Canada’s oil industry to slash spending, reduce production as prices sink

Claudia Cattaneo | January 21, 2015 | Last Updated: Jan 21 5:48 PM ET

CALGARY – Canada’s oil and gas industry is poised to cut capital investment by 33% in 2015 and reduce the pace of oil production growth to cope with the sharp drop in oil prices, the industry’s major lobby group said Wednesday.

Based on input from producers active in Canada, the group said capital investment in Western Canada, including the oilsands, will add up to $46 billion in 2015, down from $69 billion invested in 2014, the group said in a statement.

In the oilsands, 2015 capital investment is forecast at $25 billion, down from $33 billion last year. Capital spending in the conventional oil and gas portion of the Western Canada Sedimentary Basin is expected to decrease to $21 billion this year, from $36 billion invested in 2014.

The total number of wells expected to be drilled in Western Canada this year is forecast to decline by 30% to 7,350.

“These are challenging times and Canadians across the country will see or feel the impacts,” said CAPP president Tim McMillan. “Purchases will be down, including purchases from the more than 2,300 businesses from coast to coast, excluding Alberta, that sell goods and services directly to the oilsands. Investors have seen their portfolios shrink. And governments will see reduced revenues from the industry’s royalty and tax payments. We all will feel the effects.”

Oil production is expected to slow down by about 65,000 barrels a day in 2015 and 120,000 barrels a day in 2016.

The new 2015 forecast for total Western Canadian oil production is 3.6 million barrels a day, about 150,000 barrels a day higher than 2014 production of 3.5 million barrels a day, with a similar rate of growth expected in 2016.

Conventional oil production is flat at 1.3 million barrels a day in 2015 and oilsands production increases to 2.3 million barrels a day due to projects coming on stream from prior-year investments.

The group said the long-term need for Canada to diversify its oil and gas markets and build pipelines remains strong.

“No question, the effects on the industry are sharp but we continue to need all forms of transportation in all directions – pipelines in particular – as our industry continues to grow in the years ahead,” Mr. McMillan said.

The forecast is a snapshot in time and the industry will respond as conditions change, the group said, and more cuts could come if prices continue to decline.