CANADIAN OILPATCH / FINANCIAL
October 23, 1996
PETROLEUM SECTOR DELIVERS GOOD AND BAD NEWS
The two ends of Canada's energy sector are flowing in different directions.
After three major oil companies announced lower profits on the refining
and retail end due to higher costs and a gasoline price war, predictions
were buoyant for the exploration and production end. Robust commodity
prices are the pump for both sides.
High crude oil prices should keep the production side of the industry
in Western Canada vibrant through the year 2000, predicts Richard
Woodward, a vice-president of the Canadian Association of Petroleum
Producers. "It's sort of fun to come and speak on the outlook for the
industry given the numbers we have," Woodward told producers at
their annual activity forecast meeting Wednesday.
"It's quite optimistic." The price of crude oil has spiked well beyond
industry expectations to more than $25 US a barrel and has contributed
greatly to the oilpatch's optimism. The steep price of crude along with
a gasoline price war in Eastern Canada has hit the refining and
marketing side of the industry hard and cut profit margins to the bone.
Imperial Oil, Shell Canada and Suncor have all reported lower third
quarter results recently. Rick Roberge, energy industry analyst with
Price Waterhouse in Calgary, says the price at the pumps should be
five cents a litre higher than it is now. "These large companies have
billions invested in this industry and can't continue to earn these
skinny returns," Roberge said. He predicts the oil companies may
close some refineries.
There are few signs to indicate the upstream bubble in exploration is
about to burst, Woodward said. The price of crude was pegged to
be about $18 US a barrel this year but with instability in Iraq and
greater than expected consumer demand the prices has been
pushed up.
Analysts consulted by the association predict crude will sell for
between $20 US and $22 US a barrel by the end of the century.
"Those are low," Woodward said. "I think most forecasters are
going to raise those." About 1.95 million barrels a day of oil is
produced in Western Canada and it should rise to 2.2 million barrels
over the next five years, he said.
Depressed natural gas prices should climb slightly higher in 1997 to
about $1.60 per million cubic feet, he said, adding the price will rise
through the year 2000 with increased pipeline capacity to the
United States. Western Canada produces 5.5 trillion cubic feet of
natural gas a year and it should jump to six trillion cubic feet by the
year 2000 with higher U.S. market penetration, he said.
Investment and capital spending in the sector spiked this year, he
said. Investment will be almost $14 billion this year and Woodward
predicts it is likely to soften in 1997 to the "still very robust" 1995
level of about $12.5 billion. Limited export gas capacity will push
drilling activity down to 1995 levels of 11,500 wells by Woodward's
figures but Roger Soucy of the Petroleum Services Association of
Canada predicts a number closer to 12,300. |
