Canadian oil in a good place, says BMO’s top energy banker

Near-term picture for the industry will likely be characterized by volatility

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The flagging productivity of some US shale fields and expanded crude-takeaway options could be a boon for Canadian drillers, the Bank of Montreal’s top energy banker said.

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“In the US, there have been some question marks around whether some of the basins are starting to get a little bit fatigued or starting to see some of the type curves come down — we haven’t seen that in Canada,” Bradley Wells, head of energy for BMO Capital Markets, said in an interview.

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Canada’s three main unconventional fields — the Montney, Deep Basin and Duvernay — “are still going strong, and obviously the oilsands are the big producer in the room, and there’s very little risk for their resources.”

Such a favorable setup would be a turnabout for an industry that has suffered from steep discounts on its crude over the past decade as new pipelines were rejected by governments or scrapped by their planners. Wells sees egress no longer being a concern since Enbridge Inc.’s Line 3 entered service in 2021 and with the government-owned Trans Mountain expansion set to start up early next year.

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The near-term picture for the industry will likely be characterized by volatility in prices as the path for interest rates, inflation and China’s demand buffet markets, Wells said. OPEC’s unexpected output cut announced over the weekend of April 1-2 is a reminder of the surprises that can happen in the oil market but also underscores the cartel’s commitment to maintaining prices, he said. A “decade of underinvestment” in new production should also support prices over the longer term, he said.

Wells spoke the day before his firm was set to co-host the BMO Capital Markets CAPP Energy Symposium in Toronto on April 5. BMO is sponsoring the conference, alongside the Canadian Association of Petroleum Producers, for the first time. Bank of Nova Scotia was the event’s previous bank sponsor.

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Canada is the world’s fourth-largest oil producer, and Alberta’s oils and represents the world’s third-largest reserve of crude.

Still, the oilsands are one of the highest-emitting sources of oil in a world trying to turn toward less-carbon-intensive forms of energy. That has put Prime Minister Justin Trudeau in the difficult position of trying to meet the country’s climate commitments without crippling an industry that accounts for a significant portion of the country’s economy and exports.

An industry group called the Pathways Alliance has put forward a plan to zero out the emissions from the oilsands’ production by 2050, largely through a massive carbon-capture project. Trudeau’s most recent budget included additional funding for a previously announced carbon-capture investment tax credit, though his government has said it will be hard-pressed to keep pace with the massive subsidies in US President Joe Biden’s Inflation Reduction Act.

Carbon capture is the “most actionable, impactful” thing the industry can do to cut emissions in the near and medium term, Wells said.

“It’s a very complicated situation, but it’s clear that the stakeholders are all at the table trying to find something that works for everyone.”


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