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Junior Canadian energy companies to cool capital spending

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Energy companies are expected to boost spending to explore and develop their global projects next year, but Canada is expected to miss out on most of the rise – particularly at the junior level.

The findings come out of a major international survey conducted by Barclays Capital, which questioned more than 300 energy companies about their expectations for capital spending in 2013. Analyzing the results, Barclays expects total global spending to rise by seven per cent to a record $644-billion, but in Canada the amount spent is expected to be much less aggressive.

"Lower natural gas prices (which have rebounded somewhat), modestly reduced WTI oil prices, volatile differentials in Canada, lower [natural gas liquids] prices, logistical challenges in many newer oil plays and a desire to spend within cash flow" are constraining how much companies can spend, Barclays noted. In Canada, $44-billion (U.S.) was spent in 2012 on energy projects.

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However, there is a distinction between the biggest energy names and those who operate on a much smaller scale. Canada's junior producers, which have budgets of less than $100-million, are expected to cut back the most – about 20 per cent. Larger companies, meanwhile, are expecting spending to be flat or slightly higher.

The difference stems in large part from the energy giants engaging in things like joint ventures in order to share the burden of the costs. Plus, as we all know by now, a bunch of Asian companies want in on Canada's energy assets.

There is one major caveat to the findings. If natural gas prices roar back next year, there will be a rush of new spending to drill and explore.

Capital spending in the U.S. is also expected to soften, but the same isn't true outside of North America. "Spending growth in 2013 should be almost entirely driven by the international markets where we estimate capital budgets will jump by 9 per cent as the international and offshore cycles continue to build momentum and commodity prices remain at attractive levels," Barclays noted.

About $604-billion was spent globally in 2012, and Barclays expects even more to come. "Sustained high oil prices, the sanctioning of major projects, and the delivery of a large number of offshore rigs in both 2012 and 2013 are driving the increases in spending."

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More


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