CAPP forecasts $2 billion increase in capex in 2020

Capital spending in the oil and natural gas industry is expected to be about $2 billion higher in 2020 compared to last year, according to the Canadian Association of Petroleum Producers (CAPP).

This represents a four per cent increase in capital investment in the conventional side, and an eight per cent increase in the oil sands.

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Conventional oil and natural gas capital investment for 2020 is forecast at $25.4 billion, up from an estimated $24.4 billion last year.

Capital investment in the oil sands is forecast at $11.6 billion in 2020, up from an estimated $10.7 billion in 2019. This marks the first time in five years that oil sands capital spending is expected to experience an upswing.

Overall for the oil and natural gas sector, total capital investment this year is forecast at $37 billion, up from an estimated $35.1 billion in 2019, for a combined increase of six per cent in 2020. This would halt the dramatic decline seen since 2014, when investment numbers reached $81 billion.

Tim McMillan, president and CEO, said in a release, “We are very happy to see an increase in capital investment expected for 2020. It’s a reflection of the hard work and determination on many fronts to bring the industry into a more competitive position. That includes the corporate tax cut by the Government of Alberta, and incenting crude by rail under curtailment, which is helping to attract business and investment.

“The increase in capital investment is a very positive sign for the upstream sector, and there is a lot more work to be done to keep this momentum. That includes the continued steps being taken, including the Government of Alberta’s red tape reduction panel, as well as necessary work that must happen in terms of municipal tax reform in both Alberta and Saskatchewan to foster fairness and competitiveness.”

He added, “Investors are seeing some positive activity in the industry right now, and it’s important that all levels of government show a commitment to Canada’s energy industry and the hundreds of thousands of Canadians who work in the industry. We need policies and action that keep us moving ahead – making us competitive, completing projects, and getting Canada’s responsibly produced energy to global markets.”

The extra $2 billion in capital spending creates or sustains about 11,800 direct and indirect jobs across Canada (approximately 8,100 in Alberta, and 3,700 in the rest of the country).

The main driver behind the expected increase is a more competitive economic environment as a result of certain key policies. In 2019, the Government of Alberta introduced the job creation tax cut. As of Jan. 1, the provincial government lowered Alberta’s corporate tax rate to 10 per cent from 11 per cent, as part of a plan to reduce the corporate income tax from 12 per cent in 2019 to eight per cent in 2022.

Alberta also enabled producers to ship more crude by rail under curtailment, and allowed new conventional oil drilling without the restriction on production, opening the door to positive investment, new drilling, and job creation, CAPP said.

Saskatchewan recently put forward its vision 2030 goal of increasing oil production by 20 per cent to 600,000 barrels per day, and continues to operate an efficient and effective regulatory environment. Capital investment in the province is expected to increase 10 per cent in 2020, going up to $4.4 billion from $4 billion last year.

British Columbia’s upstream is expected to see a modest increase in investment this year from $3.4 billion to $3.6 billion.

In addition to more competitive fiscal policies in key provinces, oil producers are cautiously optimistic that additional pipeline capacity is on the way. With the Enbridge Line 3 project scheduled to come on stream in late 2020, the Trans Mountain Expansion underway, and pre-construction activities ongoing for Keystone XL, there is potential for medium and long-term production growth with access to global markets and expanded transport capacity into the United States.

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