WCP & Grant in an FP articleThis came out Thursday, I don't think it was posted. Interesting with Grant speaking to WTI averaging $70 in 2025 but WCP still doing well due to exchange rate and lower Canadian oil differentials
https://financialpost.com/opinion/columnists/varcoe-whitecap-boosts-budget-2025-volatile-oil-prices-uncertain-outlook-gas/wcm/073baf55-1515-49fa-8a8b-8c33f1c18dd2
Only 65 cent Alberta gas, but $100 oil — Whitecap boosts budget for 2025 amid volatile energy prices
Chris Varcoe reporting:
One of the largest oil and gas producers in Western Canada released its Q3 results, reporting net income rose to $274 million
Whitecap Resources CEO Grant Fagerheim has a few handy numbers at his fingertips to encapsulate the state of Canada’s oil and gas sector today, highlighting the contrasting fortunes facing the commodities.
Alberta benchmark natural gas prices averaged below $1 per gigajoule during the third quarter.
However, a weaker loonie and moderate prices for West Texas Intermediate (WTI) this fall propelled Canadian oil to average more than C$100 a barrel during the July-to-September period — and he expects a solid outlook for 2025.
“I really believe quite strongly that we will see fluctuations, maybe between that $65 to $85″ range next year, Fagerheim said in an interview, noting it’s budgeting for $70 WTI prices.
“When you put a Canadian dollar against it — when you think about it with that lens — then you end up between $97 right now with the weaker Canadian dollar, up to $105 a barrel. So that’s very robust economics.”
For natural gas markets in Western Canada, the picture is decidedly different.
Prices have remained weak as gas storage levels are high heading into the winter months, although there are expectations it will improve in 2025 with the LNG Canada project beginning to ship cargoes.
“For the quarter, gas prices were 65 cents per gigajoule,” added Fagerheim.
“Those are ridiculously low numbers because we’re oversupplied with limited takeaway capacity.”
Whitecap, one of the largest oil and gas producers in Western Canada, released its third-quarter results on Wednesday, reporting net income rose to $274 million.
Average production increased 10 per cent from the same time last year, exceeding 173,000 barrels of oil equivalent (boe) per day. Whitecap expects its production to average about 178,000 boe per day next year.
About half its capital expenditures will be earmarked toward its Duvernay and Montney properties, as it aims to drill 30 wells in those areas. A similar amount will be spent in Saskatchewan and Alberta to complete about 190 conventional wells.
Like many producers, it’s facing two distinctly different narratives this fall, as oil markets have been gyrating recently but remain healthy, while western Canadian gas prices have struggled.
“The outlook for oil is much better than gas . . . The companies that have good oil prospects are probably going to continue to have very reasonable growth spending plans,” said Jeremy McCrea, an analyst with BMO Capital Markets.
“The one thing I worry about is there may be some over-optimistic views on where natural gas prices may go with LNG Canada coming on here, just because so many producers have started to drill into that.”
Global oil prices have been extremely volatile this month given the escalating geopolitical tensions in the Middle East, offset by concerns about falling demand growth in China and the prospects of OPEC+ countries bringing additional supplies back to the market in 2025.
On Wednesday, WTI crude fell almost a dollar to close at US$70.77 a barrel.
For natural gas markets in Alberta, AECO prices have been hammered as inventory levels surged following last year’s warmer-than-normal winter. Poor prices have recently prompted some producers to curtail drilling activity or shut in wells.
On Tuesday, U.S. benchmark prices were trading US$1.81 higher than at AECO, which stood at 49 cents per thousand cubic feet, according to ATB Capital Markets.
Many producers and industry experts anticipate the arrival of colder weather in North America and the startup of LNG Canada — with gas moving through the Coastal GasLink pipeline to the B.C. coast for export — will provide relief in the coming months.
Fagerheim noted 35 per cent of Whitecap’s output in the third quarter came from gas, yet it made up only six per cent of the company’s revenues.
“LNG Canada, that will be helpful, but it isn’t utopia yet,” he added.
“We’ve got to start taking some of this product to international markets on the natural gas side.”
LNG Canada natural gas liquefaction plant and export terminal in Kitimat
Work nearing completion on the LNG Canada natural gas liquefaction plant and export terminal in Kitimat, looking south over the plant to Douglas Channell is seen on March 21, 2024. LNG Canada
The province has forecast oil and gas investment in Alberta will climb by seven per cent annually in 2025, reaching almost $35 billion.
A survey of industry executives in September, conducted by ATB Capital Markets, found they expect capital budgets to increase modestly and drilling activity to rise by three to five per cent next year.
“You will see, for the most part, a level of caution, just given the volatility that we have seen in oil prices” and gas, said ATB analyst Patrick O’Rourke.
Given this uncertain outlook, some energy investors want to see petroleum producers remain disciplined, return excess free cash flow to shareholders and not spend more to boost output in 2025.
“Our preference is to focus on just flat growth at a time when OPEC has near-record spare capacity,” said Eric Nuttall, a senior portfolio manager with Ninepoint Partners.
“Next year we remain constructive, but we’re not in an environment where there is a call on meaningful production growth, so companies can choose to either be part of the problem or part of the solution.”
Chris Varcoe is a Calgary Herald columnist.