Originally published in the CAOEC State of the Industry 2021 Report and 2022 Forecast
By David Yager, Calgary Oil Service Executive, Writer, Author, and Energy Policy Analyst
The old saying goes, “You can’t see the forest for the trees.” So it goes for oilfield services as another tough year ends. Lots of trees including the pandemic, low activity, supply chain disruptions, and, remarkably, labour shortages.
The outlook is confusing. Emissions caps, carbon taxes, and continued commitments to obstruct fossil fuel development as the world faces acute shortages. Go figure.
But in fact the outlook for the Canadian oil and gas industry in 2022 is the best in years. ARC Energy Research Institute publishes a weekly snapshot of the major metrics of Canada’s upstream oil and gas industry.
The title of the last page is Estimated Capital Flow in the Canadian Oil and Gas Economy for 2021. It carries the previous 10 years for comparison. Here’s the big numbers from the November 8 edition. Oil is estimated to average $C80.84 this year, the highest price since 2014 and 75 per cent higher than only $C46.10 in 2020. Natural gas is expected to average $C3.47/GJ, also the highest since 2014.
Total production will be 8.2 million boe/d, an alltime record. It is split 68 per cent oil, 32 per cent gas. Revenue from production will reach $159 billion, the highest in history. Cash flow – the amount of money available for re-investment once all the bills are paid – could be $89 billion, beating the previous record of $67 billion in 2014 by a wide margin. ARC’s cash flow estimate is nearly 2.9 times higher than only $31 billion in 2020.
But will they spend it? Capital expenditures remain well below historic levels. After oil prices collapsed in early 2020 because of the pandemic, producers entered 2021 with extremely cautious financial plans. The number one issue as the year began was to stay in business. So this meant paying down debt and catching up with delayed maintenance and repairs.
But as the year unfolded, confidence grew. In early November, as producers are preparing their 2022 budgets, the futures markets for WTI don’t show any numbers below $US70 for 2022 and $US66 for 2023. The lowest futures prices for AECO spot gas to the end of 2022 is $C3.78 GJ, and $C2.79 GJ through 2023.
The production takeaway issues that have capped activity and investment are going away. The Enbridge Line 3 replacement is carrying oil. TMX is expected to be completed by the end of next year. The Coastal GasLink pipeline for LNG exports will finally be carrying more gas out of the country two years later.
The oilfield service industry obviously wishes producers would invest more money. But for the first time in years, at least they have lots of money to invest. As pressure continues not to fund fossil fuel development, the good news is that right now, the producers don’t need external capital like they once did. The industry as a whole is self-sustaining thanks to strong cash flow from production.
More importantly, energy security has re-emerged as a public policy issue. While the politicians and activists may still be on last year’s anti-carbon energy transition plan, the rest of the world is facing rising energy and food costs because of high coal, gas, and oil prices. Withholding investment in new oil and gas supplies that could help reduce the cost of life’s essentials for the entire world won’t be as popular in 2022 as it has been in the past.
That our industry would exit 2021 without enough staff to fulfill current client needs was not anticipated as the year began. With the right support from customers, the service sector can make sincere commitments to workers to persuade them to give the oilpatch roller coaster yet one more try. I am optimistic about next year. You should be too.
David Yager is the President and CEO of Winterhawk Casing Expansion services.