Canadian energy industry booming on higher crude prices, increased production in unconventional resources such as shale oil, gas, despite flat natural gas prices; top 100 companies book C$17.9B profit in 2010: PwC
May 17, 2011
– Top 100 book a profit of $17.9 billion in 2010, up 113% from $8.4 billion in 2009
Higher oil prices and increasing production in unconventional oil and gas resources, like shale oil and gas, has significantly altered the global energy sector—and Western Canada is at centre stage—according to PwC's latest Canadian Annual Energy Survey report.
The report found the Top 100 Canadian oil and gas producers are more confident than last year, benefitting from rising crude oil prices and a stable fiscal regime in Alberta. Cash flow for the Top 100 rose to $53.1 billion in 2010, up almost 15% from $46.4 billion the prior year. Capital spending also increased to over $56 billion from about $39 billion in 2009.
Rebounding prices for light and heavy oil also lifted overall revenues. Gross revenue for oil and gas companies rose 26% to more than $167 billion in 2010 from $132.7 billion in 2009. Combined, the Top 100 booked a profit of $17.9 billion, up 113% from $8.4 billion in 2009. The revenue of the Top 20 oil and gas operators accounted for about 92% of total revenues, with Suncor Energy Inc. in first place.
Scott Bolton, PwC's Canadian Energy Leader says, "Oil companies enjoyed a blockbuster year, while gas producers suffered another rough year in 2010. Unlike crude oil, natural gas prices remained flat as the wave of shale gas production in the United States kept a lid on North American prices."
Respondents of the survey believe the downturn in the price of natural gas presents a critical threat to their companies' potential growth in 2011, and viewed it as the top concern for their business within the next two years. As a result of the downturn in gas prices, about 56% of respondents said they have reduced gas-directed drilling, and 50% have altered their energy mix to produce more liquids-rich gas. Others have shut in gas production or are producing more crude oil (both 37.5%).
Shale bigger focus for foreign investment in Western Oil Sands
During 2010, foreign-based companies acquired more than $17 billion in Canadian oil and gas assets. Now well into 2011, shale gas players are also benefitting from an influx of investment. In Q1 2011, foreign interest was dominated by PetroChina International Investment Company Ltd's plan to spend $5.4 billion to earn a 50% interest in Encana Corp's Cutbank Ridge gas assets. Additionally, South African-based Sasol Ltd. plans to spend over $1 billion to earn a 50% interest in Talisman Energy Inc.'s Cypress A assets.
Canada leads in oil & gas innovation
Technology has played an integral role in unlocking gas-bearing shale, tight oil reservoirs and the oil sands of northeast Alberta that were once uneconomic to produce, according to PwC's report. The survey found 80% of respondents said their companies are using new technologies such as advanced horizontal drilling and multi-stage fracking to revitalize light oil plays that were once exploited with vertical wells.
"Just a few years ago, we were looking for ways to cope with the day when we would run out of conventional gas by planning for LNG facilities and arctic gas pipelines," says Bolton. "Now, we're trying to deal with a wave of shale gas production that will be flowing to market for decades to come. It's remarkable how the industry has shifted in such a short time period and more change is expected to come with technological innovation as a key driver."
Indeed, Canadian companies have garnered a reputation worldwide as innovators in areas such as drilling and completions, sour gas, heavy oil and oil sands, remote location logistics and environmental management. "The world looks to Canada's oil and gas industry as a success story in using new technology to increase production, boost efficiency and push the envelope of environmental sustainability," says Bolton.
At the same time, however, the development of these unconventional resources through technological advances has raised some eyebrows related to its impact on the environment (greenhouse gas emissions, damaging water supplies, etc) and how future regulations and policies will affect operators.
"The Western Canadian oil and gas sector is lacking an integrated technology, policy and regulatory response to deal with the environmental, political and socio-economic impacts of unconventional resource development," says Bolton. "A national energy strategy would help create a better understanding of Alberta's role in energy production, how to better capitalize on the markets for our commodities and the technologies used to exploit them."
About Energy Visions:
This document is published by PwC as part of our Energy Visions program, a series of publications and events that provide context around issues affecting the oil and gas sector. This report contains results from an online survey, conducted by PwC during March 2011, to better understand issues currently impacting the industry. About 91% of the respondents fill senior roles within the energy sector (54% in a leadership role; 37% in a managerial role), with the balance comprising employees and consultants. The majority of respondents (70%) work for exploration and production companies that produce a mix of natural gas and crude oil.
For more information or to download the full report, visit www.pwc.com/ca/energyvisions.
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