CALGARY – An energy analyst warns the Canadian oil and gas sector is in a holding pattern in which spending and production growth can’t occur until new ways to get products to export markets are found.
CIBC analyst Jon Morrison says in a report that steep discounts being paid for Canadian heavy and light oil production compared with U.S. benchmarks won’t end soon and that means there’s no money for producers to increase their drilling budgets.
The report bodes poorly for Canada’s energy services sector as the industry enters the winter drilling season, its traditionally busiest time of the year as frozen ground allows more access to backcountry sites.
Morrison says unusually wet weather in Alberta in September will contribute to soft third-quarter earnings reports from oilfield services companies.
The analyst says Western Canada will remain short of pipeline capacity even if Enbridge Inc.’s Line 3 replacement pipeline is completed by 2020, thus adding 370,000 barrels per day of capacity.
He says the short-term situation will improve but not enough to allow growth in activity if crude-by-rail exports double, as he expects, to a record 450,000 barrels per day by the end of this year.
“We believe this reality will start to percolate into 2019 capex budgets, with a number of producers likely to delay the issuance of formal guidance until January and then we believe many are likely to announce development programs that show little to no incremental production growth,” Morrison’s report says.