Canadian Oil and Gas Investments

Investments Remain Bleak in Canadian Oil and Gas Sectors

The investment scene in the Canadian Oil and Gas sector seems quite bleak in 2016. The oil sands of Alberta are the worst hit by the falling prices of crude oil. For every barrel of oil produced, companies are losing heavily. They are taking measures to reduce losses by cutting production and putting on hold new facility developments. According to figures available, the decline in investments in the Canadian oil and gas sector is going to touch 48%. This is between 2014 and 2016 when the world decline in oil and gas investment is 40%. The Canadian Association of Petroleum Producers has confirmed that in 2016 alone the reduction will be 13%.

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There’s bad news all around

There has been more bad news for oil companies in the recent past, and that has discouraged investors. The BP oil spill in 2011 and the Kalamazoo river oil spill in 2010 are showstoppers for investors. More than six years down the line, they are yet to recover from the shocks. The oil sands of Alberta had also received some bad publicity that discouraged investors. Only a quarter of the Canadian population had expressed the intent to invest in oil and gas.

The woe continues

Alberta’s oil sands are finding it impossible to maintain its feasibility in the face of dwindling crude oil prices. Alberta is one of the most expensive oil sources in the world. For commercial viability, the minimum price of a barrel Brent crude has to be at least $80. Unfortunately, the average barrel price in July 2016 hovered around $44.16, thus giving no encouragement for investments at all. Although the trend is upward in August 2016, it is still below the $50 mark. This is however somewhat better than what it was at the beginning of the year. At that time, when Crude Brent was $31 per barrel, many oil sand projects could not recover the operations cost.

Costly production

If the low price of crude Brent is a concern, the other concern is about high production costs of sand oils. It is highly expensive to refine the products. In order to maintain parity of cost with crude Brent that comprises of lighter blends, oil sands are sold at high discounts. The minimum producing and distribution cost of a barrel of Western Canada Select is $15. However, there was a time in January 2016 when producers were compelled to sell it as low as $14.5. The situation is quite better now and one hopes the trend continues.

Why production shutdown is not workable

One might wonder why the oil companies are not stopping production. Shutting down production can be risky for the oilfield, and equipment might get damaged. Oil companies thus cannot think of a total shutdown. Instead, they are reducing the volumes while still keeping the plants running.  They could go for the maximum permissible reduction without damaging reservoirs.


The steady improvement in crude Brent prices in the recent months is indeed encouraging, but investors are not yet convinced. They want things to become steady at a level before changing their stance.

 

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