The Canadian oil and gas earnings season kicked off on July 21 with signs of an industry recovery as Encana Corp. (NYSE: ECA) and Precision Drilling Corp. (NYSE: PDS) outlined plans to boost activity.
Calgary, Alberta-based Encana reported an unexpected quarterly operating profit and said it would boost 2016 capital spending by $200 million from a previously announced range of $900 million to $1 billion. It also plans to increase production by about 13,000 barrels of oil equivalent per day at its core shale operations.
Precision Drilling, despite posting a second-quarter loss, said oil producers were increasing capital budgets due to the 70% rally in crude prices since February and putting more rigs back to work.
RELATED:
Encana Posts Quarterly Operating Profit, Hikes 2016 Capital Budget
Precision Drilling Posts Bigger Quarterly Loss Due To Weak Activity
"Our customers appear to be looking beyond the oil price lows of earlier this year, resetting spending to current commodity price levels, and beginning the early stages of planning for improved longer-term fundamentals," said Precision Drilling CEO Kevin Neveu.
Both companies operate in Canada and the U.S., and analysts said the uptick in optimism might be mirrored by some U.S. shale companies like Pioneer Natural Resources Co. (NYSE: PXD).
Analysts on average expect Pioneer to post a second-quarter loss of 35 cents per share when it reports next week, according to Thomson Reuters.
While Encana has benefited from a cash injection from recent asset sales, analysts said the move to boost spending indicates the best North American light oil plays, like the Permian and Eagle Ford in the U.S. and the Montney in western Canada, could start to attract a surge in investment.
Encana said 75% of the additional capital would go to its Permian shale operations.
Morningstar analyst David Meats said he expected many companies to add one or two extra rigs, plan to complete more drilled but uncompleted wells and generally be more optimistic.
"It's a sign of the first step on a long journey back to light oil production growth," Meats said. "Certainly it's very likely that other producers will follow suit and allocate other capital to the Permian."
Encana CEO Doug Suttles said the company had made its operations "massively more efficient." Operating costs were down 32% from a year earlier, and Suttles said two-thirds of those savings would be sustainable even if oil prices rise.
Recommended Reading
Tinker Associates CEO on Why US Won’t Lead on Oil, Gas
2024-02-13 - The U.S. will not lead crude oil and natural gas production as the shale curve flattens, Tinker Energy Associates CEO Scott Tinker told Hart Energy on the sidelines of NAPE in Houston.
What's Affecting Oil Prices This Week? (March 18, 2024)
2024-03-18 - On average, Stratas Advisors predicts that supply will be at a deficit of 840,000 bbl/d during 2024.
What's Affecting Oil Prices This Week? (March 11, 2024)
2024-03-11 - Stratas Advisors expects oil prices to move higher in the middle of the year, but for the upcoming week, there is no impetus for prices to raise.
Oil Market Shifting Back to Supply/Demand
2024-03-08 - Stratas Advisors' John Paisie forecasts the price of Brent crude to increase during the second and third quarters of this year and move toward $90/bbl.
Commentary: Fact-checking an LNG Denier
2024-03-10 - Tampa, Florida, U.S. Rep. Kathy Castor blamed domestic natural gas producers for her constituents’ higher electricity bills in 2023. Here’s the truth, according to Hart Energy's Nissa Darbonne.