Canadian Producers Prioritize Debt Repayment Over Production Growth

Canada's oil and gas drillers are taking advantage of the surge in global oil prices to shore up their balance sheets or reward shareholders, rather than increasing production. Oil futures have risen to nearly US$120 a barrel from around US$65, providing a windfall for Alberta producers who weathered low prices and pipeline bottlenecks over the past decade.

Cenovus Energy Inc., one of Canada's largest oil sands producers, plans to accelerate the repayment of debt acquired through its acquisition of MEG Energy Corp. last year, said chief executive Jonathan McKenzie at the BMO CAPP Energy Symposium in Toronto. Birchcliff Energy Ltd. expects an additional $80 million in cash flow this year from its oil production and will use that money to pay down debt, according to chief executive Christopher Carlsen.

Oil prices have surged due to the ongoing war in Iran, prompting Canadian producers to adopt a more disciplined approach to capital expenditure. Shareholders have grown accustomed to quicker payouts, leading to incremental production growth through expansion projects at existing facilities rather than new developments, said Randy Ollenberger, head of oil and gas research at BMO Capital Markets.

While some companies are benefiting from the higher cash flows, others are taking a more cautious approach. Tourmaline Oil Corp., Canada's largest natural gas producer, is experiencing higher cash flows due to its liquefied natural gas exports off the U.S. Gulf Coast, but production will be down in the first half of the year due to depressed natural gas prices in Canada after a warm winter on the North American West Coast.