Canada’s oil industry is suffering the consequences of the global oil demand and price crash, just like every company in the sector anywhere in the world. For Canada, the price collapse came just as signs were starting to emerge that the oil sands industry had turned the corner from the 2014 crash. Canada’s oil patch is now back to square one, trying to rein in costs with cuts in capital and operational expenditures, job cuts, and project deferrals.
On top of low oil prices and decreased fuel demand due to the pandemic, the Canadian industry now faces increased environmental, social, and governance (ESG) scrutiny, which has led to international investors shunning the stocks of Canadian oil firms and international oil majors divesting from oil sands.
As if this year’s demand and price collapse weren’t enough, ESG investing is piling pressure on Canada’s oil sector much more than it did in the previous years following the 2014 crash.
No wonder then that Canadian energy stocks have lost a lot of value on the energy market this year, underperforming even the poorly performing oil prices.
Canadian oil stocks have actually never recovered from the 2008 financial crisis, data compiled by Bloomberg showed.
The iShares S&P/TSX Capped Energy Index ETF, which has been on a downward trend since 2008, is down 53 percent year to date in terms of daily total return. The stocks of major Canadian oil firms have underperformed this ETF—Suncor Energy is down 63 percent year to date as of early October, Cenovus Energy is down 64 percent, Husky Energy is down 70 percent, and Imperial Oil—held by Exxon—is down 54 percent.
Earlier this year, Suncor Energy axed its quarterly dividend by 55 percent to reduce its cash breakeven to a WTI Crude price of US$35 a barrel,
Cenovus Energy announced a temporary suspension of the dividend after swinging to a Q1 loss, while Husky Energy slashed dividends by 90 percent as it also posted a Q1 loss.
More recently, Suncor Energy announced it would cut 2,000 jobs, or around 15 percent of its workforce, while Husky Energy is reviewing its West White Rose Project in the Atlantic region.
“Unfortunately, the delay caused by COVID-19 and continued market uncertainty leaves us no choice but to undertake a full review of the project and, by extension, our future operations in Atlantic Canada,” CEO Rob Peabody said in September.
Job losses in the Canadian natural resources sector hit an all-time high of 43,000 in the second quarter.
While the industry and the ruling politicians in the oil province Alberta tout the recovery of the energy sector as the driver of Canada’s economic recovery from the crisis, investors are not convinced in the bright future of the oil and gas industry in Canada because of what they see as its weak environmental credentials.
The Canadian Association of Petroleum Producers (CAPP) says that the industry has strong environmental standards, where natural gas and oil are responsibly produced in a stable economy and should be the basis of the country’s economic recovery.
But major investors and oil majors beg to differ.
In Q2, France’s Total booked US$8.1 billion impairments – of which US$7 billion in Canada’s oil sands – as it cut its short-term price expectations. The only projects identified as “stranded assets” are the Canadian oil sands projects Fort Hills and Surmont, Total said in July.
Two months earlier, the world’s largest sovereign oil fund, Norway’s US$1-trillion Government Pension Fund Global, excluded from its portfolio Canadian Natural Resources, Cenovus Energy, Suncor Energy, and Imperial Oil, citing “unacceptable greenhouse gas emissions.”
Commenting on the fund’s decision, Cenovus president and CEO Alex Pourbaix said in a statement to Financial Post at the time:
“Pulling investments from the oilsands and claiming it’s for climate change reasons is more about publicity than fact.”
Alberta Energy Minister Sonya Savage called the fund’s decision “poorly informed and highly hypocritical,” pointing to the fact that Norway itself is a large oil and gas producer.
Canadian producers believe their industry could address investor concerns about emissions and recover in the future, especially if market access via new pipelines improves. Yet, the investor snub in recent years suggests that the oil patch in Canada will have a hard time convincing investors that oil sands is a business worth investing in the energy transition.
By Tsvetana Paraskova for Oilprice.com
