Oilpatch caught between job creation, investor restraint
Premier Jason Kenney met with the top brass of the country's oilsands players and conventional oil and gas producers on Thursday, urging them to spend more money and create additional jobs in Alberta.
With energy companies facing pressure from investors to maintain financial discipline, he wasn't about to get broad commitments of sweeping budget increases.
Yet, there are some signs more spending and hiring are taking place as higher commodity prices have triggered additional work for drillers and the oilfield services sector.
“We hope the energy industry will do its part because part of my message is the resource they develop belongs to the people of Alberta,” Kenney told reporters Thursday. “The people of Alberta have got to see some benefit.
“They are hearing the message loud and clear ... To paraphrase Wilfrid Laurier, right now we are using the sunny ways of persuasion.”
The consensus from oilpatch executives was they're expecting a “gradual ramp-up in employment as opposed to a sharp increase,” he added.
The province can try to use negotiation and diplomacy to encourage additional industry spending, but it doesn't have much direct leverage to get public companies that have a duty to shareholders to open up the spending taps, unless it's in their interests.
With benchmark U.S. oil prices over US$71 a barrel and Alberta natural gas spot prices closing at $3.92 per thousand cubic feet on Friday, the Canadian industry is projected to see record cash flow this year and higher profits.
On the flip side, shareholders are demanding continued financial prudence and a return on their investments after several tough years. While the TSX/S&P Capped Energy Index has risen by more than a third this year, it's still down by 40 per cent over the past three years.
“We must not repeat the sins of the past. We must not chase growth and chase a higher oil price,” said Eric Nuttall, a senior portfolio manager with Ninepoint Partners.
“My hope is energy investors carry a bigger stick because energy stocks have been stuck in purgatory for what feels like an eternity.”
Similarly, Rafi Tahmazian, a senior portfolio manager at Canoe Financial, had a blunt message for oilpatch management teams about the pressure to spend more.
“The market is violently against that,” Tahmazian said.
However, there's another reality at play: the province needs to see more jobs created after a punishing recession and pandemic have left Alberta's unemployment rate marooned above nine per cent.
As NDP Leader Rachel Notley told reporters this week: “He can go hat in hand and beg them to do something that goes against the interests of their corporations, but it's not going to secure the outcome that they need.”
Big announcements of major capital spending hikes haven't happened yet, although modest increases have occurred throughout the year.
The release of second-quarter results should see further budget revisions.
“I would expect, come the fall when the economic recovery is in full swing, we will see a pretty strong level of investment,” said Ben Brunnen, a vice-president with the Canadian Association of Petroleum Producers.
There are also growing expectations that industry spending will increase for 2022 as debt levels come down and if oil and gas prices remain high.
“The first priority for everyone is going to be balance sheet management,” Whitecap Resources CEO Grant Fagerheim said after Thursday's meeting.
Many small and mid-sized companies are still facing challenges to access capital and are focused on fixing their balance sheets from the pain of 2020.
“Obviously, prices are good (today), but we took quite a beating last year on liquidity and balance sheets. So that's a top priority,” said Athabasca Oil Corp. CEO Rob Broen.
Some companies are looking to make major investments, not necessarily to boost output, but on initiatives designed to reduce their emissions and meet ESG commitments.
For example, Suncor Energy, which entered the year with a capital program between
$3.8 billion and $4.5 billion, has embarked on a $1.4-billion co-generation power project at its base oilsands plant and is building a wind farm near Bow Island.
“We are investing a lot of money, particularly in this province,” Suncor CEO Mark Little said moments before Thursday's meeting.
And there are other indications more spending is occurring.
A year ago, only 39 active rigs were drilling in Western Canada, creating about 7,000 direct and indirect jobs, according to the Canadian Association of Energy Contractors. This week, 150 rigs were at work, generating about 30,000 jobs.
Precision Drilling Corp. CEO Kevin Neveu said he's seeing a “pretty meaningful rebound in customer demand for drilling and well servicing” as higher commodity prices have allowed some producers to set aside money for increased shareholder returns and more exploration work.
“The price has strengthened up just enough that they can afford to do a little bit of both right now,” Neveu said Friday.
“If you have 30 or 40 companies adding one or two rigs, all of a sudden you have 100 rigs being added.”
Precision has about 1,000 more people working today on its rigs in Canada than it did a year ago. Neveu said finding more staff is one of the toughest struggles the company faces.
More drilling will create additional work in the province. And while political pressure on producers to spend even more will continue, expect most of the Canadian industry to proceed cautiously.
“Everybody in the room, they're all Albertans and we all want to see a stronger Alberta economy,” said Pine Cliff Energy CEO Phil Hodge, who attended one of Thursday's sessions.
“I think it is happening ... I don't think there is a lot of (government) leverage there. But it's more, `Look, we're all Albertans and we all want a stronger economy.' So, yes, we will do our part.”