Varcoe: Oilpatch earnings soar but concerns over emissions cap loom

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Whereas inflation is a short-term problem, a longer-term concern is the incoming federal cap on oil and fuel emissions

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An avalanche of oilpatch earnings Thursday showcased the prolific profitability of the sector with excessive vitality costs, but in addition among the pressures forward — the impact of inflation and the push to spend extra capital.

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An extended-term concern can be on the horizon: the incoming greenhouse fuel emissions cap on the Canadian oil and fuel trade being developed by the federal authorities.

“I’m very apprehensive that if we stay on this path, it may result in shutting in manufacturing at a time when the world is actually crying out for extra oil and fuel manufacturing,” Cenovus Power CEO Alex Pourbaix mentioned on an earnings name.

“These are far more aggressive objectives than are being requested of any of the opposite industrial sectors within the nation . . . I don’t suppose they’re doable to hit.”

Oilsands big Cenovus and the nation’s largest fuel producer, Tourmaline Oil Corp., each launched sturdy second-quarter outcomes this week that confirmed a hefty soar in earnings and money move.

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Additionally they included larger capital budgets for the yr.

Tourmaline, which produced a median of 503,000 barrels of oil equal (boe) per day within the quarter, generated file money move ranges for the April-to-June interval.

Web earnings hit $823 million, up 96 per cent from a yr earlier.

“It’s in all probability the perfect quarter we’ve ever had in any of the businesses we’ve had,” Tourmaline CEO Mike Rose, who beforehand headed Duvernay Oil Corp. and Berkley Petroleum Corp., mentioned in an interview.

“We don’t actually have any debt anymore and have an infinite quantity of free money move and . . . we’re returning quite a lot of money to shareholders, but in addition suppose shareholders need some quantity of progress — name it measured progress.”

The corporate managed each, unveiling one other particular dividend, and plans to extend capital spending to $1.5 billion this yr, up from about $1.25 billion.

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The change displays a rise in its exploration and manufacturing program within the second half of the yr, in addition to a contingency for inflation.

“The $250-million enhance, one-third of it’s inflation and two-thirds of it’s the incremental progress,” Rose added.

The oilpatch earnings parade confirmed the facility of supercharged oil and fuel costs on the underside line of Canadian producers.

Benchmark oil costs surged above US$100 a barrel earlier this yr following Russia’s invasion of Ukraine, closing Thursday at US$96.42 a barrel.

Pure fuel costs have additionally soared, hitting a 14-year excessive within the U.S. earlier this week.

Whitecap Sources introduced second-quarter earnings of $381 million, up from $19 million a yr earlier, whereas Crescent Level Power reported Wednesday it had internet earnings for the interval of $332 million.

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Baytex Power made $181 million within the quarter, whereas MEG Power reported $225 million in internet earnings.

Tourmaline additionally unveiled a brand new exploration and manufacturing progress plan by means of 2028, which is able to see it enhance annual output by six per cent.

At Cenovus, the built-in producer reported earnings of $2.4 billion, up 50 per cent from a yr earlier.

It raised its capital price range by $400 million this yr to about $3.5 billion, directing more cash to its Dawn oilsands mission.

Cenovus is earmarking $100 million to its typical oil and fuel section to account for rising labour and tools prices, together with elevated drilling exercise.

It’s additionally dedicating an extra $100 million to its offshore division, together with cash to fund preliminary work to restart the West White Rose Undertaking off the coast of Newfoundland and Labrador.

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“When you consider that $400-million capital addition, in all probability about $100 (million) of that represents true inflation,” Pourbaix mentioned.

Within the oilsands, the place extra planning and longer lead occasions are required, the impact of upper prices has not been as vital as within the typical facet of the enterprise, which is seeing larger prices for pipe casing and for contracting rigs.

“We’re proper within the means of growing our price range for 2023 and clearly inflation goes to be one thing that we’ve to think about . . . however proper now, it’s one thing that’s manageable,” Pourbaix mentioned.

Cenovus Energy chief executive Alex Pourbaix.
Cenovus Power chief govt Alex Pourbaix. Azin Ghaffari/Postmedia

Rising working prices have gotten a typical theme throughout the sector.

Undertaking prices are additionally going up.

On Thursday, TC Power elevated the estimated price ticket for the Coastal GasLink pipeline to $11.2 billion, up from $6.6 billion. CEO Francois Poirier cited modifications to the mission’s scope, inflation, the impact of the pandemic and different extraordinary occasions for the upper price.

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Analyst Jeremy McCrea of Raymond James mentioned elevated bills and provide chain constraints are affecting the trade, however famous producers profit from larger vitality costs.

“Inflation is a priority — a really huge concern . . . however when you might have commodity costs the place they’re, you’re going to have inflation, there’s simply no manner of getting round it,” he mentioned.

Whereas inflation is a short-term problem, a longer-term concern is the incoming federal cap on oil and fuel emissions.

Final week, the Trudeau authorities started consultations on its deliberate emissions restrict for the sector, with draft rules anticipated to be developed by yr’s finish.

Modelling within the federal authorities’s emissions discount plan this spring forecast trade emissions will fall 42 per cent by 2030, though particulars have to be finalized.

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Cenovus, a member of the Pathways Alliance of oilsands producers which have agreed to collaborate to achieve net-zero emissions by 2050, stays involved in regards to the federal initiative.

“The danger could possibly be a lower in manufacturing from Canada at a time when these assets are simply extremely, desperately wanted worldwide,” Pourbaix mentioned.

At Tourmaline, Rose didn’t wade into particulars of Ottawa’s coverage, however mentioned Canadian fuel output ought to enhance to displace coal utilized in energy technology in Asia.

From a fuel producer’s perspective, he’s additionally watching to see how the cap impacts future trade output.

“The world wants extra fuel,” Rose added.

“The entire trade is lowering their emissions. And, , that’s the half that appears to get misplaced with the federal authorities.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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