Infrastructure Quarterly

Issue Q1 2018

Russell Ketter

Russell Ketter

Senior Vice President
Western Region,
Wells Fargo Equipment Finance Canada

Western Canada

Over the last few weeks, I have heard the phrase ?there is light at the end of the tunnel,? mentioned a number of times in numerous publications as it relates to the energy industry. There are a number of factors that have led me to finally believe this statement is true.

Firstly, the leading indicator of profitability for the oil extraction sector increased 1.8% in October YoY1 . West Texas Intermediate (WTI) prices increased 3% YoY in October and at time of writing this article, oil prices were trading over $63 per barrel2. Crude inventories are on the decline due to a number of factors including sagging production due to hurricane-related disruptions, and the extension of the OPEC and non-OPEC supply reduction agreement3. In addition, according to Stats Canada, the employment in the Canadian energy industry increased 2% in November and the province of Alberta added more than 20,000 jobs from January to November of 2017.

While those are very positive indicators for 2018, there are some legitimate concerns that should be taken into consideration. Most notably, it is the continued issue in Western Canada surrounding the increasing gap between WTI and Western Canada Select (WCS). The cancellation of the two major infrastructure projects, Energy East and the Pacific Northwest plant4, might have greatly affected the WTI and WCS differential, in fact, the Canadian Association of Oilwell Drilling Contractors (CAODC) forecasted 6,138 wells to be drilled in 2018, an increase of only 107 from 2017. Lastly, the gap between WTI and WCS could be further impacted by increased U.S. crude oil production. The Energy Information Administration (EIA) forecasts total U.S. crude oil production to average 9.2 million barrels per day (b/d) for all of 2017 and 9.9 million b/d in 2018 which would mark the highest annual average production, surpassing the previous record of 9.6 million b/d set in 1970.

One final note of optimism in Western Canada is that our customers in the oilfield service sector continue to advise that recent rate increases in the field have led to an overall margin improvement in 2017. This very encouraging trend will bode well for the energy industry in Western Canada in 2018. While my original statement ?there is a light at the end of the tunnel? can be viewed as a truism, all of the recent positive industry indicators lead me to believe that in 2018 the energy industry will continue to improve.

Wells Fargo Equipment Finance can structure multiple financing solutions that fit this ever-changing energy environment. Our equipment financing team members want to make financing equipment as simple as possible. We understand the industry, and can provide guidance on how best to structure your equipment financing needs.

As Senior Vice President of sales, Russell Ketter has led an asset?based sales team in Western Canada for more than 17 years. He has been successful in driving year-over?year growth in new business volume and profitability within the region. Russell?s practical approach and smart business philosophy have given him the ability to lead business growth by simultaneously focusing on his customers and team.