Suncor Energy Inc.’s base plant with upgraders is seen in Fort McMurray, Alta, in June, 2017. Suncor is set to report after markets close on Feb. 7.JASON FRANSON/The Canadian Press
Canada's top oil producers can't catch a break.
The parade of quarterly and year-end earnings begins in full this week amid a broad global recovery in energy prices that has largely missed Canada.
Global oil prices jumped 25 per cent in 2017 from a year earlier. But Canadian executives are likely to be subsumed this week by concerns over pipeline delays and a sharp deterioration in domestic prices for Alberta's heavy oil and natural gas.
"I wish there was some reason to get bullish, but it's not clear to me what that is yet," National Bank Financial analyst Travis Wood said in an interview.
Lacklustre Canadian energy shares edged up 2.2 per cent in three months ended Dec. 31, as measured by the iShares S&P TSX Capped Energy index. That lagged a 6-per-cent increase in a comparable basket of U.S. oil and gas stocks.
West Texas intermediate oil rebounded to an average US$55.30 in the period, compared with US$49.29 a year ago. WTI has since climbed to around US$65, supported by rising demand and production discipline by the world's top exporters. Natural gas futures traded in New York have also strengthened.
But the rally has largely bypassed Canada.
Companies with production skewed toward natural gas have been especially pinched. In the quarter, Alberta wholesale prices for the fuel averaged $1.72 per 1,000 cubic feet, down from $3.11 a year ago.
To cope, even the most efficient producers have cut spending. Last month, Peyto Exploration & Development Corp. chopped its monthly dividend by 45 per cent and slashed its 2018 budget to about $225-million, from around $375-million previously.
In the oil sands, prices for the superthick oil have turned sharply lower, with little relief seen. Prices have been under pressure from extended restrictions on TransCanada Corp.'s Keystone pipeline and Enbridge Inc.'s mainline shipping network.
Western Canadian Select's discount against WTI on Friday surpassed US$30 a barrel, oil broker Net Energy, Inc. said. The price blowout comes as a series of major oil-sands expansions gear up and prospects for proposed export pipelines grow increasingly remote.
"We expect this trend to continue … as material oil sands supply growth and delays in the construction of major pipelines in the Edmonton and Hardisty region will likely continue to work against the narrowing of the WCS differential," Chris Cox at Raymond James Ltd. told clients.
Imperial Oil Ltd. was the first big Canadian operator to post quarterly results last week. The company booked a $566-million impairment charge tied to natural-gas assets in northern British Columbia as well as its decision to officially nix a decades-old Arctic pipeline plan.
But it said it generated cash from operating activities of $1.08-billion. That's up $329-million from a year ago and the highest three-month total in more than two years, the company said. The net loss was $137-million.
Suncor Energy Inc. is set to report after markets close on Feb. 7, followed by MEG Energy Corp. on Feb. 8. Cenovus Energy Inc. will post results Feb. 15, as will Encana Corp. Husky Energy Inc. and Canadian Natural Resources Ltd. will issue results next month.
Despite pricing headwinds, GMP FirstEnergy analyst Michael Dunn said he would not be surprised to see some companies raise dividends, including Canadian Natural and Suncor. Husky Energy has also previously indicated it would revisit its payout early this year.
Asset sales could also be in store as companies seek to cut debt. Several have already put properties on the block, among them Crescent Point Energy Corp., Cona Resources Ltd. and oil-sands producer Cenovus Energy Inc.
A big unknown is the rate at which producers ramp up spending given concerns that oil prices could pull back as U.S. shale output climbs. "For now, we believe that it is too early, but we will nonetheless be watching for relative positioning," Toronto-Dominion Bank analyst Menno Hulshof told clients.