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There’s nothing like losing something to understand the value of what you had. With billions in investment going up in smoke, the Bank of Canada cutting its key interest rate and growth forecast, governments struggling with big budget gaps, the oil price collapse is highlighting the big shoes filled by the oil and gas sector in Canada’s economy.
As Tim McMillan, the president and CEO of the Canadian Association of Petroleum Producers, put it Wednesday: The industry has been growing so much, is active in so many parts of the country, works with so many suppliers, low oil prices “are having more of a national effect now than at any time in its history.”
In an interim report on investment plans, CAPP provided a glimpse Wednesday of how much the sector — the country’s biggest spender — plans to tighten its belt this year to cope with a 50% decline in oil prices since June, the result of excess world supplies and OPEC’s refusal to cut its own: Capital investment in Western Canada, including the oil sands, will decline 33%, to $46 billion, from $69 billion in 2014.
In the Alberta-based oil sands alone, capital investment will shrink to $25 billion, from $33 billion in 2014. Capital spending in the conventional oil and gas portion of the Western Canada Sedimentary Basin — which straddles Saskatchewan, Alberta and British Columbia — will decrease to $21 billion, from $36 billion in 2014. Drilling is expected to decline by 30%, to 7,350 wells.
“These are challenging times and Canadians across the country will see or feel the impacts,” Mr. McMillan said. “Purchases will be down, including purchases from the more than 2,300 businesses from coast to coast, excluding Alberta, that sell goods and services directly to the oil sands. Investors have seen their portfolios shrink. And governments will see reduced revenues from the industry’s royalty and tax payments.”
Industry will respond as conditions change and more cuts could come if prices continue to decline, the group said.
For the rest of this column, click here: http://business.financialpost.com/2015/01/22/billions-in-oilpatch-investment-up-in-smoke-as-crude-plunge-reverberates-across-canada/?__lsa=f0be-ea31