Oilpatch losses expected to hit $1.1 billion in 2017
CALGARY The Canadian oilpatch is expected to collectively bleed more than $1 billion from its balance sheets in 2017, a sign that oil producers continue to struggle despite optimism that crude prices will gradually rise through the year.
A report released Monday by the Conference Board of Canada expects oil companies to remain, in total, in the red until the fourth quarter of 2017. Total losses are expected to reach $1.1 billion for the year.
Losses reached their peak in the first quarter of 2016 when prices had plummeted, leading to a collective loss of $11 billion. The Conference Board report forecasts a gradual return to past profitability, with companies raking in a total of $13 billion in profits by 2021. That figure is roughly equal to 2010 levels.
“In summary, as Canada’s crude extraction industry will remain in survival mode from a financial perspective in the near term, investment levels will remain relatively low,” the report said.
Capital investment in the sector is also expected to remain low, after reaching $27 billion in 2016 — down 43 per cent from the 2014 peak of $62 billion.
The report serves as a reminder that oil companies remain in a defensive financial position despite substantially lowering their operating and capital costs in recent years.
It said “investment levels are not anticipated to reach previously observed peaks any time soon” as capital flows toward nimbler oil plays with faster return cycles.
“Following three consecutive years of oversupply, global crude oil markets are finally moving back into balance. Global demand is expected to increase in coming years, suggesting that prices will continue the upward trajectory that began late last summer,” said Carlos Murillo, economist at the board. “Despite recent positive developments, however, we do not expect the industry’s bottom line to return to positive territory until the fourth quarter of this year given that it started from such a weak position.”
Oil prices have risen from their 2016 lows and have continued to hover around the US$50 level. However, rapidly growing output from U.S. shale basins threatens to keep prices depressed, analysts say, and last week higher-than-expected storage levels of American crude sent prices on their longest tumble since late 2016.
U.S. crude settled down 0.2 per cent at US$48.40 a barrel.
Like other forecasts, the Conference Board’s report expects oilsands output to grow as expansion projects come online. Investment in the oilsands is expected to grow by 11 per cent, partly due to increased maintenance and repair costs.