Rising oil prices bring hope to gloomy Canada sector

CALGARY, Alberta/VANCOUVER (Reuters) - Years of low oil prices and high costs spurred a stampede by multinational majors out of Canada’s oil sands last year, leaving the remaining crude producers struggling to weather painful drops in profit.

Environmentalists derided the “tar sands” as too dirty for investment, and analysts said the region’s high production costs made little sense in a world of $50-a-barrel oil.

But this month, global benchmark prices rebounded to $80 per barrel, cheering oil executives in the Canadian energy capital of Calgary, Alberta, who are shifting from survival mode to cautious expansion to capitalize on healthier cash flow expected this year.

Although most producers remain hesitant to commit substantial new capital, a few are restarting mothballed wells and many are penciling out tentative plans for their extra cash as investors brighten their outlooks for the sector.

Plunging output from heavy-crude competitor Venezuela - amid a sprawling crisis in its socialist government’s state-run oil firm, PDVSA - adds further opportunity for sales of Canadian crude to U.S. Gulf of Mexico refiners.

“It hurts on the downside, but boy is there opportunity on the way up,” said Ed LaFehr, chief executive of Baytex Energy Corp, which drills in Western Canada and Texas.

The improved prospects are already translating into job creation in an economy where the oil sands’ fortunes are so critical that the nation’s currency rises and falls in step with oil futures prices.

Matt Munro, Canada market manager for UK-based recruiter Petroplan, said the sector’s job postings have more than doubled so far this year compared with 2017 and salaries are up, particularly in oilfield services.

One company, for example, has boosted base salaries, before bonuses, from C$80,000 to C$110,000 in the past 18 months, Munro said. Average weekly salaries for oil and gas extraction workers in Alberta jumped 13.8 percent from February 2017 to February 2018, according to the most recent available data from Statistics Canada.

The number of people employed by Alberta resource companies, meanwhile, jumped 6.8 percent to nearly 106,000 in the same period, the data showed, though that is still well below the August 2014 peak of about 135,000 people.

(For a graphic on oil-and-gas employment and pay in Alberta, see: tmsnrt.rs/2s222V0 )

Baytex delayed starting production on three wells in the first quarter but now plans to launch the wells this spring, LaFehr said.

The company’s hedging strategy could prevent it from reaping the full upside of higher prices this year. But if prices hold it may see an extra C$200 million ($155.27 million) in free cash flow in 2019, which it could use to expand output and repay debt, LaFehr said.

Heavy oil producer BlackPearl Resources Inc shut down 10 wells in the first quarter that were not worth the expense of maintenance work at lower oil prices. Now it’s restarting them to capture profits from the rebound.

With U.S. benchmark West Texas Intermediate crude prices up 13 percent so far this year, BlackPearl CEO John Festival is mulling further expansion further next year.

“Higher prices certainly help the mood,” he said.

At current prices, BlackPearl might move more quickly to boost production at its Onion Lake, Saskatchewan project, which it had expected to expand by 6,000 barrels per day (bpd) in 2019, he said.

Beyond those tentative steps, Festival will hold back on more substantial investments to see if market dynamics can sustain higher prices.

“One month of good prices is not enough to cause us to commit,” Festival said.


The recent upturn by no means solves the structural problems in Canada’s sector that were exposed when global prices crashed starting in 2014 from a height of more than $100 a barrel.

Oil sands drilling costs remain high, and Western Canada is still producing far more oil than its congested pipelines can deliver. The oil-transport crisis is so severe, in fact, that many companies are shipping their oil one truckload at a time - at steep costs - for a lack of cheaper pipeline and rail options. 

On Tuesday, the Canadian government announced it would take the drastic step of purchasing the Trans Mountain pipeline from Kinder Morgan Canada Ltd in a bid to rescue an expansion project facing fierce opposition in British Columbia.

High transportation costs translate into deep discounts on Western Canadian oil, relative to the U.S. benchmark, with the gap reaching $30 a barrel in January, the biggest in four years. That has since narrowed to as little as $13, but the reduction is mainly due to oil producers taking more maintenance downtime earlier in the year than planned, reducing the strain on pipelines.

Even so, big Canadian producers that snapped up stakes from the retreating foreign owners during the downturn are well-positioned for any sustained rebound.

Rising prices have sparked “dramatic shift” in the cash-flow expectations for oil sands producers this year, equity analysts at Eight Capital said in a May report. The analysts raised share price targets of Canadian Natural Resources, Cenovus Energy and Suncor Energy.

Suncor and Canadian Natural may fare particularly well because they have secured enough pipe capacity for their current operations, both firms said last month.

Suncor also has space lined up for output from its stake in Fort Hills, the oil sands’ newest mine. For every $1 per barrel prices climb, Suncor’s cash flows rise by about $225 million.

Investors have noticed the reversal of fortune in the oil patch. The TSX Energy Index has gained 24 percent since its 2018 low in early February.

Higher oil prices make more regions, like the oil sands, considerations again for wary investors, said Trip Rodgers, portfolio manager at BP Capital Fund Advisors, which currently focuses upstream investments on U.S. shale producers.


“You’re able to look at names that may not be as low-cost.”

Higher prices are whetting appetites for more mergers and acquisitions, said Andrew Botterill, national oil and gas leader at Deloitte, which advises producers.

Even so, he said Canadian oil companies are more “mature” than they were before prices collapsed in recent years, and are likely to take a measured path to growth, he said.

Consultancy Wood Mackenzie estimates that Canada’s total capital spending in 2018 will drop 10 percent year-over-year as better prices take time to revive the industry, compared with a 15 percent spending increase in the United States.

Reporting by Rod Nickel in Calgary, Alberta and Julie Gordon in Vancouver; Editing by Simon Webb and Brian Thevenot



As clock ticks, doubts grow over Kinder Morgan's Canada oil pipe expansion

VANCOUVER/WINNIPEG, Manitoba (Reuters) - As a hard deadline set by Kinder Morgan Canada Ltd (KML.TO) for scrapping a key pipeline expansion looms, there is growing doubt among investors, contractors and government officials about reaching a deal to save the C$7.4 billion ($5.7 billion) project.

The company, a unit of Houston-based Kinder Morgan Inc (KMI.N), set a May 31 deadline to decide if it will proceed with the expanded line from Edmonton, Alberta to a port in the Vancouver area, which would give landlocked Canadian crude greater access to foreign markets.

Investors and project contractors are also increasingly pessimistic.

“I can’t walk out of my office or have a beer with someone where a conversation around this doesn’t occur,” said Rafi Tahmazian, senior portfolio manager at Canoe Financial, which manages shares of several Canadian oil producers.

“I’m worried - very worried - that (Kinder) will walk away.”

Kinder Morgan Canada declined to comment.

If Trans Mountain fails, it would be the third major Canadian export pipeline project to stall in two years, putting greater pressure on Canadian heavy crude prices that already trade at a discount to global prices LCOc1 due to limited transport.

Kinder Morgan set the deadline in part due to frustrations with delays caused by British Columbia government, which is concerned about possible oil spills.

  • KML.TO
  • KMI.N

Trudeau has publicly vowed to build the pipeline with or without Kinder, and offered to indemnify the company against losses related to B.C.’s delays.

KML’s share price has fallen 9.7 percent since early April, when the company halted all non-essential work, underperfoming a 5 percent rise in the benchmark Canada share index.

“We think the stock itself is pricing in a less than 25-percent chance of the project going ahead,” said Matthew Murphy, an analyst with investment bank Tudor, Pickering, Holt and Co.

Danny Mott, owner of Mott Electric, the electrical contractor on Trans Mountain, said he does not think the federal government has done enough to enforce its jurisdiction, nor to crack down on protesters who block access to Kinder Morgan work sites on a near-daily basis. 

“If we don’t have strong laws and the intent to follow through with them, I wouldn’t invest in that. I think I would walk away,” he said.

The project’s fate will create political ripples in Ottawa, where Justin Trudeau’s Liberals have promised the pipeline will be built one way or another, and sway investor confidence in Canada’s oil sands, which already produce far more oil than can move on pipelines.

Building more pipelines was a cornerstone of Trudeau’s energy policy. But the federal government is increasingly convinced that any assurances Ottawa gives Kinder Morgan will be rejected, said two sources with direct knowledge of the matter. They are not authorized to speak publicly.

Reporting by Julie Gordon in Vancouver and Rod Nickel in Winnipeg, Manitoba; Additional reporting by David Ljunggren in Ottawa; Editing by Lisa Shumaker


Valvoline To Acquire Great Canadian Oil Change

May 17 (Reuters) - Valvoline Inc:






Canadian dollar hits six-day low vs greenback amid NAFTA deadline doubts

TORONTO (Reuters) - The Canadian dollar hit a nearly one-week low against its U.S. counterpart on Tuesday as the greenback broadly rose and investors weighed prospects of a deadline being met for a new trade pact between Canada, the United States and Mexico.

Mexico’s economy minister said he saw diminishing chances for a new North American Free Trade Agreement ahead of a May 17 deadline to present a deal that could be signed by the current U.S. Congress.

Canada sends about 75 percent of its exports to the United States, so its economy could benefit if a NAFTA deal is reached.

“With NAFTA-on, NAFTA-off it places a bit more focus on the upcoming data that we have later this week and prospective tightening that is being priced into the curve,” said Mazen Issa, senior FX strategist at TD Securities.

Chances of a Bank of Canada interest rate hike at the bank’s next policy announcement on May 30 have climbed to about 50 percent from less than 25 percent at the beginning of the month. BOCWATCH.

The Bank of Canada appears to be losing sway in its own backyard as Canadian bond yields chase after rising U.S. interest rates even though Canadian policy makers have pledged to proceed slowly with rate hikes of their own.

The U.S. dollar .DXY rose against a basket of major currencies to the highest level since December, as data showing a pickup in U.S. consumer spending exerted fresh selling pressure on U.S. government bonds and sent the yield on the 10-year Treasury note to its highest level since July 2011.

At 5 p.m. EDT (2000 GMT), the Canadian dollar CAD=D4 was trading 0.5 percent lower at C$1.2877 to the greenback, or 77.66 U.S. cents. The currency hit its weakest level since Wednesday at C$1.2924.

The loonie retreated even as the price of oil, one of Canada’s major exports, rose to multi-year highs. U.S. crude oil futures CLc1 settled 0.5 percent higher at $71.31 a barrel.

Resales of Canadian homes fell 2.9 percent in April from March to the lowest level in more than five years, the Canadian Real Estate Association said.

Canadian government bond prices were lower across a steeper yield curve, with the two-year CA2YT=RR down 8.5 Canadian cents to yield 2.041 percent and the 10-year CA10YT=RR falling 51 Canadian cents to yield 2.484 percent.

The 10-year yield touched its highest intraday level since April 2014 at 2.521 percent.

Canadian inflation data for April is due on Friday.=

Reporting by Fergal Smith; Editing by Leslie Adler



Canadian govt to brief media on oil pipeline aid, no decision yet

OTTAWA, May 15 (Reuters) - Canadian Finance Minister Bill Morneau will brief reporters on Wednesday about talks with Kinder Morgan Canada on possible aid for an oil pipeline project but will not be announcing a final decision, a spokesman said on Tuesday.

Ottawa says it is prepared to offer financial support to ensure the company proceeds with a planned expansion of its Trans Mountain line from the Alberta oil sands to British Columbia. Kinder Morgan halted work last month, citing resistance from the British Columbia government.

Morneau is due to speak at 9 a.m. EDT (1300 GMT). (Reporting by David Ljunggren; Editing by Christian Schmollinger)



Here's What Oil at $70 Means for the World Economy

Rising oil prices are a double-edged sword for the world economy.

With the price of crude up 14 percent this year and now trading at the highest since 2014, exporters of the fuel get to enjoy a windfall while consuming nations get hurt.
Much ultimately depends on the reason why prices are pushing higher. An oil shock on the back of constrained supply is a negative though higher prices due to robust demand may just reflect solid global growth.

Either way, there are winners and losers, especially among emerging economies. Countries who rely on imported energy will be squeezed as costs go up, balances of payments become strained and inflation accelerates. For exporters, government coffers will get a fillip.

U.S. President Donald Trump’s plan to withdraw from the 2015 accord to curb Iran’s nuclear program poses fresh uncertainty although Bloomberg Economics reckons that and similar supply shocks account for half of oil’s recent rise.

1. What does it mean for global growth?

The world economy is enjoying its broadest upswing since 2011 and higher oil prices would drag on household incomes and consumer spending, but the impact will vary. Europe is vulnerable given that growth and industrial activity already are moderating and many of the region’s countries are oil importers. China is the world’s biggest importer of oil and could expect an uptick in inflation -- prices already are tipped to increase 2.3 percent in 2018 from 1.6 percent in 2017. For a sustained hit to global growth, economists say oil would need to push higher and hold those levels. Seasonal effects mean energy costs often increase during the first half of the year before easing. Consumers can also switch energy sources to keep costs down, such as biofuels or natural gas.

2. How will Iran impact the the market?

Oil prices have risen 14 percent this year -- half of this increase reflectsstronger global demand, a Bloomberg Economics model suggests. The rest is likely due to heightened tensions with Iran and other supply shocks. The return of U.S. sanctions could crimp Iranian oil exports, but the global supply shock might be mitigated by increased pumping elsewhere, according to the analysis. Here’s a chart.

3. Who wins from higher oil prices?

Most of the biggest oil-producing nations are emerging economies. Saudi Arabia leads the way with a net oil production that’s almost 21 percent of gross domestic product as of 2016 -- more than twice that of Russia, which is the next among 15 major emerging markets ranked by Bloomberg Economics.

Other winners could include Nigeria and Colombia. The increase in revenues will help to repair budgets and current account deficits, allowing governments to increase spending that will spur investment.

4. Who loses?

India, China, Taiwan, Chile, Turkey, Egypt and Ukraine are among those on the worry list. Paying more for oil will pressure current accounts and make economies more vulnerable to rising U.S. interest rates. Bloomberg Economics has ranked major emerging markets based on vulnerability to shifts in oil prices, U.S. rates and protectionism.

Analysts at RBC Capital Markets created an “oil sensitivity index” to judge the economies most exposed in Asia. They warn that Malaysia, Thailand, China and Indonesia could face the most volatility from an oil-price spike.

5. What does it mean for the U.S. economy, the world’s biggest?

A run-up in oil prices poses a lot less of a risk to the U.S. economy than it used to, thanks to the boom in shale oil production. The old rule of thumb among economists was that a sustained $10 per barrel rise in oil prices would shave about 0.3 percent off of U.S. GDP the following year. Now, says Mark Zandi, chief economist at Moody’s Analytics, the hit is around 0.1 percent. And that all but dissipates in subsequent years as shale oil production is ramped up in response to the higher prices. The Baker Hughes U.S. rig count already is at a three-year high.

As the U.S. nears the tipping point between net oil importer and exporter, some forecasts are less upbeat. Gregory Daco, the U.S. chief for Oxford Economics, estimates that if WTI crude prices average $70 a barrel this year, U.S. growth will lose half the 0.7 percentage point gain it would otherwise earn from tax cuts passed earlier in 2018.

Oil-producing states such as North Dakota, Texas and Wyoming should benefit from higher extraction activity, though Daco warns that productivity enhancements could limit that upside. Poorer households have the most to lose. They spend about 8 percent of their pre-tax income on gasoline, compared to about one percent for the top fifth of earners.

6. Will it lead to higher inflation around the world?

While the influence of energy prices in overall consumer price baskets varies widely by economy, the category claims a double-digit share in economies such as Indonesia, Malaysia and New Zealand, according to RBC Capital Markets tallies.

Energy prices often carry a heavy weight in consumer price gauges, prompting policy makers including those at the Fed to focus simultaneously on core indexes that remove volatile food and energy costs. But a substantial run-up in oil prices could provide a more durable uptick for overall inflation as the costs filter through to transportation and utilities and other associated industries.

What Our Economists Say:

“Pass-through from oil prices to inflation is less than it used to be. At a country level, the oil share in the energy mix, degree of slack in the economy, and use of price controls and subsidies all modulate the impact.”
-- Tom Orlik and Justin Jimenez, Bloomberg Economics

7. What does it mean for central banks?

If stronger oil prices substantially boost inflation, central bankers on balance will have one less (big) reason to keep monetary policy on hold while the Fed moves ahead in its tightening cycle.

Among the most-exposed economies, central bankers in India could have a big headache from a surge in crude oil prices. Alongside sharp weakness in the rupee, economists already are pushing forward their forecasts for the Reserve Bank of India’s interest-rate increases as India’s biggest import item gets more expensive.

Greater overall price pressures also could prompt faster monetary policy tightening in economies such as Thailand and Indonesia, which otherwise have used benign inflation as among reasons to stay patient on interest rates.

— With assistance by Jessica Summers, and Dan Murtaugh


Canadian dollar hits 7-week low as oil falls, greenback climbs

TORONTO (Reuters) - The Canadian dollar weakened to a nearly seven-week low against its U.S. counterpart on Tuesday, with the currency breaking out of its recent holding pattern as oil prices fell and the greenback broadly gained.

At 4 p.m. EST (2000 GMT), the Canadian dollar CAD=D4 was trading 0.5 percent lower at C$1.2952 to the greenback, or 77.21 U.S. cents.

“It’s a big dollar move,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York. “We had resistance right around 1.2900. When we broke that we nearly got to 1.3000.”

The currency hit its weakest level since March 21 at C$1.2998, while the U.S. dollar .DXY surged to a 2018 high against a basket of major currencies.

The price of oil, one of Canada’s major exports, recouped some losses after U.S. President Donald Trump confirmed the U.S. will withdraw from the Iran nuclear deal, in a volatile session in which prices slumped as much as 4 percent earlier in the day.

U.S. crude oil futures CLc1 settled $1.67 lower at $69.06 a barrel.

Canadian, Mexican and U.S. officials hailed progress on revamping NAFTA as efforts focused on crafting new rules for the auto sector, but there was no sign of a major breakthrough.

Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR dipped 3.5 Canadian cents to yield 1.934 percent and the 10-year CA10YT=RR declined 18 Canadian cents to yield 2.348 percent.

Canadian housing starts declined in April to a seasonally adjusted annual rate of 214,379 units as builders responded to slowing sales in Toronto, Canada’s largest city, data from the Canada Mortgage and Housing Corporation showed on Tuesday.

Canada’s jobs report for April is due on Friday.

Reporting by Fergal Smith; Editing by Sandra Maler


Shell to Exit Canadian Natural Resources for $3.3 Billion

Royal Dutch Shell Plc has agreed to sell out of oil-sands producer Canadian Natural Resources Ltd. The Anglo-Dutch company’s Shell Gas BV unit will divest all its shares in Canadian Natural for total pretax proceeds of $3.3 billion, The Hague-based Shell said Monday. The sale serves the dual purpose of shedding one of its dirtiest assets, while reducing debt accumulated after the $50 billion purchase of BG Group Plc. The shares are being offered at $34.10 apiece, according to a person familiar with the matter. That’s a 2.9 percent discount to Canadian Natural’s close on Monday in New York. The stock fell 3.8 percent to $33.78 at 9:36 a.m. in New York on Tuesday. Shell had accounted for the money from the sale in its divestment program when the deal was originally announced last year and it doesn’t bring the company closer to its $30 billion target. At the end of the first quarter, Shell had completed $26 billion of that program. Beyond short-term debt reduction, the sale also has longer-term benefits. Chief Executive Officer Ben van Beurden has said he’s keen to demonstrate how an oil major can navigate a world focused on cutting emissions. He has repositioned Shell to focus on cleaner natural gas, shedding carbon-intensive assets such as oil sands. The Canadian Natural sale was initially flagged last year, when oil prices were about $20 a barrel lower. Shell said at the time it would sell almost all its production assets in Canada’s oil sands in a $7.25 billion deal. As part of that accord, Canadian Natural agreed to issue about C$4 billion ($3.1 billion) of its shares to Shell in payment for various assets.Shell Gas has entered into an underwriting agreement with Goldman Sachs & Co., RBC Capital Markets, Scotiabank and TD Securities for the sale of the stake. Canadian Natural shares closed at $35.11 on Monday.

Canadian Natural Resources to limit output during oil transport crunch

(Reuters) - Canadian Natural Resources Ltd (CNRL) (CNQ.TO), one of Canada’s biggest oil and gas producers, will produce less than expected this spring, it said on Thursday, as transport bottlenecks pressure prices of Canadian heavy crude.

Tight capacity on pipelines and rail lines from the province of Alberta early this year led to the biggest discount in four years on Canadian heavy crude compared to U.S. benchmark light oil. The space crunch has since abated, shrinking the discount closer to normal levels.

It has, however, hampered shipments to U.S. Gulf of Mexico refiners that depend on heavy crude instead of the U.S. light oil being produced in abundance from shale rock.

Calgary-based CNRL forecast production in the current second quarter of 1.054 million barrels of oil equivalent per day, missing analysts’ average estimate of 1.134 million, investment bank Tudor, Pickering, Holt & Co said in a note. Forecast output would still exceed that of a year earlier.

“We are in a very strong, enviable position to be able to curtail natural gas and heavy oil volumes when pricing anomalies arise due to Western Canada’s pipeline constraints,” said CNRL President Tim McKay on a conference call.

Canadian Natural shares fell 3.9 percent in Toronto to C$44.68.

Canadian crude production is expanding even though production costs exceed those in U.S. shale oil basins, but capital spending has declined sharply.

Suncor Energy Inc (SU.TO) Chief Executive Officer Steve Williams said on Wednesday that company would not make further major investments in Alberta’s oil sands until market access improves.

Kinder Morgan Canada (KML.TO) has paused work on its Trans Mountain pipeline expansion, citing opposition in British Columbia, and said it would decide by May 31 whether to proceed.

Fellow producer Cenovus Energy Inc (CVE.TO), also struggling with transport constraints, has operated at lower capacity this year.

Production limits are also due to downtime at the Horizon mine, where CNRL is carrying out debottlenecking work to raise capacity, Eight Capital said in a note.

The company’s first-quarter profit beat forecasts, boosted by higher overall oil production.

CNRL, which operates in Western Canada, the North Sea and offshore West Africa, said overall production rose to 1.12 million barrels of oil equivalent per day (boepd) in the first quarter from 876,907 boepd a year earlier.

Net income rose to C$583 million, or 47 Canadian cents per share, from C$245 million, or 22 Canadian cents, a year earlier.


Excluding items, the company earned 71 Canadian cents per share, beating the average forecast of 66 Canadian cents, according to Thomson Reuters I/B/E/S.

Reporting by Rod Nickel in Winnipeg, Manitoba and Karan Nagarkatti in Bengaluru; Editing by Amrutha Gayathri and David Gregorio


Alberta to hold talks on crude transport with producers, railways: minister

CALGARY, Alberta (Reuters) - Alberta will hold talks with rail operators and oil producers aimed at smoothing the path to get more crude moving by rail amid a transportation bottleneck in the Western Canadian province, Alberta’s energy minister said on Wednesday.

The first session on Friday will include senior executives from Canada’s top oil producers and the two main railways, Canadian Pacific Railway and Canadian National Railway, the minister, Margaret McCuaig-Boyd, told reporters at a Calgary conference.

“We’re hearing there’s constraints and there’s gaps between the rail companies and producers, so what are those gaps and how can we address them,” she said.

Railways, who added crude by rail capacity earlier this decade only to have the market vanish as pipeline space opened up, have been slow to move back in the oil transport business, asking producers to sign longer-term deals. But oil producers want flexibility to switch to pipeline, which is far cheaper, if capacity becomes available.

“A pipeline isn’t going to be built overnight. So we need to have strategies for all market access,” said McCuaig-Boyd.

Canada’s energy producers are struggling as increased oil sands output has run up against a lack of new export pipelines and tight rail capacity, sending the differential between Canadian oil prices and the U.S. crude benchmark to multi-year highs.

Adding to the crunch, Kinder Morgan Canada paused work last month on its Trans Mountain pipeline expansion, citing opposition in British Columbia, and said it would decide by May 31 on whether to go ahead with the build or not.

Both Alberta and Canada’s federal government have pledged financial support to the project, which would nearly triple capacity on an existing line from Alberta to a B.C. port.

When asked about Alberta’s financial pledge, McCuaig-Boyd said the government was open to “all options,” though she declined to clarify if the province was considering an ownership stake in just the project or the entire pipeline or company.

Reporting by Julie Gordon in Calgary; Editing by Phil Berlowitz and Grant McCool


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