Oil companies are scrambling to shore up their balance sheets ahead of the next federal election, with some cutting costs to stay competitive and others boosting spending in an effort to maintain the industry’s dominant position.
A recent report from the International Energy Agency (IEA) said oil companies will spend between $2 billion and $4 billion in 2019, an increase of $3.5 billion from the previous year.
The industry has been hit hard by the low oil prices that have led to lower prices for Canadian consumers, which have seen prices fall by more than 30 per cent in the last year.
The IEA’s report says Canadian oil producers are spending on average $4.5bn a year to increase production, up from $3bn in 2018, but the cost has increased since oil prices dropped to record lows.
It expects that spending will rise to $6.2bn by 2019, up 15 per cent from the current year.
But that number is forecast to fall as the economy recovers.
The IEG also projects that oil production will rise slightly in 2019 to 1.3 million barrels per day (bpd), up from 1.1 million bpd in 2019.
It also expects that the industry will continue to increase exports, with the sector expecting exports to rise by 8.6 per cent to 2.2 million bd in 2019 from 2.1 mbpd in 2018.
But oil prices are expected to remain low for the foreseeable future, with Brent crude trading below $60 a barrel in some parts of North America and Brent crude prices trading at less than $35 a barrel across Europe.
The price slump has led to major price cuts across the industry, including for diesel, and even in some areas where oil companies have struggled, like in the oilsands, which is where the most dramatic cuts are expected.
Oil producers are also slashing costs to compete against new entrants and to improve the reliability of their infrastructure.
The IEA report forecasts that the sector will spend $1.1 billion in 2020 to $2.1bn in 2021.
Oil producers have also cut spending in the oil and gas sector, with nearly $1 billion cut from the sector in 2018 to 2020, including $1bn for pipelines.
And the industry is also cutting costs in transportation.
“The oil and mining industry is going to be more constrained by 2019 than in 2020,” said Rob Wilson, an analyst with the Calgary-based Canadian Resource Council.
Even as it continues to spend, oil and natural gas producers are likely to continue to slash spending, and the IEA expects spending to increase next year as a result of higher demand from the world market.
The industry is set to report quarterly results this week, which could include an update on how much production and reserves it expects to achieve this year and beyond.
The report also includes a list of industry forecasts that can be used to make financial predictions about how the sector is performing.