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

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Five properties have been added to the Lake Country fire protection zone, after council moved to expand the local service area Tuesday, May 4, 2021. (Google Maps)
Lake Country expands fire protection zone, covering 5 exposed properties

The properties petitioned to join the local service area after being left out ‘for reasons unknown’

VSAR’s Air Rescue One unit assisted in a rescue in West Kelowna May 3, 2021. (VSAR screenshot)
VIDEO: VSAR’s Air Rescue One team assists in West Kelowna Rescue

The Vernon Search and Rescue helicopter team pulled off a successful rescue Monday

Kelowna seen from the top of Knox Mountain. (Phil McLachlan/Black Press Media file)
Accessibility concerns raised as Kelowna ponders banning vehicles from Knox Mountain

Knox Mountain Drive, which leads to two lookouts, has been closed since the COVID-19 pandemic began

Cops for Kids riders will be spinning 30 feet in the air on scissor lifts at SaveOn Foods locations in Kelowna, Lake Country and West Kelowna Saturday, May 8, 2021. (File photo)
Cops reach new heights for Okanagan kids

Nor-Val Rentals is doing the heavy lifting Saturday in Kelowna, West Kelowna and Lake Country

A proposed development would see two four-storey affordable housing complexes erected on Adair Street in Armstrong, next to the Nor-Val Arena. (Google Maps)
Local tenants to be prioritized for Armstrong affordable housing project

Staff have drafted an expression of interest to find a developer to move forward with on the project

(The Canadian Press)
Trudeau won’t say whether Canada supports patent waiver for COVID-19 vaccines

‘Canada is at the table to help find a solution’

Edmonton Oilers’ Connor McDavid (97) celebrates his 100th point this season with Leon Draisaitl (29) against the Vancouver Canucks during second period NHL action in Edmonton on Saturday, May 8, 2021.THE CANADIAN PRESS/Jason Franson
Edmonton superstar McDavid hits 100-point mark as Oilers edge Canucks 4-3

NHL scoring leader needs just 53 games to reach century mark

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

Peachland resident and cleanup volunteer Lloyd Stinson Sotas holds up a discarded TV riddled with bullet holes. (Aaron Hemens/Capital News)
PHOTOS: Peachland residents clean up community watershed

More than 70 people gave back to Mother Earth by assisting with the cleanup

Join Black Press Media and Do Some Good
Join Black Press Media and Do Some Good

Pay it Forward program supports local businesses in their community giving

A map showing where the most number of cases were recorded from April 23 to 29. This map, revealing a breakdown of infections by neighborhood, was pulled from a data package leaked to the Vancouver Sun last week (and independently verified).
36 Abbotsford schools flagged for COVID-19 exposures in the last 2 weeks, shattering record

Clearbrook Elementary recorded an ‘exposure’ on all 11 school days

Canada’s chief public health officer is reminding Canadians even those who are fully vaccinated are not immune from transmitting the COVID-19. THE CANADIAN PRESS/Adrian Wyld
Canada’s top doctor warns full vaccination does not equal full protection from COVID-19

Post-inoculation, Theresa Tam says the risk of asymptomatic infection and transmission is far lower but not obsolete

COVID-19. (Image courtesy CDC)
Kelowna OK Tire closed due to COVID-19 exposure

The business will remain closed until May 11

Most Read