Capital spending not quite a spree
Oil and gas sector spending remains below pre-pandemic levels
By Cohen Perratt, ATB Economics 14 June 2022 1 min read
Seasonally adjusted oil and gas extraction capital expenditures in Canada increased in Q1 2022 to $7.7 billion, a $2.6 billion (+50%) increase from the same quarter last year.
While investment has recovered since reaching a multi-year low in Q2 2020, spending in the sector remains below pre-pandemic levels. Relative to Q1 2020, investment was down by $0.5 billion (-6%) and was $13.2 billion (-63%) lower than the peak set in Q4 2014.
Historically, oil prices have played an important role in decisions to boost capital expenditures with higher prices typically associated with increased investment.
For example, in the first quarter of 2014, companies posted capital expenditures of $19.6 billion, while the Western Canadian Select (WCS) price index averaged $83/bbl (in Canadian dollars). But, even with WCS averaging C$103/bbl during the first quarter of 2022, spending in the sector was relatively muted at $7.7 billion.
There are many factors at play here, including the economic uncertainty brought on by Russia’s invasion of Ukraine, global efforts to lower carbon emissions, increased efficiency, and pipeline capacity constraints. So far, the sector has been focused on using its improved revenue flow to pay down debt or return money to shareholders rather than on capital projects to boost production.
With that said, the higher prices create both the capacity and incentive for more capital spending and ATB’s latest economic forecast projects a modest uptick in Alberta’s oil and gas investment this year.
Answer to the previous trivia question: About 98% of Canada's over 170 billion barrels of proven oil reserves are found in Alberta.
Today’s trivia question: What does the octane rating of gasoline tell us?