Lower operating costs and new drilling approaches help produce higher Q1 drilling activity and set the stage for long term health of oil and gas sector
In 2009, Canada’s oil and gas producers suffered their weakest earnings performance since 2002, albeit with improvement in the second half of the year. This is according to the Canadian Annual Energy Survey, an annual review of the financial and operational results of the Top 100 oil and gas companies from PricewaterhouseCoopers (PwC). The survey is completed in partnership with JuneWarren-Nickle’s Energy Group.
Key financial and operational highlights for 2009 include:
– 2009 gross revenue for the Top 100 oil and gas companies declined 32% to $132.9 billion from $194 billion the prior year. Revenue from the Top 20 oil and gas operators accounted for over 90% of total revenues.
– The Top 100 producers booked a combined profit of $8.5 billion in 2009, a decrease from $36.0 billion from 2008.
– Total 2009 oil and gas production rose slightly to an average 4.64 million barrels of oil equivalent (BOE) per day from 4.48 million BOE per day in 2008.
– Operating costs per BOE declined by 7% to $13.61 in 2009 from $14.67 the previous year.
“While in many respects 2009 was a year that Canadian oil and gas producers would like to forget, it produced outcomes that were necessary for the long-term health of the sector,” says Scott Bolton, partner and national leader of the Energy practice for PwC. “Soaring costs were brought back to earth in the face of a dramatic pullback in capital spending.”
Stephen Marsters, editorial director at JuneWarren-Nickle’s Energy Group, adds, “Lower capital spending also forced the Alberta government to back off its higher royalty agenda. Both occurrences were necessary, given a mid-term outlook where we are not likely to see a rise in natural gas prices.”
Many producers proved that the combination of horizontal drilling and multi-stage fracturing could unlock new reserves in many different oil and gas formations across Western Canada. The combination of all of these factors has already helped to produce a notable increase in first quarter 2010 drilling activity. For the first three months of 2010, the rig release count of 3,634 wells increased 22% from the 2009 multi-year low of 2,970.
The future of Alberta’s oilsands
The tremendous investment by Canadian business and government to the Alberta oilsands continues to point a global spotlight on the province. In 2009, Alberta produced an average of 1.49 million barrels per day of raw crude bitumen from the oilsands, reports the Energy Resources Conservation Board (ERCB).
Indeed, the annual total of 544 million barrels in 2009 represents a 14% increase over Alberta’s 2008 production, and has pushed total oilsands production since 1967 to nearly seven billion barrels. By 2019, Alberta’s raw bitumen production is expected to increase to 3.2 million barrels per day based on announced expansions of existing projects and the start of new projects. By 2019, synthetic crude oil production is forecast to increase by approximately 77%, to 1.3 million barrels per day, according to the ERCB.
“The recovery in crude oil prices has revitalized new oilsands development, however the trend is towards smaller scale projects,” says Bolton. “And while projects appear to be moving ahead, the sector’s development is still a very expensive, capital-intensive initiative and the need for skilled labour and more efficient regulatory processes will continue to pose challenges.”
“The direction the oilsands industry takes will really depend on a myriad of related issues including access to capital, cost-competitiveness, and environmental regulations that will shape and impact the sector as a whole,” said Bolton.
For more information and to read a copy of the Canadian Energy Survey, please visit http://www.pwc.com/ca/energyvisions
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