Little investment likely in oilsands in 2016

Oil price, royalty review, climate strategy factors: CAPP president

Capital investment in Alberta’s oilsands could see a further decline next year on top of the pullback being experienced in 2015, the president of the Canadian Association of Petroleum Producers said Monday.

“Obviously the (oil) price and the royalties will have an effect, but (because of) the slow nature of the ability to turn down investment and turn it back up, if nothing were to change, it likely will be an incremental step down, because big projects will be concluded,” Tim McMillan told the Journal’s editorial board. “If nothing changes, that likely goes a little further next year, and on, until investment is attracted back again.”

Investment decisions in the Canadian energy industry overall will be influenced by the price of oil but also by the outcome of Alberta’s royalty review and climate-change strategy, he said.

In its annual forecast in June, CAPP predicted total capital investment in Canada’s oil and natural gas industry would be $45 billion in 2015, down nearly 40 per cent from $73 billion in 2014. It forecast that capital investment in the oilsands would be $23 billion, compared to $33 billion in 2014.

CAPP represents companies that explore for, develop and produce natural gas and crude oil.

Benchmark West Texas Intermediate crude oil closed just above $49 US Monday, up $4 from Friday’s close. Prices that peaked at $105 US a barrel in June 2014 fell sharply starting late last year and have recently traded below $40.

“The low price is asking everybody to reflect upon their production, and are there ways of doing it better,” McMillan said. “It sharpens the focus for everyone, and different companies are probably taking different tacks.”

Some are focusing on managing costs more tightly while others, believing that the oil price will remain “lower for longer,” are speeding up development of new technologies, he said.

CAPP has asked that the royalty review and the coming provincial budget pay special attention to the competitiveness of the energy industry. The new government’s moves to boost corporate tax rates and the fees paid by heavy carbon emitters have “eroded” Alberta’s competitiveness, he said. CAPP estimates these two changes could cost the industry up to $800 million in the next two years.

“The royalty review, as it looks at where we stack up in Canada or North America, our ask is that it would leave us in a position that we are competitive to attract investment,” McMillan said. “Ultimately I think this is the policy decision for the government as they work through their processes — where on the competitiveness scale should Alberta be?

“The decisions that will be made from this point forward all will have an effect on our ability to continue to compete and be leaders.”

dhowell@edmontonjournal.com Twitter.com/HowellEJ