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.<\/p>\n
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.<\/p>\n
This year, though, despite resurgent revenues and oil prices at multi-year highs, the Calgary-based oilpatch executive hasn’t witnessed that.<\/p>\n
“I’ve never seen this kind of response to demand increases before \u2014 ever,” said Schmidt.<\/p>\n
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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.<\/p>\n
It’s a message that comes with shareholders demanding healthy returns, but also as calls grow for cleaner sources of energy.<\/p>\n
The situation has many wondering what the companies will do with their excess revenue and how they should invest it.<\/p>\n
Gushing cash<\/h2>\n
Despite warnings<\/u><\/a> about how global consumption of fossil fuels is stoking climate change, demand for oil is expected to continue to rebound in 2022. <\/p>\n 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.” <\/p>\n 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 \u2014 the North American benchmark \u2014 to trade between $70 and $80 US per barrel in 2022.<\/p>\n This week, oil has been trading above $85 US per barrel. <\/p>\n 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.<\/p>\n “The Canadian industry is coming off a very good year when it comes to financial metrics,” said Jackie Forrest, the firm’s executive director. “The industry is doing quite well now.”<\/p>\n WATCH | How the mood in the oilpatch has improved with climbing oil prices:<\/strong><\/em><\/p>\n Duration <\/span>2:44<\/span><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n The outlook for the industry is both exciting and terrifying at the same time, says Brian Schmidt, the chief executive of Tamarack Valley Energy. 2:44<\/span><\/span><\/span><\/div>\n Analysts, investors, politicians and climate-focused groups are now watching to see what companies will do with the cash, particularly to see if they will use it to: <\/p>\n In recent years, investors have soured on big spending plans, instead putting increased pressure on the oilpatch to produce profits and return that money to shareholders.<\/p>\n Some also want companies to follow a plan to deal with greenhouse gas emissions, whether by investing in green tech or turning to mitigation tools.<\/p>\n In BMO’s recent report, it said the North American oil and gas group is in its strongest financial position in years and it believes the cash will largely be distributed to shareholders.<\/p>\n Canadian Natural Resources, Suncor Energy, Cenovus Energy and Imperial Oil have all raised their capital spending and oil production expectations for this year. But the companies are opting to spend<\/u><\/a> on share buybacks, dividends and squeezing more barrels out of existing assets, instead of taking on new, large expansion projects.<\/p>\n Ed Whittingham, an energy policy consultant and former executive director of green energy think-tank Pembina Institute, hopes the surge in revenues will help fund retooling efforts to transition producers from high to low-carbon energy. <\/p>\n He underscores the point by referencing an old bumper sticker seen around Alberta: “Please God, Let There Be Another Oil Boom. I Promise Not To Piss It All Away Next Time.”<\/p>\n “What I would say with this latest boom is if we don’t piss it away all on dividends, it could be a good thing, net-net, for climate action,” said Whittingham, who is also the co-host of a podcast titled Energy vs. Climate<\/em>.<\/p>\n Transitioning from high to low-carbon energy is hard, he said, whether you’re talking about a company, a province or a country \u2014 and you need healthy balance sheets to help to do that.<\/p>\n “Let’s not let up on the urgency that we need to take that capital, coming in those strong balance sheets that we have, and start investing in the transition we need to make,” said Whittingham.<\/p>\n![](\"https:\/\/thumbnails.cbc.ca\/maven_legacy\/thumbnails\/326\/635\/schmidt_pic.jpg?crop=1.777xh:h;*,*&downsize=510px:*510w\")
<\/div>\n<\/div>\nOil producers ‘surprised and delighted’ how fast their finances have improved after a rough 2020<\/h3>\n
What to do with the cash?<\/h2>\n
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