Canada's upstream soldiers on despite governmental interference

At the halfway point of 2023, much of the optimism that many expected to see from the industry has been muted by increasingly bizarre decisions from Ottawa. As popularity of the federal Liberals continues to fall, they are doubling down on many of the social policies supported by the New Democratic Party, which has propped up the minority Liberal government since 2019 and has agreed to maintain that support until 2025. 

Governmental factors. But many of these policies are based on an idealism that is no longer supported by global realities. The terrible conflict in Ukraine has focused much of the world on the fact that hydrocarbons—particularly oil and gas—are going to be the backbone of global energy demand for decades to come. And the Canadian industry—whose technical innovation and ethical practices have allowed them to meet or exceed most of the federal targets on emissions reductions—could be the poster child for a responsible, well-managed energy transition. 

Instead, the federal government keeps introducing more punitive measures targeting oil and gas, in an effort to accelerate energy transition, even though many of them will cripple the Canadian economy and put Canadians at risk through cold winter months. In July, the Liberals announced they will be eliminating “subsidies,” which are actually current tax and non-tax measures that apparently benefit oil and gas producers, but no one has identified what these so-called subsidies are. 

Some provinces, particularly Saskatchewan and Alberta, have pushed back against these increasingly stringent measures, threatening to take the federal government to court over the federal government’s increasingly punitive carbon tax. The two provinces are implementing rules within their own jurisdictions to protect their interests. 

Regardless, industry continues to move forward with increased spending plans, and it has continued its decarbonization efforts and pursuit of new opportunities in carbon storage, hydrogen and LNG, all while continuing to increase production. Carbon Capture Utilization and Storage (CCUS) opportunities abound in western Canada, particularly in Alberta. The oilpatch is working diligently to take advantage of the opportunity to reduce its carbon footprint. 

Production and pipelines. Meanwhile, the International Energy Agency is predicting that Canadian crude oil supply will reach 5.8 MMbpd this year and increase to 5.9 MMbpd in 2024. In addition, world oil demand continues to surge. The IEA predicts that consumption will grow by 2.2 MMbpd this year, due primarily to a rebound in Chinese demand, jet fuel and petrochemical feedstocks.

Fig. 1. The opening of TC Energy’s C$14.5 billion, 670-km Coastal Link pipeline, scheduled to begin operations late this year, should be a boon to Canadian natural gas producers. Image: Suncor.

The modest prediction is reflected in key indicators, such as wells drilled, licenses issued, and land sales bonuses, all of which have leveled off compared to the big post-Covid increases seen in 2022. The main ongoing challenges identified by industry are the antagonistic federal government and its policies, regulatory complexity, and the continued lack of increased market access. The latter should improve with the tentative opening of the C$30.9 billion Trans Mountain oil pipeline expansion (TMX) next year, although it could be delayed up to nine months after a last-minute proposed route change. 

Once it starts operating, Canada will be able to ship an extra 590,000 bopd to Pacific ports for delivery to U.S. West Coast and Asian refiners, where demand for heavy sour crude is expected to climb in the longer term. Canada will also benefit tremendously with the opening of TC Energy’s C$14.5 billion Coastal Link, scheduled to begin operations late this year, Fig. 1. The 670-km pipeline will ship natural gas to LNG Canada's export facility in Kitimat, British Columbia. 

Offshore Newfoundland and Labrador (NL), oil output continues at Hibernia, Hebron and White Rose fields. At White Rose, operator Cenovus is preparing for a drydock turnaround program for the Sea Rose FPSO, which is set to take place in 2024, Fig. 2. During that time, a scheduled 70-day drydock program for the vessel will provide a significant overhaul and upgrades.  

Fig. 2. Cenovus is preparing a drydock turnaround program for its Sea Rose FPSO, which will take place in 2024. The 70-day drydock program will provide the vessel with a significant overhaul and upgrades. Image: Suncor.

Meanwhile, Suncor has returned the Terra Nova FPSO back to its field site to reconnect production after the vessel underwent significant repairs and upgrades. Output from Terra Nova field should re-start by year’s end. In addition, the Cenovus-operated West White Rose development project continues, with an eye to first oil in 2025 or 2026. Equinor is re-examining and optimizing its Bay du Nord field project, which was postponed earlier this year but hopefully will be re-launched. For further details about the NL offshore sector, please turn to the Newfoundland and Labrador regional report in this issue. 

Mergers and acquisitions activity looks to have rebounded in 2023, but the increase is largely due to two deals, both in May. On May 26, ConocoPhillips purchased the remaining 50% interest in Surmont from TotalEnergies EP Canada Ltd. for approximately C$4.4 billion, increasing its ownership in the project to 100%. And on May 10, Crescent Point Energy Corp. completed its C$1.7 billion cash acquisition of Spartan Delta Corp.’s Gold Creek and Karr Montney assets. 

Calgary-based Sayer Securities is projecting 2023 M&A activity to remain relatively flat from last year’s C$15.5 billion. 

Spending has been a bright spot in 2023, even though oil has dropped from last year’s massive price spike, and western Canadian producers are once again feeling the pinch from differentials between North American commodity prices and the prices they receive for their products. Nevertheless, Spending in Q1 2023 was around C$25 billion, the highest per-quarter level reached since 2018, according to the Daily Oil Bulletin. 

Spending plans tempered somewhat in the second quarter, but many companies have announced increases. Suncor Energy leads the way in 2023, with spending at C$5.6 billion this year, up 10% over last year’s $5 billion. Canadian Natural Resources Limited is next at C$5.4 billion, a 9.8% increase over last year’s $4.9 billion. Cenovus Energy Inc. is on track to spend C$4.0-4.5 billion, also up about 10% compared to 2022.   

Land sales. Crown land sales have surged again in 2023, except in British Columbia, where they remain on hold in the aftermath of the 2021 Supreme Court ruling on the Blueberry River First Nation’s challenge to BC’s resource development policies. 

In Alberta, first-half land sale purchases totaled C$193 million ($394.44/hectare) compared to $133.3 million ($682.66/ha) last year. Saskatchewan brought in $23.6 million ($489.81/ha), down slightly from $26.5 million ($684.61/ha) in 2022. And in Manitoba, producers spent just $488,100 ($315.21/ha)—but still more than double last year’s total of $204,000 ($266.17/ha).

Table 1. Canadian drilling, 2015-2023.

Drilling increases were more modest, with 2,540 wells drilled in the first half of 2023, a 6% increase from 2,387 wells in 2022, according to Daily Oil Bulletin records. This included 1,651 wells drilled in Alberta, up 3% from 1,608 last year, 586 wells in Saskatchewan, up 12% from 525 in 2022, 232 wells drilled in British Columbia, a 35% increase from 176, and 68 wells in Manitoba, unchanged from last year’s 68.

According to World Oil survey results, most provinces are predicting bullish drilling increases this year, highlighted by big jumps in Saskatchewan and British Columbia. The World Oil prediction is for 6,200 wells this year, Table 1.  

Meanwhile, the Canadian Association of Energy Contractors is sticking with its original 2023 forecast 6,409 wells drilled—an increase of almost 15% from 2022 levels. 

And the former Petroleum Services Association of Canada, now called ENSERVA, has forecast a more modest total of 6,180 wells, up 12% year-over-year.