Some domestic producers turning profit at weak prices

Continued from FP1

WTI prices dropping from US$53 per barrel to US$43 per barrel for 12 months would see anticipated capital spending shrink to $23 billion from $44 billion, similar to 2016, which saw one of the lowest capex spending in years, Forrest said.

“You would see about half as much drilling and activity associated with oil and gas if prices stay in this range over the course of 12 months,” Forrest said. “There is a scenario that oil prices do stay in this level and it’s something that companies have to be thinking about — can they survive these types of prices,” Forrest said, adding that some firms may need to cut their dividends to protect their cash flow.

While current oil prices will stress higher-cost producers, price environment,” he said.

Calgary-based Peters & Co. Ltd. slashed its price estimates for WTI this week to US$47.68 per barrel for the year, down roughly 7 per cent from the investment bank’s estimate from a month earlier.

Crude prices have slid in recent weeks, in spite of an extension of output cuts from OPEC member countries, as a result of growing U.S. oil production from shale formations and persistently high levels of oil in storage.

Oil inventory levels are also expected to remain high, Morgan Stanley analysts predicted in a Thursday report, and “a return to fiveyear average stock levels remains elusive for some time to come.”

Canadian Energy Research Institute vice-president, research Dinara Millington said relief could eventually be on the way since costs in U.S. shale plays are noticeably increasing and productivity gains are declining.

“As there are new drills, the service sector is growing again,” which means costs are growing too, Millington said.

In the meantime, current commodity prices would make a sanctioning decision for a new steam-based oilsands project difficult, though companies with existing oilsands operations can still make money at these levels.

“The really efficient projects can do it even in the low US$20 per barrel range,” Millington said, adding that operating costs in the oilsands have been driven down during the last three years of stubbornly low oil prices.

Oilsands producers have driven down costs dramatically over the last several years and still have room to improve, IHS Markit’s Calgary-based director Kevin Birn said. A handful of new oilsands projects could still earn a 10 per cent rate of return at today’s prices, but those would be at the lowest end of the cost curve, he said.

Birn added that some oilsands costs are self-hedging, like the Canadian-U.S. dollar exchange rate, so in some cases, “As oil prices go lower, some of these things also go lower.”