Industry optimism rising with production but producers still cautious

·4 min read

CALGARY — Predictions of the end of the oil industry during a global price war and the pandemic a year ago have proven false and the sector is rebounding to pre-COVID levels of production and pricing, says the head of the Canadian Association of Petroleum Producers.

Speaking at the opening of the 2021 Scotiabank CAPP Energy Symposium, CEO Tim McMillan said Tuesday oil and gas producers are becoming more optimistic as the industry looks forward to being a key part of North America's recovery from the economic slump caused by the pandemic.

"There's no denying that we've been beaten, battered and wounded and industry was faced with some of the biggest challenges last year we've ever seen," said McMillan, noting crude oil prices have surpassed pre-COVID levels, natural gas demand is growing and storage levels are near a five-year low.

"Our industry still has its best days ahead of it. In fact, over the past year, our industry has rallied and we're approaching a future with cautious optimism."

While higher prices are boosting profits, presenters from some of Canada's biggest oil and gas companies said at the symposium they remain focused on cutting costs, sustaining production and returning cash to shareholders, not opening wallets for major growth projects.

Suncor Energy Inc. reduced its employee count by about 600 in 2020, reported chief financial officer Alister Cowan. The oilsands, refining and retailing company announced in October it would cut total staff by 10 to 15 per cent, or as many as 1,930 jobs, over 18 months.

He said another 30 to 40 per cent of the targeted cuts will be done this year and the rest in the first quarter of 2022.

Suncor has said it would aim for capital spending of between $3.8 billion and $4.5 billion this year while paying down between $1 billion and $1.5 billion of debt and repurchasing between $500 million and $1 billion in shares.

"We'll debottleneck, absolutely. We'll make investments on drilling infill wells offshore, absolutely, because they are extremely high-return projects," said Cowan at the symposium.

"But don't expect to see us embark on any major production growth capital program. That is just not going to happen at Suncor."

Cenovus Energy Inc., which is in the midst of cutting between 1,720 and 2,150 workers from the combined workforce following its takeover of Husky Energy Inc. early this year, has no intention of spending on growth until it cuts its debt to about $8 billion, said CEO Alex Pourbaix on the webcast.

Tim McKay, president of Canadian Natural Resources Ltd., said his company will look to improve efficiency through technology while pursuing projects to increase output from existing assets. He said the company's growth target is between zero and five per cent annually going forward.

At Imperial Oil Ltd., the company remains open to big growth projects or acquisitions but its threshold to consider either is very high, said chief financial officer Dan Lyons.

"For the next several years, we really are focused on our existing assets and getting more out of them through low-cost debottleneck (projects). We've talked about the sort of $200 (million), $300 million per year (of growth capital)," he said.

The two-day annual CAPP investor showcase is being presented virtually for the second year in a row.

The symposium opened with Frank Macchiarola, senior vice-president of policy, economics and regulatory affairs for the American Petroleum Institute, who said one of the most significant changes for the U.S. energy industry this year is the replacement of Donald Trump with President Joe Biden.

API's recent adoption of a climate change framework is a way to work with the new administration by endorsing a carbon price policy and outlining recommended actions by government and industry to encourage new technologies and incentives to reduce emissions, he said.

The integration of the energy industry between Canada and the United States has grown dramatically over the past decade, Macchiarola said, adding that process could have gone even further if Biden hadn't cancelled the permit allowing construction of the Keystone XL pipeline.

This report by The Canadian Press was first published April 6, 2021.

Companies in this story: (TSX: CNQ, TSX:CVE, TSX:IMO, TSX:SU)

Dan Healing, The Canadian Press