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

Just Posted

Alberta Premier Jason Kenney arrives at the 2021 budget in Edmonton on Thursday, Feb. 25, 2021.THE CANADIAN PRESS/Jason Franson
Alberta launches COVID vaccine lottery with million-dollar prizes to encourage uptake

The premier says the lottery will offer three prizes worth $1 million a piece, as well as other prizes

The City of Red Deer sits at 249 active cases of the virus, after hitting a peak of 565 active cases on Feb. 22. (Black Press file image)
Red Deer down to 119 active COVID-19 cases

Province identifies 179 new cases Saturday

Alberta’s chief medical officer of health Dr. Deena Hinshaw reported five additional deaths Wednesday due to COVID-19. (File photo by Chris Schwarz/Government of Alberta)
Red Deer at 169 active cases of COVID-19

Province set to move into Stage 2 of reopening Thursday

Canadian Prime Minister Justin Trudeau participates in a plenary session at the G7 Summit in Carbis Bay, England on Friday June 11, 2021. THE CANADIAN PRESS/Adrian Wyld
Canada donating 13M surplus COVID-19 vaccine doses to poor countries

Trudeau says the government will pay for 87 million shots to be distributed to poor countries

Indigenous Services Minister Marc Miller is seen during a news conference, Wednesday May 19, 2021 in Ottawa. THE CANADIAN PRESS/Adrian Wyld
Indigenous child-welfare battle heads to court despite calls for Ottawa to drop cases

Feds are poised to argue against two Canadian Human Rights Tribunal rulings

The Great Ogopogo Bathtub Race has been held in Summerland as a fundraising event. Do you know which Canadian city introduced this sport? (Black Press file photo)
QUIZ: A summer’s day at the water

How much do you know about boats, lakes and water?

Flowers and cards are left at a makeshift memorial at a monument outside the former Kamloops Indian Residential School to honour the 215 children whose remains are believed to have been discovered buried near the city in Kamloops, B.C., on Monday, May 31, 2021. THE CANADIAN PRESS/Darryl Dyck
‘Pick a Sunday:’ Indigenous leaders ask Catholics to stay home, push for apology

Indigenous leaders are calling on Catholics to stand in solidarity with residential school survivors by not attending church services

“They will never be forgotten, every child matters,” says Sioux Valley Chief Jennifer Bone in a video statement June 1. (Screen grab)
104 ‘potential graves’ detected at site of former residential school in Manitoba

Sioux Valley Dakota Nation working to identify, repatriate students buried near former Brandon residential school

Denmark’s Christian Eriksen receives medical attention after collapsing during the Euro 2020 soccer championship group B match between Denmark and Finland at Parken stadium in Copenhagen, Saturday, June 12, 2021. (AP Photo/Martin Meissner, Pool)
Christian Eriksen in stable condition, Euro 2020 match resumes

Eriksen was given chest compressions after collapsing on the field during a European Championship

As stories of the horrors of residential schools circulate after the Tk’emlups te Secwepemc First Nation announced it had located what are believed to be the remains of 215 children, Grand Chief Stewart Phillip of the Union of B.C. Indian Chiefs said he feels a connection with the former students. THE CANADIAN PRESS/Darryl Dyck
2 sides of the same coin: Ex-foster kids identify with residential school survivors

Grand Chief Stewart Phillip says the child welfare system takes Indigenous children from their families

Airport ground crew offload a plane carrying just under 300,000 doses of the single-shot Johnson & Johnson COVID-19 vaccine which is developed by the Janssen Pharmaceutical Companies at Pearson International Airport during the COVID-19 pandemic in Toronto on Wednesday, April 28, 2021. THE CANADIAN PRESS/Nathan Denette
1st batch of Johnson & Johnson vaccines won’t be released in Canada over quality concerns

The vaccines were quarantined in April before they were distributed to provinces

Most Read