Analysis: Canadian Oilsands Producers Continue To Keep Spending Levels Below Cash Flow
Analysis by CanOils sheds interesting new light on the overall appetite for capital investment among Canadian producers — in the era before and after the oil price downturn — with a subset of major oilsands operators continuing to restrain investment into major new projects due to weaker Canadian oil prices caused by a lack of market access.
CanOils’ review of cash-flow data for 72 TSX and TSX-V upstream companies since 2013 shows that before and even during the downturn that began in late 2014, Canadian companies saw their capital expenditures exceed the cash amounts they generated via operations. Their deficits were offset by absorbing debt, selling shares, divesting assets or using existing cash.
Indeed, while both metrics fell as the downturn took hold, the combined capex of the 72 companies exceeded operating cash flow in all but one quarter between Q1 2013 and Q2 2016.
Unsurprisingly, as benchmark oil prices increased in 2017, the operating cash flow of Canada’s upstream companies rebounded gradually. In Q4 2017, when the WTI oil price averaged over US$55 for the first time since mid-2015, the 72 companies accumulated C$11.4 billion in operating cash flow. This was the highest quarterly total for these companies since the downturn started.
But capex did not rebound in kind.
In fact, the opposite occurred. While there was a general uptick in spending since Q3 2016, after this date operating cash flow figures for the 72 companies exceeded capital spending in every quarter apart from Q1 2017 and Q1 2018.
“Not only did Canadian spending habits not revert to pre-downturn trends as benchmark oil prices increased, they actually moved further and further in the opposite direction,” said Bemal Mehta, SVP intelligence at JWN Energy Group, the parent company of CanOils and the DOB. “We are emerging from the oil and gas downturn with a much lower appetite for capital spending.”
Major oilsands producers were the key drivers in this regard.
Combining the data from six producers — Canadian Natural Resources, Cenovus Energy, Husky Energy, Imperial Oil, MEG Energy and Suncor Energy — the group has earned an average C$2.2 billion more per quarter in operating cash flow than they collectively spent on capex since Q3 2016. In Q4 2017, this gap was at its widest yet, at over C$3 billion.
Added Mehta: “The oilsands industry has grown substantially over the last 20 years. We are reaching a new phase of development where the focus will be on efficiency and smart incremental growth instead of mega-projects. Suppliers will need to adapt to different opportunities.”
All data referred to in this article was extracted from CanOils database. For more information on CanOils and to request a no-obligation demonstration, please click here.