REASONS FOR OPTIMISM AHEAD OF OILPATCH EARNINGS.

CALGARY• The embattled Canadian oil and gas sector could show a rare sign of optimism this week as companies begin releasing their quarterly earnings reports.

Oil prices have risen gradually in the past months as markets show signs of moving closer to balance, leaving analysts to expect perhaps the first signs of healing for hard-hit producers.

“I think generally the outlook has started to improve,” says Nicholas Lupick, a Calgary-based analyst with Altacorp Capital.

Sustained oil prices between the US$40 and $US50 range over the past months are expected to show in companies’ third quarter results, as some analysts speculate whether the worst could be over. “Most investors are expecting large-cap companies to have some semblance of stability,” Lupick says.

Prices for international benchmark West Texas Intermediate opened Monday morning trading at US$50.85, while Brent Crude opened at US$51.78.

However, Lupick and others also warn that signs of health in the market are only early indications, and any recent gains in the balance sheet could be easily wiped out if prices reverse course.

The first half of 2016 was particularly painful for the Canadian oilpatch. Prices collapsed in February on fears of over supply, bringing prices down to multi- year lows. Prices for the month of Western Canada Select, a Canadian heavy oil benchmark, averaged US$ 16.30 per barrel.

Then in May, wildfires tore through the town of Fort McMurray in the heart of Alberta’s oilsands country, forcing companies to shut in about one million barrels per day of production.

Production has since returned to its former levels, which will account for a much-needed revenue bump for some companies in their third quarter results. Suncor Energy Inc. is the first to report, with results out Wednesday, followed by Cenovus Energy Inc. on Thursday, Imperial Oil Ltd. on Friday and Canadian Natural Resources Ltd. on Nov. 3.

Analysts following oilsands giants Suncor and Imperial Oil expect the companies to have improved results after they were forced to shut down production during the wildfires.

Lupick says the two companies’ jointly owned Syncrude oilsands operation is also expected to show improved results, as both firms have invested capital toward making the project run more smoothly after years of interrupted operations.

Production elsewhere is also expected to rise slightly, possibly cushioning balance sheets. Cenovus added roughly 10,000 bpd of production to its Foster Creek development over the quarter, Lupick says. Canadian Natural is bringing online the next phase of its massive Horizon oilsands mine, though the company might not yet have seen productivity gains over the past quarter.

Analysts will also be focused on operating costs, which companies have tried to trim down in a bid to be more competitive with lower-cost producers.

Prices for international benchmark West Texas Intermediate have recently surfaced above the $ 50 per barrel threshold, which is enough to keep some operators out of the red. Major oilsands players have meanwhile significantly reduced their operating costs, mostly as a result of cheaper labour and materials.

“Most companies have realized enough cost savings that cash flow break-even — depending on the company — tends to be in that $ 40 to $ 45 range,” Lupick says. “Below that companies often struggle to generate positive cash flow.”

Oil prices have been higher as plenty of non- OPEC production has come offline in recent years, bringing markets back into balance.

OPEC members also reached a tentative agreement in September to collectively cut back oil supplies, which would further boost prices.

However, some analysts are wary the cartel will follow through with a deal, which could pull down prices in the near term.