​Pessimism reigns amongst Canadian oil and gas producers: 2019 industry survey

Image: Joey Podlubny/JWN

The Canadian oil and gas industry is in crisis, with volatile prices, regulatory issues, and market access and diversification concerns driving down capital investment, according to the third annual Daily Oil Bulletin Industry Survey.

Industry puts the blame for its predicament squarely on the shoulders of the federal and Alberta governments, according to the survey, which was completed in December 2018.

Over two-thirds of the 150 survey respondents from exploration and production, oil sands and midstream companies said they are pessimistic about the future of the industry, with 36 per cent of them saying they are very pessimistic, while only 27 per cent of companies expressed any degree of optimism — and a mere three per cent saying they are very optimistic.

As a result, the outlook for capital spending by the oil and gas industry in 2019 is down substantially. Forty per cent of respondents said they are planning to cut capital spending this year, roughly twice as many as last year, and only 16 per cent are planning to increase spending.

And the focus of capital spending shifted between this year and last year. Last year, exploration and development took top position, with 57 per cent of respondents selecting it as one of their top three opportunities for capital spending. This year, maintenance, repair and operations was the most commonly identified opportunity at 49 per cent, while exploration and development dropped 36 percentage points — and two places — to 21 per cent.

Even more disconcerting, at least in terms of oil and gas activity in Canada, is where survey respondents expect their most significant growth to happen. A quarter of companies said they would focus on growing in the U.S., just seven percentage points less than Alberta, the traditional heart of the Canadian industry.

Regulatory concerns and market access and diversification issues were cited as the main reason for the pessimism in the industry. Half of companies cited regulatory concerns and 49 per cent said market access — an increase of 25 points and 13 points, respectively, from last year’s survey — when asked to select the three most significant constraints to capital spending growth.

Based on survey results regarding government performance and policies, most of the blame for the Canadian oil and gas industry’s current predicament appears to fall on the federal government, and less so the Alberta government, with the energy agenda of the Trudeau government widely seen as diametrically opposed to the interests of the industry.

Eighty-six per cent of survey respondents assigned the federal government a failing grade (D or F) for its handling of the energy file, and 78 per cent gave it an F-grade. Four-fifths of companies said Bill C-69 would limit construction of new pipeline projects altogether, and another 14 per cent indicated it would delay them substantially. In terms of the federal carbon tax, almost three quarters of respondents said it would put the Canadian oil and gas industry at a significant cost disadvantage over other oil producing countries.

At the same time, companies see the main roles of government in the energy industry to be highly divergent from the ones espoused by the Trudeau government. Survey respondents put market access and establishing the right fiscal, tax and regulatory regimes at the top of their list, and ones important to the federal government — national climate policy, diversifying the energy industry, and strengthening First Nations relations on energy projects — at the bottom.

The Alberta government fared somewhat better in the eyes of survey respondents. Sixty-four per cent of companies assigned Alberta a failing grade for its handling of energy industry issues, and almost half a F-grade. When asked if the NDP’s efforts to improve Alberta’s environmental image had helped move pipeline projects forward, 86 per cent of respondents said no.

The lone ray of sunshine in this year’s survey related to Canada’s fledgling LNG export industry. Fifty-five per cent of respondents said they were optimistic about LNG exports within the next five years, almost twice as many as last year’s survey, likely due to the positive FID for the Royal Dutch Shell-led LNG Canada project in October 2018.

Click here to download the report.