Egress Underpins 2025 Growth as 2024 View Weakens

We present the results from the spring 2024 edition of ATB Capital Markets’ semi-annual Energy Sector Survey. Our survey garnered responses from executives representing 24 energy services companies, 26 exploration and production (E&P) companies, and 30 institutional investors. Our survey collection period spanned from April 4, 2024 to April 18, 2024. Highlights:

More Moderate 2024 Outlook, Though Sentiment Remains Healthy
Underpinned by sustained optimism regarding long-term commodity prices, the spring 2024 survey turned out relatively healthy levels of sentiment with key forward looking indicators remaining firmly positive. Digging deeper, we find a growing sentiment gap between E&Ps that are increasingly optimistic and energy services companies where outlooks have waned. Further, institutional investor respondents continue to expect outperformance by energy stocks, but to a lesser degree than in the fall 2023 survey.

Despite general optimism and expectations for mild y/y growth, the outlook for Canadian activity levels and production have tempered since the fall 2023 survey. In addition, the potential impact of a severe drought continues to loom, with the majority of E&Ps viewing its potential impact as “marginal” while the majority of energy services companies view it as “significant”.

Major Infrastructure Projects Bolstering Medium-Term Outlook
West coast LNG and crude pipeline projects ranked as the top two perceived opportunities facing the Canadian energy sector over the next three to five years. As such, the recent commissioning of the Trans Mountain pipeline expansion, and the expected commissioning of LNG Canada were clearly identified in the spring survey as fundamental drivers of optimism, activity growth, and improving economics. 

Regarding optimism, survey responses suggest that the industry expects the capacity additions from TMX to be sufficient to meet growing supply until at least 2028, and survey takers strongly believe that LNG Canada phase two will move forward. Regarding activity, the majority of energy services companies expect LNG exports to be a significant activity driver in 2025, while they view it as marginal in 2024. Regarding improving economics, E&Ps broadly expect WTI-WCS differentials to tighten over the next 12 months, providing improving economics to Canadian producers.

Growth Climbs in E&P Capital Allocation Hierarchy
Despite that 80% of survey respondents believe North American E&Ps will largely adhere to low-growth high-shareholder return strategies over the next 5-10 years, ‘growth capex’ was ranked as the top capital allocation priority for both public and private E&Ps in the spring 2024 survey. 

In aggregate, growth capex was ranked as the top capital allocation priority by 52% of E&Ps—up from 8% in the fall 2023 survey, while 72% ranked it as a top two capital allocation priority—up from 50% in the fall survey.