The Energy Crisis in Canada — Graphed

What’s to say that hasn’t been said already. This week alone, Exxon Mobil and Royal Dutch Shell cut dividends. Most Canadian EPs have too. Will this be enough to save them?

RBC predictions on GDP growth in Canada look less severe than Europe, but still moderate. Of course it’s too early to tell what the true impact of COVID will be, but let’s assume a 5-10% reduction, including productivity.

In the last seven weeks, 24 Canadian producers under have reduced spending plans. Many producers have made multiple reductions and some have begun to withdraw guidance. Capital budgets have decreased 32% on average. Integrated/oil sands producers have reduced 31%, gas-weighted E&Ps have reduced 25%, and oil-weighted E&Ps have reduced 41%. Producers spent 50-60% of capital budgets in Q1, versus the historical average of 35%.

With massive reductions in capital spending and dividend cuts, the question remains: is it enough. Government will only hold for so long. The damage to free cash flow is already clear.

We’re about to breach 2016 levels, with an added demand shock driving cash flows further down. Oil prices are expected to remain low for the foreseeable future. I’m always looking for times to bite, but is now the right time? I made that call in the fall of 2020 and loaded up on energy stocks, which did return 20-30% before the collapse. I say hold tight until we have more economic clarity.

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