Posthaste: Emissions targets, desire for dividends will bite into oilsands production: report

Cenovus

Good Morning!

Oilsands CEOs are likely having an ‘I told you so’ moment after a major energy research group predicted that emission cuts, among other factors, will result in some oil staying in the ground.

S&P Global Commodity Insights forecasts that oilsands production is expected to rise over the next decade by about half a million barrels a day. But before you get excited, that “substantial” increase is a drop from previous forecasts, according to the new analysis.

The energy and commodities research company said oilsands production will exceed 3.5 million barrels a day (b/d) by 2030, 17 per cent more than this year, but down 100,000 (b/d) from its forecast last year. 

“The Russian invasion of Ukraine has heightened interest in the ability of Canada — and (the) oilsands specifically — to contribute more crude supply to the global oil market,” said Kevin Birn, Canadian oil markets chief analyst at S&P Global Commodity Insights. “While this has increased the incentive to raise oilsands production in the near-term, a longer-term focus on strengthening returns to shareholders as well as decarbonizing the industry continue to weigh on growth for the longer-term.”

That longer-term focus is winning out.

As the logistics of future projects become untenable, investors have shifted their attention from “volume” to  “value,” and fixed firmly on dividends and share buybacks, said Birn and senior research analyst Celina Hwang.

And investors have been rewarded.

“Last year, was the single most profitable year in the history of the oilsands with the core four operators generating, on average, over $6 billion in pre-dividend organic free cashflow,” the pair said, predicting that oilsands operators could deliver more record returns to investors in 2022 if crude oil prices remain elevated. 

Another force Hwang and Birn cite as working to suppress oilsands production is the federal government’s “aggressive” carbon emission reductions goals. Recently, Ottawa called for energy operators to cut their CO2 output 42 per cent by 2030, something heavy-weight industry players have described as “almost unrealistic.”

In fact, Alex Pourbaix, CEO of Cenovus Energy Inc. worried on an earnings call that the Liberals emissions plan would result in lost barrels.

Instead, oilsands producers have committed to a 30 per cent reduction by 2030 under the Pathways Alliance — a consortium of six major oilsands companies that have pledged to decarbonize production to reach net-zero by 2050.

So where to from here?

Hwang and Birn predict that 80 per cent of the production growth they are forecasting will take place over the next few years from the “ramp-up, optimization and completion of projects where some capital has already been invested” — in other words, from existing projects.

Meanwhile, almost all of those lost 100,000 b/d they attribute to new projects that will likely never see the light of day.

“The story about the Canadian oilsands today is one that is looking to be increasingly less about growth, and more about returns, output optimization and maintenance, and accelerating technologies to lower emissions to put the industry in a position to compete on carbon,” said the analysts.

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FREEZING, FIRING, RESCINDING The tech boom experienced not only stratospheric increases in stock prices but a similar trajectory in hiring. It seems the heydays are at an end, though, on the stock front and the employment front. Retail giant Amazon.com Inc. announced during its recent earnings call that its employee count was down 100,000 from a a year ago as it sought to reduce its workforce primarily through attrition. Fellow corporate giants Apple and Microsoft have both said they will continue to hire, though at a slower pace. However many other companies in the tech sector from Shopify to Netflix to Spotify to Tesla are resorting to layoffs on the premise that they must recession-proof their operations for when and if the widely expected downturn arrives. Photo by Michael M. Santiago/Getty Images

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  • Bank of England releases interest rate decision

  • Melanie Joly, minister of foreign affairs, and Jonathan Wilkinson, minister of natural resources, appear before the Standing Committee on Foreign Affairs and International Development to discuss the export of Russian Gazprom turbines

  • Today’s Data: Canadian trade balance and building permits, U.S. trade balance and initial jobless claims

  • Earnings: Suncor Energy, BCE, Bombardier, Restaurant Brands International, Thomson Reuters, Constellation Software, Home Capital Group, Canaccord Genuity, Dream Office Real Estate Investment Trust, Quebecor, Maple Leaf Foods, Saputo, Lightspeed Commerce, Bausch + Lomb, SNC-Lavalin, Pembina Pipeline, Ritchie Bros, Gildan Activewear, Cascades, Open Text, ConocoPhillips, WeWork, Lyft, Beyond Meat, Kellogg

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The aggressive path of interest rate hikes continues to take a toll on Canada’s housing markets with home sales and prices slumping in July.

Vancouver and Calgary both saw declines in home sales as more buyers move to the sidelines and await a better opportunity to jump back into the market. This comes as the Bank of Canada hikes interest rates to combat inflation, including a supersized full percentage rate hike in July.

The number of homes exchanging hands in the Greater Vancouver Area tumbled nearly 23 per cent in July from the month before, with 1,887 units sold. Sales were down 43 per cent from last summer when the Vancouver market was in the midst of a buying frenzy, according to data from the Real Estate Board of Greater Vancouver.

The board’s benchmark price index, which compiles typical property prices in each market, sits at about $1.2 million, a two per cent decrease from June. — Stephanie Hughes

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Thinking of becoming a full-time freelancer, or just dipping your toes in part-time? Our content partner MoneyWise can help with a step-by-step guide to setting off on your own. From your business structure to finance to possible government assistance, don’t make the plunge without these steps in mind.

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Today’s Posthaste was written by Gigi Suhanic (@gsuhanic), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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