The Canadian oil and gas industry looks very positive over the next five years, but a CAPP report warns there's always the potential for economic trauma.
CALGARY: Outwardly prospects for the Canadian oil and gas industry looks great over the next five years, but a report by an energy equity firm warns there is always the potential for economic trauma “in this acutely capital-intense, competitive business.”
Turmoil and Renewal: The Fiscal Pulse of the Canadian Upstream Oil and Gas Industry – A Five-Year Review and Outlook, projects the upstream oil and gas industry will generate an estimated $115 billion in annual revenue, $20 billion in royalties, land sales and taxes, and $50 billion of investment into infrastructure and jobs in 2011. And companies are expected to generate more than $600 billion in sales over the next five years.
“But aches, pains and vulnerabilities are still to be found beneath the collective veneer of multi-billion dollar financial statements – on the natural gas side of the industry, for example,” said Peter Tertzakian, chief energy economist of ARC Financial Inc.
ARC’s analysis, commissioned by the Canadian Association of Petroleum Producers (CAPP), covers major trends and changes in capital flow over the past five years, with implications projected to 2015.
It shows the industry’s revenue stream is relying less on gas, and is on a path to become 80% reliant on oil by 2015. Five years ago the oil/gas mix was a more balanced 55/45.
The report says for the benefit of all stakeholders, maintaining financial health amid the many challenges will require industry and government to work doubly hard on key issues that can’t be addressed by either side independently.
Critical issues include accessing skilled labour, preserving the environment and reaching out to new global markets for both oil and natural gas. The report says embracing new technologies, processes and strategies will be paramount for companies seeking insulation from rising costs, environmental pressures and competitive threats.
It notes profits are likely to rise but not always profitability.
“How well the industry copes with many internal and external challenges to profitability, including volatile commodity prices, will determine whether value will be created and whether an expected $55 billion a year will continue to be invested back into Canada over the course of the decade,” says ARC Financial.
The Calgary-based ARC said multiplicative effect of the dollars circulating in Canada’s economy means the stakes for ensuring a healthy oil and gas industry are high for all Canadians.