Optimism abounds as recovery marches forward.
Tim Monachello, CFA 403-539-8633
We are pleased to present the results from our inaugural ATB Capital Markets Energy Sector Survey, which received wide-spread corporate participation with responses from 34 energy services companies (59% response rate) and 31 E&P companies (73% response rate). We surveyed 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, and various other topics.
Majority of E&Ps Expecting Healthy Commodity Prices Near and Long-Term
The majority of energy producers and investors surveyed are expecting improved WTI crude prices and stable gas prices over the next 12 months. Longer-term (3-5 years), respondents believe WTI crude prices should normalize in a healthy price range with 46% expecting US$55-US$65/bbl and 46% expecting prices above US$65/bbl. Regarding long term NYMEX gas prices, 62% expect average prices to retreat into the US$2.50- US$3.50/mcf range over the next 3-5 years, in line with the trailing 10-year average price.
Increasing E&P Budgets, Production and Field Activity Levels
Eighty-four per cent of E&P companies polled characterize their outlook as improving over the next six months, and 74% of energy services respondents expect business activity to increase over the period. This level of optimism is supported by 68% of E&Ps, which are expecting higher exploration and development spending in 2022 over 2021, and 90% of E&P respondents expecting production growth over the next 12 months.
Capital Conservation Remains a Core Tenet of Energy Sector Strategies
Both E&Ps and energy services companies ranked debt repayment as their top capital allocation priority over the next 12 months. Past this, E&Ps ranked dividends, M&A, organic growth capex, and share repurchases in close succession as lower priorities. Organic growth capex was a clear second priority for energy services companies.
Energy Companies Expect Persistent Cost Inflation and Service Price Increases
There is a clear consensus among both energy services companies and E&Ps that input costs have been rising and are expected to rise further over the near-term. Fifty-two per cent of E&Ps reported service price inflation over the past three months and 84% are expecting higher prices over the next six months, which is consistent with 84% of service companies planning pricing increases over the same period. That said, higher service pricing is only expected to result in higher operating margins for 38% of energy services companies.
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