A doubling of oil prices in the past six months has yet to convince many Canadian oil companies to fatten capital spending, partly because natural gas markets remain depressed, executives said on Monday.
Crude has climbed above $70 a barrel in recent weeks as traders have wagered that the worst of the recession, which has cut sharply into global oil demand, may be past.
But oil executives at the Canadian Association of Petroleum Producers’ investment symposium said they are not convinced today’s prices are sustainable, given the demand fundamentals.
“I think we’re going to be a bit patient,” said Marvin Romanow, chief executive of Nexen Inc (NXY.TO), Canada’s No. 4 independent explorer and producer.
“In many ways I think we’re a bit surprised at how quickly the commodities have rallied. The rally in the commodity is coming on the basis that economies are shrinking at a lower rate.”
Nexen, whose Long Lake oil sands project is in startup mode, has budgeted C$2.56 billion ($2.27 billion) in spending this year.
Romanow said oil prices surged through the middle of 2008 because of supply shortages, and that will likely happen again when economies recover.
“But I think it’s a bit early for the rally because there still is a lot of oil around the world and demand is still not completely strong,” he said.
Last Thursday, oil closed at $72.68 a barrel, its highest level in more than seven months. It has since fallen back to $70.62.
Talisman Energy Inc (TLM.TO), Canada’s third-largest exploration and production company, is sticking with its C$3.6 billion 2009 budget despite the run-up, CEO John Manzoni said.
As oil has recovered to about half last year’s record high, natural gas remains at just a third of its year-ago value. U.S. gas closed up 32.5 cents at $4.182 per million British thermal units on Monday. Canadian gas fetched C$2.84 a gigajoule.
“Right now we’re spending just over C$1 billion in North America, on the unconventional (gas) business, and we’re choosing not to accelerate it into a C$3 gas price,” he said. “So I think we’re going to watch that, and in the end that’s the most flexible part of the portfolio.”
One exception is Crescent Point Energy Trust (CPG_u.TO), which said it may increase its 2009 spending by up to C$50 million if oil prices stay at current levels.
Crescent Point, known for extensive operations in the Bakken oil play in southeastern Saskatchewan, may invest the additional capital in the third and fourth quarter, CEO Scott Saxberg told reporters.
But another large oil and gas income fund, ARC Energy Trust (AET_u.TO), expects to stand pat with its C$350 million budget for now, despite the crude rally.
ARC had initially structured its budget assuming $75 oil, but has reduced that several times as it reduced its outlook to $60 a barrel, said John Dielwart, the trust’s chief executive.
“We will be reluctant to aggressively move capital, or anything else, up in the short term. We’re going to wait and see how the noise plays out in the next little while,” Dielwart said.
“Of course, you’ve got strange things happening in Iran, and you don’t know what that’s going to do to confidence in supply,” he said, referring to the violence that erupted after last week’s contested election result.