Oil producers are flush with cash. Now what will they do with it?
CBC
Canadian oil and gas producers are awash in cash for the first time in years, thanks to crude prices that have surged back to multi-year highs after their collapse early in the pandemic.
Revenues are expected to reach record levels this year if oil prices stay high, coming on the heels of a long stretch of belt-tightening and spending restraint across the industry.
The sting of a sharp downturn in the spring of 2020 is now largely in the rear-view mirror, as industry leaders find themselves in the enviable position of deciding what to do with the money gushing into company coffers.
Typically, when oil prices begin to soar after a downturn, there's a predictable pattern that plays out in Alberta, says Tamarack Valley Energy CEO Brian Schmidt: Tons of new startups, soaring land prices and companies cranking up production.
This year, though, despite resurgent revenues and oil prices at multi-year highs, the Calgary-based oilpatch executive hasn't witnessed that.
"I've never seen this kind of response to demand increases before — ever," said Schmidt.
While spending plans are up this year, they won't rise near the levels seen earlier in the last decade. Instead, companies are staying focused on the lessons of a punishing few years: Fiscal discipline.
It's a message that comes with shareholders demanding healthy returns, but also as calls grow for cleaner sources of energy.
The situation has many wondering what the companies will do with their excess revenue and how they should invest it.
Despite warnings about how global consumption of fossil fuels is stoking climate change, demand for oil is expected to continue to rebound in 2022.
A report by BMO Capital Markets released this month said it believes that global oil demand "will continue to grow for the foreseeable future and soon achieve record highs."
The report said demand could increase by 4.6 million barrels per day this year, ultimately topping 100 million barrels per day. What's more, it expects West Texas Intermediate crude oil — the North American benchmark — to trade between $70 and $80 US per barrel in 2022.
This week, oil has been trading above $85 US per barrel.
At these kinds of prices, the Canadian sector could see all-time records in both revenues and cash flow in 2022, according to the Calgary-based ARC Energy Research Institute.
