Tips for 2021 success for oil and gas companies in the promising future after 2022

News analysis

After overcoming the brutal 2020, Banner 2021 showed how resilient Canada’s oil and gas sector can thrive. However, 2021 has also created obstacles that we hope will become more established after 2022, compared to the problems of oversupply and shortage of demand in 2020.

“Capital discipline and operational excellence continue to be top priorities for all oil and gas companies as third-party investment decreases.” Mitch foehn, Ernst & Young Americas Energy and Resources Leader, US Oil and Gas Leader 2022 outlook Released on December 27th.

Noting that banks and other lenders are scrutinizing their loan portfolios for carbon intensity, Fane says that access to financing and wise capital investment is essential to success in this capital-intensive industry. It states.

An example of this trend is Laurentian Bank On December 10, it announced that it would suspend direct financing for oil and gas or coal exploration, production and development. Laurenshan said he aims to differentiate himself from other Canadian banks and attract more green clients.

Ottawa also said it would phase out subsidies for the exploration and production of fossil fuels by 2023.

Martin Peltier, Managing Director of Wellington Altus Private Counsel, said in an interview: BNN Bloomberg December 23rd.

He added that companies wouldn’t be rewarded for increased production, so they would pay off debt, buy back shares, and increase dividends.

“The level of prudence we’re witnessing and the capital discipline we’re witnessing among these companies … I haven’t seen it in the last two decades,” Pelletier said.

Fane said that in the coming years of the industry, lenders hesitate to invest in oil and gas and “a disagreement between governments, consumers and investors about oil and gas rates”. “Push and pull”, he said. It needs to be replaced or can be replaced. “

This scenario, as shown in 2021, has a continuous lack of investment in the industry as ESG (environmental, social and governance) trends increase and pressure to achieve a low-carbon future faster. Given what to expect, it’s a good sign for oil prices.

Fane believes that companies are taking three different approaches to ESG. In other words, whether you are good at making ESG a competitive advantage, or act from a sense of necessity, wait for ESG to become a requirement and continue as usual.

Reward investors

Despite the big highlights, the energy component of the Toronto Stock Exchange (TSX) is returning at a pace far more than three times the overall 2021 index. While TSXAs of December 24, year-to-date revenue was 20.5% and capped energy sector revenue was 77%.

Global oil demand surged in 2021, prices soared, and companies were in an unusual situation where they had to find a way to deal with the large excess cash flow from their businesses. Efforts to curb fossil fuel consumption to mitigate climate change have not affected the reality that the world needs energy that renewable energy sources cannot provide.

The US benchmark price for West Texas Intermediate Oil was $ 48.52 a barrel at the end of 2020. It rose to nearly US $ 85 in October and rose to nearly US $ 85. On December 29, it rose nearly 60% to over US $ 76.

It was a good year to invest in the energy sector.

“There is so much cash coming in at current oil prices,” said BMO’s Managing Director of Oil and Gas Equity Research. Randy Olenberger I told BNN Bloomberg on December 23rd.

“Companies will have to be more creative in how they return their cashback to shareholders.”

Ollenberger added that he also intends to reduce net debt to zero in 2022 as many companies double their dividends.

Reuters According to the International Energy Agency, crude oil consumption is expected to increase in 2022, reported on December 23. Consumption is about the same as the daily consumption of 99.55 million barrels in 2019.

“Although the proliferation of renewable energy and the adoption of electric vehicles is expanding, the impact on oil and gas demand is still unnoticeable,” Fane said.

A long way

At the end of 2020, the oil and gas sector was still upset by price competition between Saudi Arabia and Russia. March 2020, Premier of Alberta Jason Kenny His state, which relies heavily on energy, said he had experienced a “triple wormy” consisting of a pandemic, an already fragile state economy, and a plunge in oil prices due to oversupply.

On April 20, 2020, oil was actually traded at a negative price and the energy sector 2020 returns It was terrible-38 percent.

Another hit in early 2021 was when US President Joe Biden revoked permission for the Keystone XL pipeline shortly after taking office, Trans Mountain Expansion and Coastal Gas Link are moving forward..

The industry has been able to use its punches to be in a position to succeed in the changing paradigm of 2020-2021.

The key to the success of the oil sands was the careful control of supply by the Organization of Petroleum Exporting Countries (OPEC) and its allies, including Russia.Known as OPEC +, 13 oil-producing country alliance OPEC And 10 Non-OPEC Countries will meet on January 4, 2022 to decide whether to increase production by 400,000 barrels per day in February, according to Reuters.

Olenberger said he was in a camp of people who could see the price of oil could reach US $ 100 in 2023.

But first, he expects oil price softening to begin in 2022 due to Omicron. But in the second half of this year and the years after that, he expects stronger prices.