Less than two months after fossil analysts celebrated a “Kenney bump” with the arrival of a new government in Alberta, the industry is still beset by the same host of economic, political, and regulatory programs it has faced for years—notwithstanding the new premier’s loud promises to make his province’s oilpatch great again.
The Globe and Mail says the accumulated anxiety has driven Alberta oil and gas stocks on the Standard & Poors/Toronto Stock Exchange index down 18% from the high they hit April 23, a week after the provincial election. Alberta fossil Encana Corporation has seen its share price plummet by 34%, Canadian Natural Resources Ltd. by 15%, and Suncor Energy Ltd. by 12%.
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Those financial hits “only extend a rough run that began, for some companies, before the oil price downturn in late 2014,” the Globe writes, citing Martin Pelletier, portfolio manager and co-founder of TriVest Wealth Counsel.
“What you got back [in financial returns to investors] in last 10 years hasn’t been very rewarding, especially considering the level of risk,” Pelletier said.
“You know what it feels like? It feels like Whac-A-Mole,” said Raymond James analyst Jeremy McCrea. “You solve one problem and another thing pops up.”
As a result, “I think there’s some kicking of tires in stocks, but realistically, there’s no urgency to invest because every new week presents a new news item or challenge or judicial-type decision,” added GMP FirstEnergy analyst Robert Fitzmartyn. “It isn’t really motivating anybody to take on risk in the space.”
“Slumping crude prices have combined with a host of new fears about the industry’s inability to expand its capacity to move oil,” the Globe reports. “Anticipation that investors would return to the sector en masse following the election of Premier Jason Kenney’s United Conservative Party government in Alberta has not materialized. Now, analysts see little stability for the sector on the horizon.” Major anxieties for those investors include the continuing battle over the new federal Impact Assessment Act, Bill C-69, and last week’s appeal court decision in Minnesota that brought the Line 3 pipeline to a screeching halt.
“Those events and falling crude prices have heaped renewed pressure on Canadian oil and gas shares,” the Globe states. In a shift that even Kenney might have trouble blaming on “foreign-funded radicals” (unless he meant the current occupant of the White House), the U.S. benchmark price for crude oil has been undercut by weak demand, driven down in large part by concerns about Donald Trump’s trade war with China.
“Global trade growth is set to slow for a second year, to 3.4% in 2019, according to the International Monetary Fund, and that easing will continue to crimp oil demand,” Bloomberg reports, citing Capital Economics Chief Commodities Economist Caroline Bain. “We’ve had quite a slowdown in world trade, and we’re not expecting it to pick up, which is negative for oil demand,” Bain explained.
The Wall Street Journal reports similar concerns.
The Globe sees some scope for optimism from a fossil industry standpoint. “On June 18, the federal cabinet is expected to approve the much-delayed Trans Mountain pipeline expansion between Alberta and the West Coast, which would triple the oil line’s capacity to 890,000 barrels a day,” writes reporter Jeffrey Jones. “Even so, court challenges by opponents are all but certain. Even if construction is allowed to begin, the earliest the project would be in service would be 2022.”
And meanwhile, the Alberta Energy Regulator expects capital spending in the oilpatch this year to hit its lowest level since 2009.
“Oilsands capital expenditures in 2019 are forecast to decrease by 19%, reaching a low of C$10.9 billion, a level of spending not seen since 2005,” the AER reported. “The decrease is expected to be mainly because of lower spending in the mining sector as projects get completed and brought onstream, such as Suncor Energy’s Fort Hills and Canadian Natural Resources Limited’s Horizon Phase 3 projects.”
The regulator sees investment increasing to $26.5 billion in 2020 and $29.6 billion in 2021, still far off its 2014 peak of $60.6 billion, including $33.9 billion in the tar sands/oil sands. “Spending in the mining sector is projected to increase after 2019, mainly because of expansion and debottlenecking projects,” the AER said. “However, with only one new potential mining project included over the forecast period and in situ spending focused on expansions, capital expenditures are projected to decrease from 2022 to 2028.”