Oil patch profits predicted to rise 18% this year

The Canadian Press

Thursday, February 14, 2008

OTTAWA — The Canadian oil industry is poised for another gusher of a year with 2008 profits rising 18 per cent to nearly $23-billion, the Conference Board of Canada says.

However, the Conference Board warned Thursday that the oil patch is likely to hit a bump in the road in 2009 because of rising costs and because world oil production is being ramped up, which will eat into prices.

The report forecasts 2009 profits will tumble 29 per cent, before beginning a steady recovery and returning to the $23-billion level in 2012.

The independent research group said Canada's oil extraction sector, a key economic pillar, posted a record $19.4-billion in profits last year on revenues of $123-billion.

And 2008 will be even better, the group's report on the industry forecasts, as Canadian oil producers continue to benefit from high prices — forecast to average $85 (U.S.) a barrel — and an expected 9.2 per cent rise in crude oil production.

The production increase comes exclusively from the oil sands since conventional crude production is set for a steady decline due to increasing costs and depletion of the resource.

“Non-conventional production will be the main driver behind all gains in domestic crude production for the foreseeable future,” the report states.

“Overall, the health of the industry remains strong,” report author and economist Todd Crawford writes.

“Production gains will continue on the back of export growth and strong investment. The industry will also continue to be a source of job creation,” adding 11,000 workers over the next five years.

Despite an outcry in the industry, the report says that Alberta's new royalty increases scheduled to come into force in 2009 “are expected to have little effect on investments in Canada's oil industry because the price of oil will remain high.”

The report forecasts crude prices will dip next year, but will increase thereafter and average $87 a barrel in 2012.

The report also says that despite a marginal decrease in consumption in the industrialized countries last year, developing economies are more than making up the difference, particularly China, which saw an increase of 5.2 per cent.

Canada bucked the developed-world trend and increased its crude oil consumption by four per cent during 2007.

Global demand is expected to be even more robust this year, pushed on by growth in China (5.7 per cent), the Middle East (5.9 per cent) and the former Soviet Union (3.1 per cent).

Supply will barely keep up this year, and over the next few years, “global oil supply and demand will become increasingly tight.”

© Canadian Press