Resource World Magazine

66 www.resourceworld.com D E C E M B E R / J A N U A R Y 2 0 2 0 Oil Patch Report by Bruce Lantz S ymptomatic was the decision by Canadian energy giant Encana Corp. [ECA-NYSE] to move its headquarters to Denver, Colorado from Calgary. It was a logical move, as US operations accounted for 60.5% of Encana's total revenue in the most recent quarter, while Canada contributed 24.8%. Increasingly, Canadian companies are struggling to find investors willing to finance an industry in turmoil. It was seen as another symbolic blow to a Canadian oil patch broadsided by low commodity prices, stringent regulations, transport constraints and opposition from cli- mate activists over the past decade, which prompted one of Encana's founders, Gwyn Morgan, to say the industry has gone from "posi- tive to pariah". Alberta, home to most of Canada's oil patch, led the nation in increases in both business and personal bankruptcies in 2019. Alberta's Orphan Well Association reports that the recent move into receivership by junior producer Houston Oil & Gas Ltd. could add more than 1,400 wells to its inventory of 3,400 aban- doned petroleum assets – leaving a bill of about $81.5 million in abandonment and reclamation costs for the Houston assets alone. Also, in 2018 alone, 37 major projects worth $77 billion were can- celled in Canada and more than $30 billion in investment was lost due to cancellation of major pipeline projects in Canada. Meanwhile, figures from the Canadian Association of Petroleum Producers (CAPP) show a drain in capital investment in the Canadian oil patch. CAPP manager of media relations, Jay Averill, said capital investment has declined for five consecutive years, at CAD $36 billion for 2019 compared with $81 billion in 2014. "Market access has been one of the main challenges facing industry and there is not sufficient pipeline capacity to move our product, let alone reach new markets," he said, citing delays in construction of the Enbridge Line 3, Keystone XL and Trans Mountain expansion pipelines as major factors. "We really need all three of those projects in order to leverage the opportunity in the energy sector. As a result of the lack of pipelines, the Canadian economy has lost billions of dollars and that means communities across the country have suffered." Averill added that along with market access, investment will only return with sound regulatory policy, fiscal and tax measures, advancing climate solutions and fostering Indigenous prosperity. "Once this is in place, Canada will be in a position to be a global supplier of choice," he said. "Canadian energy, with its lower emissions and track record of innovation and environmental protection, can displace other less responsible sources of energy around the world." But Canada faces stiff competition, most notably from its US neighbour, which has become a net exporter of crude and petro- leum products and the world's largest oil producer, with output hitting records of more than 12 million barrels per day (bpd) – thanks in large part to a 30% increase in Gulf of Mexico output – and natural gas production topping 104.2 billion cubic feet per day (bcfd). However, many US energy producers have been cutting the number of oil rigs operating for the past 11 months as indepen- dent exploration and production companies trim spending while focusing more on earnings growth than increased output. Some analysts are predicting that the US combined oil and gas rig count will drop from a four-year high of 1,032 in 2018 to 906 in 2020, then 957 in 2021. One bright light is Exxon Mobile Corp. [XOM- NYSE], which added oil rigs for several weeks in a row in October. Outlook 2020 OIL & GAS TO SAY THAT 2019 HAS BEEN A YEAR OF ADJUSTMENT FOR THE OIL AN GAS INDUSTRY WOULD BE AN UNDERSTATEMENT. THE INDUSTRY, KNOWN FOR RESILIENCY IN THE FACE OF ITS BOOM-AND-BUST CHARACTER, HAS BEEN CHALLENGED LIKE NEVER BEFORE WITH LOW PRICES, VANISHING INVESTORS, REGULATORY CONSTRAINTS AND THE NEGATIVE PUB- LICITY ACHIEVED BY CLIMATE ACTIVISTS.

• Cover