This is, arguably the biggest question in 2015; what will the state of our industry be in twelve months? Twelve months may seem like an optimistic timeline, especially given multinational producers are flexing a variety of options to shed costs and tighten capital spending. However, as global demand continues to rise, Canadian companies must consider the best way to manage our current state for the long term.
Statistics Canada reports over 146,000 jobs in the oil and gas industry. Should the industry continue to downsize, the effects will be felt across the province and Canada. ATB Financial chief economist, Todd Hirsh said in the Calgary Herald, “it is going to be pretty soft here for the first half of the year. Unemployment is going to rise. That’s where people tend to feel it the most.” A report from CIBC World Markets echoed a similar unemployment prediction. Their report suggests Alberta could reach 6.8 per cent this year, with 60,000 lost jobs.
Those downsize efforts have already been felt by Nexen, Talisman, and Cenovus, to name a few.
Let’s consider another perspective. In January, 2014 former CEO of Royal Dutch Shell, Peter Voser warned about the consequences that could come from reining in investments too much, and its impact meeting global demand. On that day, Brent crude was trading $107 per barrel. A year later, that same barrel was worth under $50.
Considering Canada’s financial crunch and oil price dilemma, we also have a responsibility to people across the world, ensuring they continue to have the energy needs met. So, where will we be in twelve months? Here are six predictions made by young energy professional about the future state of the Canadian oil and gas industry:
1. Increasing push for Canadian oil and gas resources to reach global markets.
2. Significant pain will be felt by most existing oil and gas producers. Banks are starting to squeeze companies which have breached debt covenants, leading to asset fire-sales. In twelve months we could see a great deal of opportunities for new teams (mostly private equity backed) and companies able to make acquisitions.
3. The Canadian oil and gas industry is showing modest recovery above expectations as prices recover to the high $60s. Factors driving this change include, gradual, and uncoordinated production cuts by OPEC, and deepening political unrest in the Middle East. Saudi Arabia continues to assert that it is not the de-facto swing producer. New pricing levels force ongoing capital discipline in development of new projects, and Northern Gateway appears to be the most viable option for Canadian energy companies to access global markets, as American indecisiveness on Keystone XL continues before the presidential election.
4. The oil and gas industry will get better in the upcoming year; companies will have a better understanding of the recession and re-think strategies for projects to save more money. They may also start looking into alternative sources of energy. It will take about a year for companies to get on track again, the price of oil likely won’t increase over $90 a barrel but at least companies will know where to prioritize their main assets.
5. One word: Volatile.
6. The oil and gas industry will adapt. For years the industry has been subject to consistent fluctuation. Unless the price bottoms out, there will be a big change that really refocuses our industry.
Tell us your thoughts. What are your predictions?