Pumpjacks draw oil out of the ground in a canola field near Olds, Alta., Thursday, July 16, 2020. One year after oil prices crashed to their first and only negative close during a perfect storm of energy demand bad news, Canada’s oilpatch is poised to report a first-quarter gusher of cash flow thanks to a dramatic recovery in global demand. THE CANADIAN PRESS/Jeff McIntosh

Pumpjacks draw oil out of the ground in a canola field near Olds, Alta., Thursday, July 16, 2020. One year after oil prices crashed to their first and only negative close during a perfect storm of energy demand bad news, Canada’s oilpatch is poised to report a first-quarter gusher of cash flow thanks to a dramatic recovery in global demand. THE CANADIAN PRESS/Jeff McIntosh

One year after crude turned negative, oilpatch relishes first-quarter profit outlook

Expectations are high for the Canadian oilpatch’s first-quarter results season

One year after oil prices crashed to their first and only negative close during a perfect storm of energy demand bad news, Canada’s oilpatch is poised to report a first-quarter gush of cash flow thanks to a dramatic recovery in global demand.

On April 20, 2020, the U.S. benchmark West Texas Intermediate near-month contract price ended the day down a whopping US$55.90 at an unprecedented –$37.63 per barrel.

The negative close was caused by a mix of technical commodities market factors and concerns about oversupply as storage tanks grew dangerously close to full amid a collapse in demand fuelled by pandemic lockdowns and short-lived price war between Saudi Arabia and Russia, said senior commodity analyst Martin King of RBN Energy in Calgary.

“Everyone was very, very negative on oil and oil demand,” he recalled in an interview, adding the remarkable level of stabilization since shows how resilient the oilpatch can be.

“So the market essentially wound up balancing itself out and we had a recovery from the depths of hell to not quite to heaven in terms of current prices, but certainly a very large scale recovery.

“Those two forces of supply and demand were brought back into a much better balance and with the demand recovery we’re seeing this year, we’re seeing inventories worldwide get drawn down to more normal levels.”

On Friday, the WTI price settled at US$63.19 per barrel, a level at which most production in North America, including in the Alberta oilsands, is profitable, said King.

WTI daily spot prices have averaged US$60.46 per barrel so far in the second quarter, up from US$58.13 in the first quarter. Both are a far cry from the US$27.95 per barrel average in the second quarter of 2020.

On Wednesday, the International Energy Agency raised its world oil demand estimate for 2021, pointing to further signs that the global economy is recovering faster than previously expected, particularly in the U.S. and China.

It now expects world oil demand to expand by 5.7 million barrels per day in 2021 to 96.7 million bpd, following a collapse of 8.7 million bpd last year.

Expectations are high for the Canadian oilpatch’s first-quarter results season, which starts Monday after markets close with PrairieSky Royalty Ltd., several analysts who cover the sector said in reports over the past week.

“Emerging from one of the worst cycles in recent memory, we believe the sector is now positioned in some of the healthiest ranks,” says a report from analysts at National Bank Financial.

“The survival mode necessitated and forced companies to reconsider capital spending habits, dividend policies, acquisitions and divestitures, cash cost management, and operational practices. Combined with the much-improved macro backdrop, the sector finds itself in an enviable position to deliver meaningful free cash flow at current price levels.”

RBC analyst Michael Harvey, who covers intermediate-sized oil and gas companies, said in a report that he expects first quarter cash flow per share for oil-weighted producers will be 39 per cent higher quarter-over-quarter, while gas-weighted producers will report a 45 per cent rise, “driven by broad strength in commodity prices.”

The end of Alberta’s mandatory crude quota program in December means that oilsands producers will show a “significant uptick” in production in the first quarter, said CIBC analysts in a report. Canada’s discount to the U.S. benchmark oil price is likely to shrink in April and May, the CIBC report said, as planned maintenance shutdowns take at least 500,000 barrels of western Canadian crude per day offline.

The analysts expect the cash stockpiles to be used for debt reduction and balance sheet repair after a year of COVID-19 induced shock, rather than a rush into capital spending, although they expect a recent consolidation trend to continue.

That’s consistent with the message presented by Alex Pourbaix, CEO of oilsands producer Cenovus Energy Inc., who said earlier this month the company would use expected higher oil prices this year to pay down debt in the wake of its $3.8-billion takeover of Husky Energy Inc.

“We are going to be basically paying all of our free cash onto our balance sheet until we get to $10 billion (in net debt) but ultimately I’d like to get significantly lower … something in the range of $8 billion,” said Pourbaix at an investor symposium.

“As we move from 10 to eight, we’ll start to consider returning cash to shareholders or maybe modest growth.”

Dan Healing, The Canadian Press


Like us on Facebook and follow us on Twitter.

Coronavirusoil and gas

Just Posted

The bodies of Carlo and Erick Fryer were discovered by a local couple walking on a remote forest road in Naramata on May 10. (Submitted)
Kamloops brothers identified as pair found dead near Penticton

The bodies of Carlo and Erick Fryer were discovered by a local couple walking

Jane Long-Haggerty, a chartered accountant with a member of the Salvation Army Food Bank, hold up a cheque for $740. Long-Haggerty decided to cut her fees in half and ask her clients to donate whatever they felt they could to the food bank. The idea landed her a room full of food and $740 to the Salvation Army Food Bank. (Submitted)
Penticton accounting firm gives big return to food bank

Long-Haggerty said this year’s tax season showed how bad the pandemic has impacted everyone

Doses of the Pfizer coronavirus vaccine are seen being prepared on Wednesday, May 12, 2021, in Decatur, Ga. Hundreds of children, ages 12 to 15, received the Pfizer vaccine at the DeKalb Pediatric Center, just days after it was approved for use within their age group. (AP Photo/Ron Harris)
One death, 60 new cases of COVID-19 in Interior Health

The death is connected to the outbreak at Spring Valley long-term care in Kelowna

The manager and a worker at the Penticton Great Canadian Oil Exchange in front of the new sea-can. (Submitted)
Kelowna and Penticton oil recycling facilities get upgrades

The BC Used Oil Management Association provided grant funding for the upgrades

The SS Sicamous was decked out in poppies on Remembrance Day and lights at Christmas time. The Sicamous won’t be able to open again because of COVID restrictions. (Monique Tamminga - File photo)
The SS Sicamous was decked out in poppies on Remembrance Day and lights at Christmas time. The Sicamous won’t be able to open again because of COVID restrictions. (Monique Tamminga - File photo)
Penticton’s historic paddlewheeler likely won’t open for a second year

The SS Sicamous Society is getting lots of restoration work done during the closure

Prince Rupert was one of the first B.C. communities targeted for mass vaccination after a steep rise in infections. Grey area marks community-wide vaccine distribution. (B.C. Centre for Disease Control)
B.C. tracks big drop in COVID-19 infections after vaccination

Prince Rupert, Indigenous communities show improvement

Municipal governments around B.C. have emergency authority to conduct meetings online, use mail voting and spend reserve funds on operation expenses. (Penticton Western News)
Online council meetings, mail-in voting option to be extended in B.C.

Proposed law makes municipal COVID-19 exceptions permanent

A nurse prepares a dose of the COVID-19 vaccine in Kelowna on Tuesday, March 16. (Phil McLachlan/Black Press)
British Columbians aged 20+ can book for vaccine Saturday, those 18+ on Sunday

‘We are also actively working to to incorporate the ages 12 to 17 into our immunization program’

The Maritime Kitchen Party is featured in the B-Side, the Vernon and District Performing Arts Centre’s online series, May 13-16. (VDPAC photo)
B-Side keeps Okanagan musicians in Focus

Performing Arts Centre online concerts continue

The AstraZeneca-Oxford University vaccine. (AP/Eranga Jayawardena)
2nd person in B.C. diagnosed with rare blood clotting after AstraZeneca vaccine

The man, in his 40s, is currently receiving care at a hospital in the Fraser Health region

The. B.C. Court of Appeal granted a retrial to former Vernon man William Schneider, convicted of second-degree murder in the 2016 death of Japanese exchange student Natsumi Kogawa. The trial is set to begin May 24, 2022. (Vancouver Police Department photo)
Retrial date set for former Okanagan man’s murder conviction

William Schneider’s trial, connected to the death of Natsumi Kogawa, is set for May 2022

Brian Peach rescues ducklings from a storm drain in Smithers May 12. (Lauren L’Orsa video screen shot)
VIDEO: Smithers neighbours rescue ducklings from storm drain

Momma and babies made it safely back to the creek that runs behind Turner Way

Signage for ICBC, the Insurance Corporation of British Columbia, is shown in Victoria, B.C., on February 6, 2018. THE CANADIAN PRESS/Chad Hipolito
$150 refunds issued to eligible customers following ICBC’s switch to ‘enhanced care’

Savings amassed from the insurance policy change will lead to one-time rebates for close to 4 million customers

Police investigate a fatal 2011 shooting in a strip mall across from Central City Shopping Centre, which was deemed a gang hit. The Mayor’s Gang Task Force zeroed in on ways to reduce gang involvement and activity. (File photo)
COVID-19 could be a cause in public nature of B.C. gang violence: expert

Martin Bouchard says the pandemic has changed people’s routines and they aren’t getting out of their homes often, which could play a role in the brazen nature of shootings

Most Read