Canadian oil producers will provide a first glimpse this week of how the spike in energy prices is boosting their bottom line — and what they plan to do with the bumper profits.
Companies are releasing financial results for the first three months of the year, covering a period when oil prices were relatively low in January and February before nearly doubling in March.
Commodity prices skyrocketed following the U.S. war with Iran, which led to the closure of the Strait of Hormuz and blocked about 20 per cent of the world’s oil and natural gas supply from international markets.
Fatih Birol, head of the International Energy Agency, described the war in Iran as the biggest energy crisis in history, pointing to major disruptions in commodities, including fuel shortages and rising prices for consumers.
A litre of regular gasoline is selling for an average of $1.80 across the country, while diesel is selling for more than $2.10, according to the latest data from Kalibrate Canada.
North American oil prices were trading at around $55 US per barrel to begin the year before climbing above $110 US this month.
Energy company stock prices have followed a similar pattern.
“There’s a lot of cash in the system. A lot of the stocks are near 52-week highs,” said David Szybunka, head of the energy team at Canoe Financial, a Calgary-based investment firm.
The upcoming financial results will offer a preview of what could be even stronger returns in the second quarter, from April through June, when oil prices spent at least two months in the $90 US to $110 US range.
To drill or not to drill
The size of the windfall will be noteworthy, along with signals from executives about what they plan to do with the extra cash.
Szybunka said he is open to a range of uses for the profits, including paying down debt, returning the cash to shareholders or spending the money to produce more oil.
Companies are not likely to dramatically increase production, he said, but “there’s going to be a little more spending at the margin.”
After reducing spending last year, Saturn Oil and Gas chief executive John Jeffries says the firm is ready to increase spending as oil prices are expected to remain relatively high for the rest of the year.
Large publicly traded companies are generally more focused on increasing financial returns to their shareholders, said Aaron MacNeil, an analyst with TD Cowen. He says they are less likely to make an abrupt decision on changing their spending plans based on a commodity price swing.
“I think they would be more likely to sort of enjoy the windfall of higher prices and not change activity for a period of time,” MacNeil said in an interview with CBC News.
Over the next couple of months, oil producers will continue assessing commodity prices, while considering whether to slowly ramp up spending, he said.
A recent survey of 22 Canadian oil and…
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