US capital to flow back to WCSB as oil, NGLs, gas producers add new output

New market access, strong profitability and higher commodity prices will result in the return of US capital to the Western Canadian Sedimentary Basin with producers embarking on adding new production in the short term, participants said at a leading industry conference April 9.

Funding from the New York Stock Exchange has traditionally been an integral part of Western Canada's fledgling oil industry. However, that changed due to a lack of new pipeline egress from the WCSB that impacted profitability, along with the pandemic that resulted in a major uncertainty in the global commodities market.

"We are finding our way back and despite the [oil and gas] industry being cyclical, the change we see is the return of capital," CEO of Whitecap Resources, Grant Fagerheim, said at the BMO Capital Markets-CAPP Energy Symposium in Toronto, adding the size of vast resources in the WCSB matters as it impacts profitability and sustainability.

Whitecap has set an oil and gas production target of 165,000 b/d of oil equivalent to 170,000 boe/d in 2024 and is looking to spend C$900 million to C$1.1 billion ($667 million to $815 million), as it anticipates light/heavy oil differentials to tighten further throughout the current year with the start up on May 1 of the 590,000 b/d Trans Mountain Expansion pipeline "bringing further pricing upside", he said.

TMX will allow producers to export barrels primarily to the US West Coast and Asia from the Canadian Pacific Coast.

The WCSB has had a lack of egress and with TMX it is a massive tail wind that will attract investments, Fagerheim said.

"The dollar tends to move quickly in the US, but in Canada with TMX and LNG Canada [start up due this summer] were are hearing conversations of more US companies and funds coming North and we see changes happening," Jonathan Wright, CEO of fellow producer NuVista Energy said at the same conference.

Wright did not elaborate on the movement of capital from Wall Street. But the Canadian Association of Petroleum Producers said late-February it is forecasting an investment of nearly C$41 billion in Canada's upstream oil and gas sector in 2024.

"The political instability in Canada that resulted in delays in regulatory approvals has also not helped. But the provincial governments have been supportive and profitability in the industry is getting stronger," Fagerheim said.

Inordinate delays in regulatory approvals – sometimes of up to seven years – has resulted in projects being either taken off the drawing board or cancelled.

NuVista has approved a 2024 capital spending of C$500 million to produce 83,000 boe/d to 87,000 boe/d. But its target is to increase that output to 115,000 boe/d to 120,000 boe/d with increased access to capital, Wright said.

"Our big question will be how to grow to 200,000 boe/d," Wright said.

The start of TMX will not only narrow the light/heavy price differentials, but also bring about a price stabilization in the WCSB, CEO of Athabasca Oil Rob Broen said at the same conference.

"We have been waiting for decades and the new pipeline will result in lesser payout time [for investments]," Broen said, adding: "The change in the Canadian macro scenario will result in US investors showing interest in the resources plays and create more investment opportunities."

In late 2023, Athabasca and Cenovus Energy joined hands to form Duvernay Energy to develop light oil and condensate assets in the prolific Kaybob Duvernay play in the WCSB.

Duvernay Energy will oversee the development of about 200,000 gross acres of land position with over 500 future well locations and its target will be to increase light oil and condensate production from its assets to 25,000 boe/d by the late 2020s.

Mega gas growth on the anvil

Besides crude oil, major growth is also seen in WCSB's natural gas sector with the start up of LNG Canada that will result in a 2-Bcf/d uptick in demand, Paramount Resources CEO Jim Riddell said at the same event.

"A premium is coming for natural gas producers," Riddell said.

Paramount will invest C$830 million to C$930 million in 2024 and is forecasting sales volumes of 100,000 boe/d to 106,000 boe/d.

The Shell-led 14 million mt/year LNG Canada that will start pre-commissioning activities in the summer of 2024 will be a major game changer in the WCSB, Terry Anderson, CEO of ARC Resources, said at the same conference.

ARC has signed an agreement to supply 150 MMcf/d of feedgas for the grassroot LNG plant located at Kitimat in British Columbia.