Oilsands sector still has value, analysts say
Sentiment among oilsands companies has soured over the past year as economic, political and environmental issues have aligned to cripple the Alberta oilpatch, but there is still considerable value in the sector, say analysts.
Stunned by a precipitous drop in oil prices, Alberta’s oil industry saw the ground shift under its feet with the election of the NDP government, which has pledged to wring more revenues from the energy sector. Meanwhile, a rising global consensus on cutting carbon emissions — with no less than a papal endorsement — has left the oilsands jittery as pressure mounts for the industry to cut emissions.
Not surprisingly, Alberta’s economy is reeling, especially from impact of low oil prices. The number of Albertans collecting employment insurance rose 10.7 per cent in April, compared to a national average growth of 0.5 per cent, Statistics Canada said Thursday. It was the fourth month in a row that Alberta had the biggest increase in the number of people on EI. The province’s unemployment rate hit 5.8 per cent in May, the highest rate seen since January 2011.
Despite these challenges, the oilsands remain strong, says RBC Dominion Securities Inc. in a new report.
Capital investments will decline 32 per cent this year to just under $18 billion, but a number of high-probability projects gives RBC analyst Mark Friesen “the confidence that capital spending will remain robust throughout the rest of this decade.”
Growth will be concentrated in the 10 most active oilsands producers, such as Suncor Energy Inc., Canadian Natural Resources Ltd. and Imperial Oil Ltd. that are spearheading projects that will boost production by an additional 1.4 million barrels per day — higher than Algeria or the United Kingdom’s total crude oil production.
The increase would come even after companies reduce capital expenditure by $45 billion during the next five years, and projects with a combined capacity of 175,000 bpd will not see the light of day, RBC estimates.
While the sector faces a multitude of challenges, such as pipeline capacity constraints and increased environmental objection, “we still believe that financing conviction remains the greatest near-term challenge facing the sector, particularly for the smaller oilsands development companies at this time of low-cycle oil pricing,” Friesen said.