Varcoe: The Falling Looney Has a Silver Lining for the Canadian Oilpatch

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The annual season of Canadian petroleum producers devising their spending plans for the approaching 12 months is now underway and has include two conflicting forces at play: falling oil costs and the fallout from a declining loonie.

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Benchmark US crude costs have just lately retreated from a excessive of US$120 a barrel in early June to under $80, amid rising issues of a looming international slowdown that would minimize demand. West Texas Intermediate crude fell $1.74 to shut at US$79.49 a barrel on Friday.

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Analysts say the decline has taken some steam from the anticipated price range progress for 2023.

“This volatility within the markets, together with oil costs and inventory costs, is straining a number of capital budgets,” stated Raymond James analyst Jeremy McCree.

“Confidence is waning in the place commodity costs are going right here within the subsequent 12 months.”

The Looney, however, is pitting in opposition to a rising US dollar.

a decrease canadian buck bolster The return of home crude and pure gasoline that’s bought in US forex — and it is serving to producers take in a number of the turmoil.

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Earlier this week, Whitecap Sources turned one of many first Canadian producers to launch its spending plan for subsequent 12 months, saying a capital price range of $925 million.

Following WhiteCap’s blockbuster June acquisition of XTO Vitality Canada for $1.9 billion, it expects to drill about 250 wells in Saskatchewan, Alberta and British Columbia.

The acquisition makes an apples-to-apples comparability between this 12 months’s price range and 2023 tough; Whitecap’s capital expenditure is estimated at $680 million in 2022.

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On a convention name with analysts on Wednesday, Chief Monetary Officer Than Kang famous that each $5-a-barrel change in WTI interprets to $110 million yearly in WhiteCap’s inflows of funds.

Nonetheless, the latest 5 % fall within the loonie to 73 cents in opposition to the US greenback has “cushioned” the corporate from falling oil costs, enhancing its money move ranges by $135 million, he stated.

“Even with vital volatility, the commodity worth atmosphere stays sturdy, particularly in gentle of the weakening Canadian greenback,” CEO Grant Fegerheim stated.

On Friday, Birchcliffe Vitality officers gathered in Lake Louise for a planning session, together with preparation for 2023 actions.

“We now have extra laptop runs of various situations you could shake a fist at. You simply have so many variables,” Birchcliffe CEO Jeff Tonken stated in an interview.

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Analysts say volatility is the order of the day – and for the 12 months forward – given the stress from rising inflation, labor constraints, unsure geopolitical forces and fears of a worldwide recession.

Total trade spending climbed in 2022 with sturdy commodity costs, though it’s nonetheless removed from 2014 ranges when crude costs beforehand charged $100 a barrel and main oil tasks additional charged.

In response to Statistics Canada, through the second quarter of the 12 months, trade capital expenditure on extraction reached $9.3 billion, its highest level since 2018.

Alberta Vitality Minister Sonya Savage stated provincial land lease gross sales and drilling exercise ranges are additionally up, aNonetheless, reductions on Western Canadian Choose Heavy Oil have elevated in latest months.

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The province estimates that oil and gasoline funding in Alberta this 12 months will enhance by about 35 % from 2021 ranges.

“Our (provincial) price range relies on $70 a barrel of oil and our trade is worthwhile even at very low costs,” Savage stated in an interview.

“I don’t count on oil to stay under Rs 80. I’m fairly certain it’s going up and I’m not too anxious about capital expenditure. The trade is kind of optimistic.”

Precision Drilling Corp CEO Kevin Neveau stated the Calgary-based firm had 67 rigs working in Canada this week. That is only a quick stroll from the summit of Rig 72, energetic final winter, which is normally the busiest season for the area.

He anticipates there might be sturdy drilling exercise within the Montney Formation and the Clearwater Heavy Oil Play subsequent 12 months. Whereas oil costs are down, prospects have “headroom to work with” as a result of they’ve diminished their money move ranges.

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“We expect the demand for drilling and companies to extend in 2023. I’d say it is a minimal of 5 %, possibly as much as 10 %,” Neveu stated.

Whereas spending on this sector is projected to extend, a part of it’s being pushed by inflation. Though firms need to make investments considerably extra money, they’re going through hurdles attributable to scarcity of labor and gear.

“We aren’t anticipating a step change in exercise,” stated Tim Monacello, oilfield companies analyst at ATB Capital Markets. “It is simply sort of a slight enhance.”

And there may be one constructive power aiding the sector on this downtrend – the quickly falling Canadian greenback. The loonie fell to a two-year low earlier this week and fell to 72.96 cents within the US on Thursday.

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Even with the autumn in oil costs, WTI crude costs are buying and selling nearer to $110 a barrel in Canadian {dollars}, whereas Western Canadian Choose Heavy Oil stays round $80, based on a report by Eight Capital. Mentioned on Friday.

“Within the Canadian greenback, oil costs are about 40 % greater than within the US greenback, so it’s fairly vital,” he stated. Eight Capital analyst Phil Skolnik.

At Birchcliffe, Tonken stated the corporate sells 87 % of its pure gasoline for US {dollars}. He additionally forecasts that pure gasoline costs will stay wholesome subsequent 12 months.

Additionally, the corporate expects to turn into debt-free later this 12 months, mitigating a number of the danger from unpredictable commodity markets and forex charges.

Tonken expects spending within the Canadian territory to be “measured and balanced” in 2023.

“I do not assume you are going to see a ton of progress. You may see some progress from some firms,” he stated.

“We’re filled with optimism … however we do not see large drilling packages which might be going to extend manufacturing materially.”

Chris Varko is a Calgary Herald columnist.

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