ATB Capital Markets Spring Energy Sector Survey Reveals Cautious Long-Term Optimism and Increased Focus on Growth in Canada Amidst Tempered 2024 Outlook

• 91% of polled executives reported sustained optimism regarding long-term crude prices
• The majority of energy services companies expect Canadian LNG exports to be a significant activity driver in 2025, and 81% of all respondents expect LNG Canada phase two to progress
• Two-thirds of respondents cite federal energy and environmental policies as the top industry risk, while growth capex is the priority capital allocation for over half of Canadian energy producers 
• 78% of respondents believe AI technologies will have a marginally positive impact on their companies over the next three to five years

CALGARY, AB, May 8, 2024 /CNW/ - The Spring 2024 Energy Sector Survey ("Energy Survey" or "Survey") conducted by ATB Capital Markets, revealed tempered expectations for 2024 with sustained long-term optimism. This sentiment is underpinned by constructive commodity prices, nearing completion of major infrastructure projects, and shifts in capital allocation toward growth.

"This bi-annual survey serves as an essential instrument for engaging with the market and deepening our understanding of the energy sector. It strengthens our ability to provide tailored advice and solutions that enhance our clients' success. Our dedication to the Canadian energy sector spans over many decades and extends beyond mere transactional support; it's about fostering growth and providing value to our clients at each step," stated Darren Eurich, CEO of ATB Capital Markets.

On the findings of the survey, Waqar Syed, Managing Director, Head of Research commented, "While pointing to a conservative outlook for the immediate year, the survey reveals a resilient industry that is strategically poised for future growth. The shift towards prioritizing growth capital further highlights the sector's adaptability and forward-thinking approach in a complex and evolving market landscape."

The semi-annual Energy Survey, conducted between April 4 and April 18, 2024, gathered insights from 80 executives representing exploration and production (E&P) companies, energy services companies and institutional investors. The survey covered a range of topics, including macro sentiment, market and business outlooks, capital allocation priorities, and energy sector risks and opportunities for the next three to five years.

Among the survey's key findings:

Positive Market Sentiment Despite Tempered Growth Expectations for 2024:
The survey reveals an overall positive market sentiment, anchored by enduring optimism for long-term commodity prices. Over the next three to five years, 91% of participants anticipate WTI to average above US$75.99, while 77% predict NYMEX gas prices to exceed US$2.50/mcf.

The optimistic commodity price forecast supports a shared confidence over the next six months for both exploration and production ("E&P") and energy services companies. Notably, 88% of E&P respondents expect improved prospects, and 58% of energy services companies predict increased activity levels. Institutional investor sentiment remains solidly positive, with 67% forecasting the energy sector to outperform in the next 12 months.

However, expectations for growth in 2024 have dampened since ATB Capital Market's Fall 2023 survey. The proportion of energy services companies projecting a year-on-year increase in 2024 field activity dropped from 90% in the Fall 2023 survey to 71% in this survey. The sentiment reflects similar trends in E&P production, where the percentage of respondents anticipating growth over the next 12 months fell from 88% in the Fall 2023 survey to 69%.

This decrease in expected growth for 2024 aligns with energy services companies reporting diminished prospects over the past three months. The potential impact of a severe drought has influenced the outlook, with the majority of energy services companies considering it to be of significant consequence.

Major Infrastructure Projects Fuel Medium-Term Optimism
The Trans Mountain pipeline expansion ("TMX") and the anticipated commissioning of LNG Canada in 2025 were identified as key drivers of optimism, activity growth, and improving basin economics. Over 60% of respondents anticipate the pipeline adequately meeting capacity demands through at least 2028. The survey revealed strong consensus among respondents, with 81% expecting a positive final investment decision for the second phase of LNG Canada.

In terms of the expected influence of Canadian LNG exports on activity levels, responses from energy services executives suggest marginal impact in 2024. However, they foresee a rise in activity, with the majority predicting LNG to become a significant activity driver by 2025.

Federal Policies Remain Top Industry Risk; Capex Growth Rises in Priority
Federal energy and environmental policies rank as the top risk for the fourth consecutive survey, with 74% of respondents identifying them as the primary risk and 97% placing them among the top three risks. The accessibility and cost of capital emerged as the second most significant risk to the Canadian energy sector over the next three to five years, according to respondents from energy services, E&P and institutional investor groups.

While 80% of survey respondents believe North American E&Ps will predominantly stick to low-growth, high shareholder return strategies in the next five to ten years, recent surveys suggest a growing focus on growth capital in E&P capital allocation. In total, 52% of E&Ps identified growth capex as their top capital allocation priority, a significant increase from 8% in the Fall 2023 survey. Further, 72% ranked it among their top two priorities, up from 50% in the previous survey.

Nevertheless, institutional investors remain primarily focused on shareholder returns and debt management, suggesting a diversion in priorities between the upstream sector as a user of capital and the institutional investment community as a source of capital.

Examining capital spending expectations for the year, E&Ps largely expect to maintain their initial capital budgets in 2024 with average expectations for modest year-on-year capital expenditure growth. Similarly, energy services companies are planning a modest year-on-year capex increase in 2024, with 46% intending to boost maintenance and sustaining capital expenditure. Notably, artificial intelligence stands out for many sectors as an area of opportunity. Still, a significant 78% of respondents believe AI will have a marginally positive impact on their companies over the next three to five years.

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