Business

Canadian oil and gas companies slash capital spending by more than half, BoC survey finds

Today News ||

Energy producers setting aside just 40% of cash flow for investment, down from 100% before pandemic

Article content

The steep decline in capital spending by Canadian oil and gas companies continues.

Ads

In its business outlook survey released Monday, the Bank of Canada reports that energy producers are setting aside just 40 per cent of estimated cash flow for capital expenditures, compared with an average above 100 per cent in the years prior to the pandemic.

Crude and gas prices have soared over the past year, but Canadian energy companies have not been using that revenue bonanza to invest in new projects or sites to the same extent as during previous booms. Instead they are using cash flows to shore up balance sheets and reward shareholders.

The curtailment in capital spending follows last year’s decline that saw the sector’s capital expenditures drop to 60 per cent of cash flow.

RELATED:  Keith Ferrazzi on How the Pandemic Taught Organizations to Be “Crisis Agile”

Advertisement 2

Article content

“Financial discipline remains a top priority for firms,” the bank said in its report. “After many years of financial stress, most producers are using the current revenue windfall to improve their balance sheets, reduce their debt and pay dividends to shareholders.”

Where companies reported they were investing in production, it was largely at the margins of existing projects.

“Many conventional oil and natural gas producers are focusing on expanding drilling in areas where supporting infrastructure is readily available,” the bank said in its report which also noted that producers of heavy oil are improving efficiency and maximizing capacity utilization for existing oilsands projects.

Advertisement 3

Article content

The central bank consulted with a number of oil and gas firms and industry analysts who reported that high commodity prices driven by a global supply shortage have improved profit margins, heightened activity in the sector and contributed to positive sentiment overall.

But concerns over the transition to low-carbon energy, future limitations on pipeline capacity and infrastructure development continue to weigh on the industry which expects just modest growth in capital investment over the medium term.

Labour shortages and supply chain issues have also made investment more challenging and the industry faces significant cost increases.

“Drilling and other well-service pricing was reported to be up by 10 to 15 per cent over the 2021-22 winter season,” the bank said. “Some participants anticipate further increases by the end of the year.”

Advertisement 4

Article content

Experts say the reduction in capital spending can be partly attributed to the fact the sector is still emerging and rebuilding from a period of sustained low prices.

A decade of low oil prices has made Canadian producers learner and more efficient, Lisa Baiton, president of the Canadian Association of Petroleum Producers (CAPP) said at a Calgary conference last week.

“An industry known for outspending its cash flow is now focused on generating value,” Baiton said. “At the start of the recovery, companies changed their focus from survival to rebuilding their businesses after all of those hard years. Repairing their balance sheet, compensating shareholders for their patience while working to attract them back.”

More to come…

• Email: [email protected] | Twitter:

Advertisement

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

More Economy Business News Updates of Today Check Below

Today News || Business Today || World News || Headlines Today || Health || Technology News || Education News

Source

Tags
Show More

Related Articles

Back to top button
Close