Canadian Oil Production Decreases While Profits Increase
Canada’s oil production dropped in 2005 for the first in six years as conventional supplies wane, but that should change as oilsands operations continue their rapid ramp-up.
According to a Statistics Canada report released Monday, companies pumped out 858 million barrels of crude last year, down 2.3 per cent from the year before. One of the key reasons for this drop was a major fire at Suncor Energy (TSX:SU), which cut production at Canada’s second largest oilsands operation in half for three-quarters of the year.
“In general, this occurred mostly because of lower output from the conventional sector as well as unplanned interruptions in the non-conventional sector,” the statistics agency said.
ยป Source: CBC News
With Suncor’s operations repaired and producing more than pre-fire levels, Canada’s oilsands production hit a record 1.2 million daily barrels earlier this year, said Greg Stringham, vice-president of markets for the Canadian Association of Petroleum Producers.
A major expansion at the Syncrude joint venture, Canada’s largest oilsands producer, has been slow coming on line due to odour emissions. But when up and running, the $8.4 billion expansion is expected to push Syncrude’s production to about 350,000 barrels per day.
Any increase in overall Canadian oil production will have to come from greater oilsands output, Stringham said, as “conventional oil has been on a mild and extended decline since about 1997.”
Once purely the domain of Alberta and Saskatchewan, seven provinces now have oil production, albeit in small amounts.
About two-thirds of Canada’s crude in 2005 came from Alberta, with oilsands accounting for 42 per cent of the province’s total production.
Saskatchewan was a distant second, contributing 17.8 per cent of total crude production, while Newfoundland and Labrador’s offshore oil rigs accounted for 13 per cent.
Production from Newfoundland fell more than three per cent last year due to a maintenance slowdown from Terra Nova, one of three offshore oil platforms along with Hibernia and White Rose that began producing late last year.
While White Rose, operated by Husky Energy (TSX:HSE), will help boost those figures this year, Terra Nova has been offline since May, undergoing extensive repairs and alterations in dry dock. It is not expected to be back on site and producing until late October.
But while Canadian oil production dipped slightly last year, soaring prices for crude pushed oilpatch operating profits by 50 per cent last year, going from close to $21 billion in 2004 to over $30 billion in 2005.
Income tax paid by oil and gas companies also rose by 65 per cent to a total of $7.5 billion in 2005, compared with $4.5 billion the year before.
And Stringham said that figure doesn’t include royalties, which last year totalled $14.4 billion.
“The revenues coming into the industry are certainly being spread through governments and then across the country,” he said.
Capital expenditures by the industry also rose by 16 per cent to nearly $37 billion as companies undertook numerous expansion projects, particularly in the oilsands.
Revenues might be lower next year as a major decline in natural gas prices caused many companies to alter or slow their drilling programs due to significantly lower cashflow from operations.
The price of oil, however, has remained near record highs for most of 2006, breaking records set last September in the wake of damage caused by the combined effects of hurricanes Katrina and Rita slamming into the U.S Gulf Coast and its large amount of production and refining infrastructure.
As such, StatsCan says the outlook for Canada’s oil production is particularly strong, with estimated Canadian energy reserves at more than 28 billion cubic metres - second only to Saudi Arabia’s reserves.
Last year, Canada supplied almost 10 per cent of America’s crude-oil needs with 99 per cent of oil exports heading south of the border. Canadian oil is expected to continue to push further into U.S. markets in the future, reaching refineries in California and the Gulf Coast.
Despite large oil production in Alberta, Canadian refineries still relied on foreign oil imports to supply 55 per cent of its refining needs - particularly to feed refineries in Ontario, Quebec and the Atlantic provinces.
And while the proportion of imports has been declining since the start of the decade, crude imports rose seven per cent last year alone.
