First-quarter earnings highlighted the overall trend of producers maintaining spending and production guidance for the year. Based on a peer group of 20 Canadian shale E&Ps, full year spending dropped a mere 0.4%, with output guidance remaining intact. Oil sands operators mirrored a similar story, with the only notable change coming from Canadian Natural Resources (CNRL) as it trimmed its spending plans 1.6% with no impact to full-year volumes. The biggest highlight of earnings came from Waterous Energy Fund’s Strathcona Resources, which saw the company divest its Montney assets in a multi-transaction deal only to immediately announce a bid to take out thermal oil peer MEG Energy. While MEG and its shareholders weigh the offer – and potentially offers from other new bidders – regardless of outcome, this move is certain to shake up the Western Canadian Sedimentary Basin (WCSB) landscape and has re-energized the merger and acquisition (M&A) space.

Navigating the impact of tariffs continue to be on producers’ radars. Yet, comments from company executives during the latest earnings confirmed the consensus that the impact will be manageable. Canadian oil and gas remain USMCA compliant, and are not subject to the 10% tariffs, leaving revenue intact with the largest risk in the form of higher related well and fracture stimulation costs. Two of the largest WCSB natural gas producers, Tourmaline and Ovintiv, noted there will be some negative impacts in the form of higher drilling and completion costs; however, both left capital budgets intact. Imported US sand for hydraulic fracturing continues to fall within the category of retaliatory import tariffs of 10%. That has led to slightly higher fracturing costs for operators, posing greater risk for large active producers and ones that elect for more intensive completion designs.

Newly elected Prime Minister Mark Carney recently made amendments to pause retaliatory tariffs on certain products in food and beverage, health, manufacturing, national security, and public safety, which could suggest that negotiations are still on the table and the possibility of future import tax exemptions. Still, Rystad Energy will continue to monitor this ever-changing scenario and will keep a close eye on second-quarter earnings, which will provide a better litmus test as tariffs will have been largely realized through the quarter.

For the rest of the year, Canadian producers remain cautiously optimistic, with LNG Canada expected to startup in a matter of weeks and boost Western Canadian natural gas markets with the nation’s first liquefied natural gas (LNG) terminal. Overall, Canadian E&Ps have fared better than their counterparts south of the border in respect to maintaining guidance, which highlights the quality and longevity of WCSB reserves. Perhaps this will be the year that could start to trigger capital flowing back north as investors look for more stability in what is shaping up to be another volatile year for the upstream sector.

Authors: 

Taylor Lee  

Senior Analyst, Upstream Research
taylor.lee@rystadenergy.com

Thomas Liles  

Vice President, Upstream Research
thomas.liles@rystadenergy.com

This article is from our newly announced Canadian Quarterly Newsletter. Sign up to be the first to receive it each quarter.