Energy Sector Sentiment Gaining Momentum in 2022
Tim Monachello, CFA 403.539.8633
We present the results from the second semi-annual iteration of the ATB Capital Markets Energy Sector Survey. We broadly polled Canadian energy services companies, exploration & production companies (“E&P”) and institutional investors for their views on the energy sector including commodity price outlook, activity outlook, capital spending expectations, production growth expectations, capital allocation priorities, ESG policy, energy transition exposure, investor sentiment towards the energy sector, and implications of recent macro events including the Russian invasion of Ukraine. Our survey garnered responses from 44 energy services companies (up from 34 in our inaugural survey), 35 E&Ps (up from 31), and 24 institutional investors (up from 6). Our survey collection period spanned from March 17 to March 31.
Outlooks Improving Across the Energy Sector
Alongside increasing commodity price expectations, E&Ps and energy services companies alike reported strong sentiment indicators regarding their outlooks and business activity over the next six months; 89% of E&Ps surveyed reported strengthening outlooks over the next six months, and 91% of energy services companies expect increasing activity levels (seasonally adjusted) over the period. No E&P or energy services company reported weakening activity or outlook. We note that E&P expectations for capital spending increased relative to our fall 2021 survey period, and 60% of E&Ps polled expected more than 5% production growth over the coming 12 months, compared to just 39% at the time of our fall 2021 survey.
Cost Inflation and Service Price Increases Expected to be Widespread
Energy services companies overwhelmingly reported expectations for continued cost inflation over the next six months, which, when combined with unanimously aligned expectations for increased net pricing to E&Ps, has led to expectations for increasing well costs for E&Ps in 2022 over 2021. We note that while 94% of E&Ps expect increasing energy services pricing over the next six months, the magnitude of E&P expectations is more modest than energy services companies.
Institutional Investors Largely Expecting Energy Outperformance
67% of institutional investors surveyed noted their expectations that energy companies will outperform the broad market (TSX/S&P 500) over the next 12 months. Only 17% of respondents expect energy stocks to underperform the index, and 17% expect energy to perform in-line with the index. We note that this optimism did not necessarily translate to higher expected energy allocations, with just 29% of respondents expecting to increase energy allocations over the next six months.
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