July 2018

First oil

Canada’s E&P sector still trying to regain traction
Kurt Abraham / World Oil

We are now half-way through 2018, and it doesn’t look like Canada’s upstream sector will mount much of an increase through the remaining months of this year. Indeed, the Canadian rig count during the first four months actually trailed its 2017 pace, before going ahead slightly at mid-year.

Back in January, our friends at the Canadian Association of Petroleum Producers (CAPP) predicted that 2018 drilling would total 6,800 wells, a 400-well or 5.6% drop from 2017’s level. At the time, we thought that figure might be a bit too bearish. Now, however, it looks like the CAPP folks might have been right all along. In fact, during a visit with them during the Global Petroleum Show (GPS), they said that they see no reason for any significant improvement in Canada’s E&P sector until 2019. 

The problem is that lagging oil prices earlier this year, combined with competition from U.S. shale plays and a lack of other readily accessible markets (due to insufficient pipelines), has caused Canadian oil to sell down to the U.S. at a steep discount to WTI. So, there’s no short-term incentive for Canadian operators to drill. Yet, according to Deloitte partner Andrew Botterill in Calgary, 2019 will be a better year, with  an increase in rail capacity to haul crude, which will help alleviate transportation bottlenecks. Botterill also expects higher demand from U.S. Gulf Coast refiners.  

Not-so-nice Notley. The GPS ran nearly perfect this year, except for the ill-conceived speech by Alberta Premier (equivalent to governor of Texas) Rachel Notley. We all remember the public spat in early June between U.S. President Donald Trump and Canadian Prime Minister Justin Trudeau, in which Mr. Trump disparaged Mr. Trudeau in a very public way. And while the President was certainly wrong to do that, it by no means should have served as a “green light” for Ms. Notley to score her own cheap political points. But so she did, by taking advantage of rank-and-file Americans in a captive audience.

Premier Notley began her talk by saying, “For our American guests, let me just say how brave it is for you to join us here, in a country that represents such a hostile national security threat.” That remark would have been enough. But she kept on going, talking about having a battalion of Canadian geese guarding the door (huh?), clearing the room of maple syrup and making Americans drink their own U.S. beer. And it didn’t stop there—in her multiple complaints about Alberta crude being sold at a major discount, the inflection in her voice and grimace on her face made it seem like the worst thing in the world is to sell crude to the U.S. Indeed, she seemed to use her speech to encourage British Columbia to make up with Alberta, and build more pipelines, to offset the nasty U.S.  

After the speech ended, I held off writing a story and decided to cool down a few weeks and then revisit the situation. So, on July 3, I wrote up my concerns, and sent them to Premier Notley’s communications director. Remarkably, she replied back within three hours. Insisting that the premier’s comments were meant to be lighthearted (How are remarks made sarcastically, and directed at specific people, considered lighthearted?), the communications director did admit that “sometimes, jokes don’t land the way you thought they would.” Much of the note was then filled with justification of the Premier’s combative attitude, because Alberta’s economy is suffering and at a disadvantage to the U.S. Okay, fine, we get that.

But incredibly, the communications director then proceeded to double down on the notion that targeting of Americans in the audience was somehow okay: “I understand there were Americans in the audience at the GPS, but as the premier of Alberta, Premier Notley’s job is to advocate for Albertans, our jobs and our industry, no matter who is listening. I can assure you, she will continue to do that.” So, the lesson of the day, per Ms. Notley, is that two wrongs do make a right. wo-box_blue.gif

About the Authors
Kurt Abraham
World Oil
Kurt Abraham kurt.abraham@worldoil.com
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