Varcoe: A fitful recovery looms for Canadian oilpatch in 2017

Is Canada’s oilpatch back in recovery mode?

As oil prices cruised over US$51 a barrel Wednesday, there’s hope the erratic rebound for the energy sector will resume.

But the instability of the past three months — in commodity markets and share prices — has left its imprint, with diminished expectations for oil prices and employment opportunities in the sector this year.

It’s a sobering splash of water in the face for a province awaiting a strong improvement.

On Wednesday, consultancy Deloitte released a report that projects West Texas Intermediate crude oil will average US$52 a barrel for the remainder of the year, down about $3 from its December projection.

The outlook is relatively flat for the following two years, at US$55 a barrel in 2018 and $59 the following year. That’s well below last month’s provincial budget projection of oil averaging US$68 a barrel in 2019-20 and, if true, would leave an ugly hole in the government’s bottom line.

On the natural gas front, Deloitte doesn’t expect huge changes, predicting AECO spot prices will average $2.55 per thousand cubic feet for the remainder of the year.

“The optimism much of industry felt from Christmas through the first quarter of this year was less about prices growing and more about price stability,” said Andrew Botterill, a partner with Deloitte.

“What are things going to look like a year from now? People are a little tepid on that.”

Certainly investors have been cool; the S&P/TSX Capped Energy sub-index is down 8.4 per cent this year.

Darren Gee, chief executive of Peyto Exploration and Development Corp., said recently the mood in the sector has dipped since the end of last year and producers are more careful.

“We are looking forward and saying we just made it through a tough year and it doesn’t look like anything has changed. It will be another tough year,” he said.

“We’ve got to buckle down, we’ve got to get stronger, we’ve got to get fitter. As an industry there are just more challenges out front of us.”

That’s not to say companies haven’t increased drilling, employment or spending, but it’s fragile and relatively modest.

The number of working rigs drilling across Western Canada hit 123 this week, compared with an average of just 40 last April. Capital spending is rising in certain areas, such as the Montney formation in west-central Canada.

The Canada government expects conventional oil and gas investment to reach $14.4 billion this year, a healthy 20 per cent bump from 2016.

But oilsands capital spending will dip by $1.2 billion to $16 billion this year, and remain flat over the following 24 months.

“There certainly is less optimism now than there was in the December-January time frame,” said Stephen Kallir, a Calgary-based analyst for Wood Mackenzie.

“To be quite frank, when we saw some of the 2017 (capital) plans being released, we were a bit surprised at the optimism. I think that’s been tempered a bit.”

Much of the uncertainty revolves around what will happen with the Organization of Petroleum Exporting Countries (OPEC) and prices as U.S. shale production continues to increase.

The rig count south of the border has been climbing since May 2016. Deloitte notes high U.S. oil storage levels will act as a damper on prices as OPEC production cuts are offset by oil inventories being drawn down.

For Canadans who work in the industry or are looking for a job, this is a puzzling period.

Just last month, Calgary-based pipeline firm Enbridge Inc. announced it will eliminate 1,000 jobs on the heels of its merger with Spectra Energy Corp. of Houston.

Oilfield service companies have added staff for the winter drilling season, although there are questions about what will happen in the fall.

A new industry report shows oilpatch employment at the end of last year had dropped by one-quarter from its peak in 2014, with 52,000 direct jobs lost.

The study by petroleum human resources group Enform describes 2017 as a pivotal year, noting it started out promising but has become less certain.

Enform paints two vastly different employment pictures for this year, one with a modest recovery if prices average US$55 a barrel, another with a delayed rebound with oil averaging $46.50.

If prices remain in the higher range, more investment will flow and an estimated 6,000 additional workers will be needed this year — 3,900 in the service sector alone. Another 1,500 jobs will be created in conventional exploration and production firms.

However, if oil prices sink below $50 for a sustained period of time, not only will hiring plans will be delayed, but more layoffs are expected.

In this gloomy picture, 8,700 jobs would disappear this year, with 7,100 coming from the services sector.

“There seems to be a lot of differing views, so I think it’s creating some anxiety of what the next year will look like,” said Enform vice-president Carol Howes.

All of this leads to a very unsettling picture for 2017. Meanwhile, Canada waits for a fitful oilpatch recovery to continue.

Chris Varcoe is a Calgary Herald columnist.

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