the beginning of the year to less than $60 US this week.

Persistently low prices have been largely driven by a move by the Organization of the Petroleum Exporting Countries (OPEC) and its allies release excess oilBoosting global supply and reversing production cuts that had helped push up prices.

Crude oil is Canada’s biggest export and any hit to the price means less revenue for the economy, especially for Alberta.

But analysts say Canadian companies are encouraged by some key advantages, especially compared to their U.S. counterparts.

survive by adapting

Over the past decade, many companies here have gone out of business or been gobbled up by larger players – except for a few larger companies that are less sensitive to market fluctuations and focus on keeping costs low while returning money to shareholders.

“The companies that have survived here are the companies that have been able to adapt,” said Patrick O’Rourke, Calgary-based managing director of institutional equity research at ATB Capital Markets.

“It’s effectively Darwinism in a sense.”

Still, companies on both sides of the border have made cuts.

Earlier this fall, Calgary-based Imperial Oil announced it planned to eliminate about 20 per cent of its workforce, or about 900 jobs, in the coming years. Similarly, US-based ConocoPhillips where will it be cut Some of its Canadian employees are starting in November.

The layoffs come as companies attempt to shore up their balance sheets in the event of a higher price “collapse,” said oil market analyst Rory Johnston.

“They want to make sure they’re as prepared as possible,” said Johnson, author of the Commodity Context newsletter.

Companies like Calgary-based Whitecap Resources are tightening their budgets or keeping them flat. While those that have taken the unusual step of increasing their spending plans amid the low price environment, such as US-based Matador ResourcesO’Rourke says, he’s seen his stock prices decline.

They hope this means more penny-pinching to come.

“It’s a copycat industry to a degree,” O’Rourke said, adding, “Shareholders are rewarding conservative capital plans and capital discipline.”

Benefits of oilpatch

Dan Gregoris, an analyst at Calgary-based energy research firm Enverus, says the Canadian oilpatch has other advantages that help keep production high despite low prices. It is still reliably productive and cheaper to use in the long run.

U.S. companies operating in the Permian Basin, which extends to West Texas and New Mexico, have been plagued by problems. This is because despite being from the country most prolific According to the U.S. Energy Information Administration (EIA), the oil-producing region has recently been producing more water and natural gas and less oil,

With prices low, US companies are reluctant to spend money to drill new wells that will not produce as much oil, leading the CEO of major Texas producer Diamondback Energy to suggest earlier this year that production in that country has been affected.tipping point”And that production will begin to decline.

In comparison, Canada is more dominated by oil sands, which requires mines and factories. And although the capital costs for them are higher up front, once incurred, companies can continue to ramp up production without spending a lot of money – and even scale it up by finding efficiencies here and there.

Even the conventional oil fields in this country are in better shape than in the US, says Gregoris, because it is not beset by the problems of the Permian Basin.

“There is some optimism from a Wall Street and Bay Street perspective that these Canadian oil companies are well positioned for the long term given the depth of their resources,” he said.

The completion of the Trans Mountain pipeline expansion, which carries oil from Alberta to the BC coast, has also helped Canadian producers by opening access to new export markets in Asia.

O’Rourke with ATB says that, in recent months, access to those markets has helped soften the blow of overall commodity prices somewhat.

Despite these advantages, Gregoris says, the low price environment is far from ideal and is likely to continue for months to come. OPEC and its allies plan to continue speed up production Stay in December, then again in the New Year.

Prices are forecast to remain around $62 US per barrel for the rest of the year, and could fall to around $52 US per barrel in 2026. According to latest forecast From EIA.

“The environment we’re in today will be projected into the next year,” he said. Said.