Infrastructure Quarterly

Issue Q2 2018

Russell Ketter

Russell Ketter

Senior Vice President
Western Region,
Wells Fargo Equipment Finance Canada

Western Canada

As I write this update, recent industry trends show optimism in the energy sector. The price of oil rose for a second straight week1 and the OPEC/Non-OPEC cooperation in production targets continues2. This agreement, going forward, might have an effect of rising oil prices into 2019. Other positive indicator for the energy industry was the recent Baker Hughes update in active rigs. Baker Hughes advised that additional oil rigs were deployed into the U.S. in mid-April leading to a total of 820, which is the highest total since March 20153. In addition, Energy Information Administration (EIA) estimates that U.S. crude oil production is now more than 10.4 million barrels per day and will set a new record by growing to 10.7 million barrels of oil per day by the end of 2018.4

Closer to home in Western Canada, there has been continued positive news with oil production, oil prices, and capital spending all on the rise which has begun to stimulate the Alberta economy. For example, the Conference Board of Canada forecasts an average crude oil global production rate of 1.62 million barrels per day in 2018 compared to 1.60 million barrels per day in 20175. Furthermore, energy product exports increased 8% in February YoY6 and Alberta led the country with its GDP growth rate at 4.3%7. This was largely due to the 2017 winter drilling season, which initiated a return to growth and employment gains in the sector.

Furthermore, gas prices are currently on the rise. According to EIA, the Natural Gas Henry Hub prices increased in April because of the unseasonably cold weather conditions and the prospect of an extended withdrawal season. The average futures contract for July 2018 indicates a range of $2.30 MMBtu to $3.43MMBtu.8

Delayed oil pipeline construction is causing steep discounts for Canadian crude costing the Canadian economy at least $10.7 billion in 2018, as reported by economists at Bank of Nova Scotia. And as stated by the Fraser Institute, if Western Canada was able to export just an extra 1 million barrels of oil per day to markets accessible from ocean ports, this would translate to $4 billion with oil at just $60 a barrel.

While all recent positive data on oil and gas prices, production rates, and exports bode well for the energy industry and Western Canada, there are significant challenges facing the industry that could negatively impact the Western Canada’s oil producer’s profitability this year. For example, the Conference Board’s industry profitability index rose slightly by 0.6% in March 2018 for oil extraction, but dropped in March 2018 by 0.9% for gas extraction.9

Our team members at Wells Fargo Equipment Finance are experienced in the industry, understand the industry, and can provide guidance on how best to structure your equipment financing needs. Let us work with you to uncover opportunities to turn assets into revenue and revenue into profits, while also increasing efficiency and reducing expenses.

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.

1. http://www.infomine.com/investment/metal-prices/crude-oil/1-month/

2. http://www.opec.org/opec_web/en/press_room/4963.htm

3. http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-rigcountsoverview

4. https://www.eia.gov/outlooks/steo/

5. https://www.conferenceboard.ca/e-library/abstract.aspx

6. http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/gblec04-eng.htm

7. http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/labr67a-eng.htm

8. https://www.eia.gov/outlooks/steo/

9. http://www.conferenceboard.ca/reports/leadingindicator/default.aspx