Analyst expects to see price rise to US$60 a barrel by next year

The Canadian oilpatch has seen more than 100,000 jobs disappear since the price war began in 2014. Capital investment has plunged as cash flow levels evaporated.

With the royalty tap tightened, Alberta is expected to report a record $10.9-billion deficit this year. In Newfoundland, the government projects a $1.8-billion deficit for 2016-17 as that province endures another year of recession.

Distressed energy companies have hit the wall, with some selling off assets, seeking creditor protection or calling it quits.

The strongest companies have focused on becoming more efficient. The province says operating costs have dropped by about 25 per cent for oilsands miners since 2014, and by 40 per cent for thermal oilsands projects.

Canadian petroleum producers, now preparing their 2017 capital budgets, will be extremely cautious before making investment decisions based on the deal brokered in Algiers.

Ian Dundas, president and CEO of Enerplus Corp., believes the OPEC agreement could be significant, but other factors will influence internal investment decisions, such as operating costs and pipeline access.

“It’s unquestionable, directionally positive,” Dundas said of OPEC’s move.

“You could read into it that this signals a dramatic, radical shift in Saudi policy — that is a possible outcome. Virtually everyone, though, is waiting for the details to know how significant that will be.”

Enerplus, with operations in Canada and the United States, is spending $215 million on capital this year. The company has indicated it’d like to spend between $300 million and $400 million next year, depending on commodity prices and cash flow.

To see a significant rise in overall industry investment in Canada, executives and analysts believe oil prices must move through the US$50-a-barrel threshold and head higher.

“I think $50 is a psychological and real break point for us,” said Michael Binnion, CEO of Questerre Energy Corp. “At prices of $60 and up on a reliable basis ... it would see us start to be aggressive on our better plays."

OPEC leaders will meet Nov. 30 in Vienna, where cartel members are expected to agree to individual production quotas. The 14 members will reportedly look to lower daily output by about two per cent to between 32.5 million and 33 million barrels.

Yet, the cartel has a long history of trying to control production, but a spotty record of achieving that goal due to rampant cheating on quotas.

“There’s just a lot of opened-ended questions that are going to take a lot of hard work to get them to the finish line,” said analyst Martin King of FirstEnergy Capital in Calgary.

King believes the market is precariously balanced between supply and demand and expects prices to average US$60 a barrel next year, although an OPEC deal could help reach that target faster.

For Canadian companies that have endured big losses and cut staff over the past two years — and for Alberta workers who’ve lost their jobs — a recovery can’t come fast enough after a brutal two-year price war.

It’s not there yet, although there are signs of hope.

“I would tell you 2016 has been awful. It’s been an awful year following on a very bad year in 2015 for activity. The number of people we’ve laid off industrywide has been astonishing,” says Neveu.

“I’d sure like to be in a position where we can bring those people back in 2017 and the green shoots appear to be emerging.”

There’s just a lot of open-ended questions that are going to take a lot of hard work to get them to the finish line.