As Canadian and U.S. oil producers slash investment, OPEC members double-down on spending
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If you’re long resource and you don’t think you can produce it in the time horizon that makes sense to you, then producing it now is a profit-maximizing strategy
Ian Nieboer, managing director, Enverus
“If you’re long resource and you don’t think you can produce it in the time horizon that makes sense to you, then producing it now is a profit-maximizing strategy,” Nieboer said.
By contrast, Nieboer said most private sector oil producers, and especially mid-sized operators in Canada, have been “trying to keep their heads above water” this year and don’t have the same ability to spend capital to grow production.
The United Arab Emirates also raised eyebrows earlier this month when one of its government officials questioned the advantage of being an OPEC member, which some interpreted as the country’s desire to quit the group and pump oil without constraints or quotas.
“The UAE is a little bit annoyed with some of the non-compliance players in OPEC,” said Skinner. He dismissed the idea that the UAE would leave the oil cartel, saying mutterings about non-compliance are commonplace.
Skinner, an executive fellow at the University of Calgary School of Public Policy, added that he doesn’t expect the UAE to leave OPEC and interprets Abu Dhabi’s spending plans as a potential way to boost production from its key Murban oilfield, which the emirate is promoting as a benchmark crude.
“The problem is you have to have liquidity for a reference crude. There may be some interest in investing to bring up the production of Murban,” he said.
While state-owned oil producers are focused on capturing new opportunities, North American producers are hemmed in by institutional investors who are demanding capital discipline after years of paltry returns, even before the disastrous collapse in oil prices in 2020.
