Coming off a strong rebound year, the Canadian oil patch is on an
upward trend, with strong prices and increased spending. But political
uncertainty continues to cast a pall over any long-term optimism.
CURRAN, Contributing Editor
one was to examine market indicators, the Canadian oil and gas industry would
appear to be poised for a monster year. Key indicators, such as spending plans,
land sale revenues and drilling numbers, are all up, Fig. 1. The war in
Ukraine has shined an unwavering spotlight on the world’s continued dependance
on fossil fuels and how truly thin the supply margin is for importers of
energy. Further, it is now abundantly clear that hydrocarbons must play a critical
role in achieving carbon neutrality.
Canada’s history of supporting international partners, its constant pursuit of
new technology, and its innovative approach to solving technical issues, the
time is ripe for an export of Canadian hydrocarbons and technical innovation to
a global market desperate for both.
yet, rather than gear up for these opportunities, which should be attracting
significant capital and ushering in a new, transformed, green energy boom in
Canada, a malaise of uncertainty and doubt hangs over the market. The federal
government’s dogged pursuit of environmental objectives that no longer align
with global market fundamentals continues to suppress the very innovation that
made Canada an energy superpower.
billions of investment dollars continue to be directed elsewhere, and oil from
oppressive regimes with little or no environmental safeguards are shipped to
refineries around the world, including the U.S. and Canada. Meanwhile,
dictatorial regimes are propped up by the very policies that are supposed to be
directing Canadians to a greener and more democratic global landscape.
siege by its own federal government, the Canadian industry remains in the same
year-to-year limbo that it’s been under for almost a decade, with no end in
sight, even as domestic energy prices have climbed to levels that are
stretching taxpayers’ budgets to the breaking point.
the lack of support federally, there is some support for industry’s efforts at
the provincial level. Alberta has been leading the way on carbon capture and
storage since the concept first arose, and Alberta Premier Danielle Smith
recently stated that the province would be willing to increase tax credits in
this area, provided Ottawa is willing to do the same.
in hydrogen is also on the rise, and Alberta’s exiting use of the product and
mature industry could enhance its potential to develop and ship it. However, there
is a lack of infrastructure elsewhere, plus liquefying and transporting hydrogen
is energy- intensive, and line loss can be a significant problem over distance.
diesel also has emerged as a potential step toward carbon neutrality in Canada.
In January, Imperial Oil announced it would be spending C$720 million to develop
a renewable diesel facility at its Strathcona refinery near Edmonton, Alberta.
Imperial joins a long list of planned renewable diesel projects, including
Federated Co-op Limited (Saskatchewan); Braya Renewable Fuels (Newfoundland); Covenant
Energy (Saskatchewan); Tidewater Renewables (British Columbia), as well as Parkland
Corporation’s expansion of its renewable diesel capacity at its refinery in
Burnaby, British Columbia.
Pathways Alliance, a consortium of Canadian oilsands producers with a target of
net zero emissions by 2050, continues to make progress on plans to develop a
carbon capture storage hub, plus a 400-km trunk line from Fort McMurray to Cold
Lake, Alberta, to transport CO2 from the oilsands to the hub. The
consortium, which is looking for more concrete support at the federal level,
expects to spend upward of C$24 billion by 2030, provided they can secure the
necessary provincial and federal approvals in a timely manner. Pathways
consists of six companies: Imperial Oil Limited, Canadian Natural Resources
Limited, Suncor Energy Inc, Meg Energy Corp., ConocoPhillips, and Cenovus
Energy Inc. The group expects to spend C$70-75 billion over three phases,
eliminating 68 megatonnes of oilsands emissions.
producers are still facing some of the classic obstacles, like market access
and a shortage of skilled labor, which have been exacerbated by the years-long
downturn that saw an estimated 150,000 jobs lost in the petroleum industry. But
with strong prices in place, and Covid restrictions less and less likely to
resurface, it appears that 2023 could see a resurgence not experienced in a
very long time.
access remains one of the trickiest problems, as landlocked Alberta and
Saskatchewan look for ways to get their products to market. Crude-by-rail is an
adequate—albeit more risky and costly—method, but it doesn’t help reach the
markets in Europe and Asia that would love to buy Canadian natural gas.
was some fleeting optimism that when Canadian Prime Minister Justin Trudeau
signed a non-binding MOU to explore shipping hydrogen to Germany, a policy
change on LNG (and the pipelines needed to support its export) might follow.
But true to form, late last year, Trudeau brushed aside questions about LNG,
stating there was “no business case” for shipping Canadian LNG to Germany
(supply/demand market realities notwithstanding). His response was similarly
lukewarm to Japan when Prime Minister Fumio Kishida expressed interest in
buying more Canadian energy.
federal dogma, which not only ignores the economic, transportation, heating and
geopolitical realities of the world’s energy landscape, has the federal
liberals battling their provincial counterparts in Alberta and Saskatchewan,
which launched court challenges to the federal Impact Assessment Act. Alberta’s
Court of Appeal ruled the Act was unconstitutional last year, in a 4-1 ruling
that called the IAA a "breathtaking pre-emption of provincial
authority." The federal government has appealed, but no timelines have
been announced for the case to be heard.
the meantime, spending plans are on the rise. But industry analysts are
projecting a relatively modest overall increase—in the 5-6% range—as the
continued uncertainty on the political and regulatory side has made producers
more cautious than they have been in the past. Many producers are also looking
to pay down debt in the current price environment.
spending plans for this year include Suncor, at C$5.4–$5.8 billion, an increase
of more than 10% from its estimated 2022 spending of $4.9-$5.2 billion; CNRL,
at $5.2 billion, up almost 24% from $4.2 billion in 2002; Cenovus, with a
projected spend of $4.0-$4.5 billion, an increase of more than 21% over last
year’s $3.3-$3.7 billion; and Imperial Oil has announced a capital budget of $1.7
billion, up more than 20% over $1.4 billion in 2022.
mergers and acquisitions value in 2022 was approximately C$15.6 billion, down almost
14% from $18.1 billion in 2021, according to Calgary-based Sayer Energy
Advisors. Seven transactions came in at over a billion dollars, and the top
three made up more than one-third of total M&A value in 2022. In August, Strathcona
Resources Ltd. picked up Serafina Energy Ltd. for $2.3 billion; in June, Whitecap
Resources Inc. acquired XTO Energy Canada for $1.9 billion; and in September, Tamarack
Valley Energy Ltd. purchased Deltastream Energy Corporation for just over $1.5
billion. Sayer is forecasting similar M&A activity in 2023.
continue to benefit from the low Canadian dollar, which continues to hang
around the US75-cent mark this year versus the U.S. dollar. A low Canadian
dollar provides a buffer for the export-driven oil and gas industry, which
ships substantial volumes of oil and gas south to U.S. customers. Preliminary
data from the Canadian Association of Petroleum
Producers (CAPP) indicate that the country’s crude and condensate production
was up about 2% from 2021’s level.
numbers increased as expected in 2022, with 6,022 wells drilled, a 25% increase
over 4,836 in 2021, according to Daily Oil Bulletin (DOB) records.
Just over 81% of the wells targeted oil.
Alberta, DOB said there were 3,623 wells drilled, up 38% from 2,632 in
2021. In Saskatchewan, drilling increased 11% to 1,511 wells, compared to 1,358
wells drilled. British Columbia saw 374 wells drilled last year, a 20% decrease
from 465 wells in 2021. And Manitoba had 215 wells, an increase of 37% from 157
For 2023, the Canadian Association of Energy Drilling Contractors
(CAOEC) is predicting that drilling will increase 14.8%, to 6,409 wells from
5,582 in 2022, with a slight increase in employment levels. Labor shortages
remain a major issue for the drilling sector.
World Oil survey results are similar. Based on data and projections from the Canadian Association of Petroleum Producers, World
Oil estimates that 6,190 wells were drilled across Canada during 2022, Fig.
2. Given that number, and taking into account capital spending projections
and other industry estimates, World Oil forecasts that 7,050 wells will be
drilled during 2023, for a nearly 14% increase.
Saskatchewan’s Ministry of Energy and Resources reported that
1,484 new wells were drilled in the province during 2022. Officials project
2,000 wells for 2023, which would be a 34.8% increase. Over in British
Columbia, the BC Oil and Gas Commission said that 381 wells were drilled
onshore the province during 2022. While they did not furnish a forecast for
2023, World Oil believes that activity should rise 10%, perhaps a bit
The Alberta Energy Regulator (AER) provided links to some of their
data. According to AER’s data, from January through November 2022, the province
recorded 7,883 wells, which would be considerably higher than numbers reported
by other sources. But keep in mind that this total is not necessarily just new
wells spudded. It can reflect re-entries, stratigraphic tests and late reports
of completions from wells drilled earlier. In fact, AER acknowledges in its
explanation of the data that “The information contained in this report is obtained from well
licence applications submitted to the AER…” That having been said, AER’s raw
number was up about 50% from the 2021 figure.
Alberta, spending on land sales continues to rebound from the depths of 2020,
with $459.37 million collected, an increase of more than 304% over the 2021
total of $113.8 million ($637.94/hectare). That’s still a far cry from the
record high of $5 billion in 2008.
Columbia’s land sales have not resumed since the 2021 Supreme Court ruling on
the Blueberry River First Nation’s challenge to BC’s resource development
policies, although B.C. did announce it had reached an agreement with Blueberry
this January. When, and how, land sales may restart in the province has not
after resuming its monthly land sale schedule in 2022, collected $52.25 million,
up more than 470% over $9.1 million in 2021. Manitoba took in $687,740 in 2022,
bouncing back with an increase of 230% over the $207,970 garnered in 2021.
recovery of land sales—and the two-year trend upward—is a very positive sign
for future oil and gas development in Canada. WO
Curran is a Calgary-based freelance writer.