Canadian oil companies are set to reveal how the surge in energy prices has impacted their financial performance and their plans for utilizing the increased profits. Financial reports for the first quarter, a period marked by low oil prices in January and February followed by a nearly doubled price in March, will be disclosed this week. The escalation in commodity prices came after the U.S. conflict with Iran, which resulted in the closure of the Strait of Hormuz, disrupting about 20% of the global oil and natural gas supply.
Fatih Birol, the head of the International Energy Agency, characterized the Iran conflict as the most significant energy crisis in history, citing disruptions in commodities leading to fuel shortages and consumer price hikes. Gasoline is currently averaging $1.80 per liter nationwide, with diesel exceeding $2.10 per liter, according to data from Kalibrate Canada. Oil prices in North America surged from around $55 per barrel at the beginning of the year to over $110 per barrel this month.
David Szybunka, leading the energy team at Canoe Financial in Calgary, noted the abundance of cash in the market, with many stocks nearing their 52-week highs. The upcoming financial results are expected to hint at potentially stronger returns in the second quarter, spanning from April to June, when oil prices remained between $90 and $110 per barrel for at least two months.
The windfall from the increased profits will be closely watched, along with indications from executives on how they plan to utilize the surplus cash. Szybunka expressed openness to various uses of the profits, including debt repayment, shareholder returns, or increased oil production. While companies are unlikely to significantly ramp up production, some additional spending is anticipated.
Aaron MacNeil, an analyst at TD Cowen, highlighted that large publicly traded oil companies prioritize enhancing financial returns for shareholders and are less inclined to hastily alter spending plans due to commodity price fluctuations. Amid ongoing evaluation of commodity prices, oil producers will consider gradually increasing spending in the upcoming months. A recent survey by ATB Cormark Capital Markets revealed that 95% of Canadian oil and gas companies anticipate production growth this year.
Saturn Oil and Gas, based in Calgary, intends to boost investments in Western Canada to elevate production levels, according to CEO John Jeffrey. The company has secured contracts to sell a portion of its oil at around $70 per barrel for the remainder of the year to hedge against price declines. If spending is increased, the focus will primarily be on Saskatchewan due to higher oil production compared to Alberta’s wells, which have a greater natural gas ratio.
Haliburton, a Houston-based oilfield services company, foresees increased demand from small and mid-sized oil producers, as the CEO, Jeffrey Miller, anticipates a sustained strong commodity environment supporting upstream investment and oilfield services activity. Major U.S. firms like ExxonMobil and Chevron are expanding their global exploration endeavors, with Chevron eyeing increased investments in Venezuela and Exxon unveiling plans for a project in Nigeria.
A recent report by energy consultancy Wood Mackenzie suggests that the top 30 international oil companies could generate $120 billion in value from exploration ventures outside the Middle East in the coming years as they seek new avenues for oil production beyond the recent conflicts.