Scotiabank VP Patricia Mohr believes recovery in oil prices is underway
Price plunge has bottomed out, Mohr tells Newfoundland and Labrador Oil and Gas Industries Association
The dramatic plunge in oil prices that began last summer likely hit bottom in late January, and a continuous, slow recovery now appears to be underway.
That was the assessment of Scotiabank's top oil and gas analyst Patricia Mohr during her keynote speech to the annual general meeting of NOIA, the Newfoundland and Labrador Oil and Gas Industries Association, on Wednesday in St. John's.
The price for Brent crude, a benchmark for Newfoundland and Labrador oil, dropped below $50 US per barrel in recent weeks, the lowest it's been since the waning days of the last recession in mid-2009.
That's down by about 60 per cent from a peak of $115 in June of last year.
The sharp decline came as a surprise to even the most seasoned analysts, including Mohr, who is a vice-president with Scotiabank in Toronto.
"I personally was quite shocked to see that," said Mohr, who closely monitors the oil and gas sector, and the mining industry.
Signs of recovery
But there are now signs of a recovery, beginning last week with a report out of the United States that the number of rigs drilling for shale oil had dropped to a 30-year low.
Brent has now surged above $50, and Mohr expects this latest trend to continue.
"With that I think in the second half of the year the world's supply and demand balance for crude oil is going to move back into balance and we can expect somewhat higher prices," Mohr explained.
Mohr is forecasting that Brent will average $58 this year, and $68 in 2016.
"I think within a couple of years oil prices are going to move up to more normal levels, but we need to see probably quite a slowdown in drilling activity worldwide, which will slow production and bring supply back into line with just modestly growing demand around the world," said Mohr.
Province, companies feeling the pressure
The slump is having an negative impact on many countries, including Canada, where oil and gas accounts for almost 40 per cent of the nation's commodity exports.
In this province, where the government was counting on oil averaging $105, taxpayers are bracing for a deficit of more than $900-million for the current fiscal year.
Companies are also feeling the pressure of lower prices in the form of lower profits, delayed business opportunities and growth potential.
One of the most notable impacts came late last year when Husky announced it was delaying its much-anticipated White Rose extension project.
Despite the uncertainty, industry players remain upbeat about the long-term future for Newfoundland and Labrador's oil and gas sector.
There are three offshore oil fields in production, and a fourth — Hebron — scheduled to come online in about two years.
There's also great potential in the Flemish Pass and in the Labrador Sea.
When asked if she buys into this optimism, Mohr stated: "I think a lot of the offshore oil projects, the ones that are already underway, the oil companies will continue to develop those projects and bring them on stream, probably as originally planed.
"What is less certain is the outlook for exploration and development. There could be some delay, but the oil companies appear to be quite happy with their exposure in the Newfoundland offshore, so I certainly have optimism for the sector, at least over the medium term."
There have been 'dozens' of layoffs
It seems no one is ready to press the panic button, including Sean Power, the new chair of the Noia board of directors.
Power said companies are taking steps to reduce costs, including layoffs.
"Make no mistake about it, there will be, and there has been some layoffs from the cutbacks. Unfortunately, it's just the way the industry goes. It's cyclical," he said.
Power couldn't put a specific figure on the number of layoffs, but said it is in the dozens.
"We all need to be, especially now, more innovative and more competitive and more productive."