Archives for May 25, 2019

The energy sector’s increase in operating profit outpaced all other major Canadian industries

Canada’s energy sector saw a big bump in profit in the first quarter this year as rising oil prices helped businesses swing from a loss in the previous quarter, according to the latest federal government data.

Operating profit for companies in oil and gas extraction and support services rose by $1.6 billion in the first three months after a loss of $678 million in the fourth quarter of 2018 to $909 million, according to Statistics Canada.

“This increase was attributable to a rise in oil prices,” the report said.

Even though global oil prices have been facing volatility this week — along with the rest of the stock market — on concerns over the impact of the trade war between the United States and China, prices have skyrocketed since the start of the year.

Benchmark U.S. oil — West Texas Intermediate — is up nearly 30 per cent this year to $58.45 US a barrel. It shot up above $60 a barrel in March for the first time in 2019. 

Meanwhile, Western Canadian Select oil has jumped more than 45 per cent to over $41 a barrel.

Energy led gains among all industries

The gain in operating profit in the energy sector outpaced all other major Canadian industries in the first quarter.

The manufacturing and real estate sectors were the only other major industries that saw operating profit increase, while it declined for financial, technology, wholesale trade and retail sectors, according to Statistics Canada.

Even within manufacturing, operating profit for petroleum and coal product manufacturers rose 5.6 per cent “due to higher oil prices,” the report said.

But, the government agency also pointed out that inventory levels among oil and gas companies grew in 2018. The Alberta government had introduced mandatory production cuts in Decemberto buoy the price of Canadian oil.

“It seemed that as pipelines and railcars reached their full capacity, producers could not get their crude oil to market and had to put barrels into storage tanks,” the report said. “Ultimately, this translated into higher inventories in the balance sheet of Canadian enterprises in the oil and gas extraction and support activities.”

Operating profit down in Canada

Meanwhile, overall operating profit among all Canadian businesses fell 0.3 per cent to $107 billion in the first quarter from the previous one.

The mixed picture for Canadian businesses, varying by sector, is not surprising — considering many economists expect growth in the first quarter to be subdued.

On the lower end of market consensus, Brian DePratto, senior economist at TD Economics, is forecasting that the Canadian economy grew at an annualized quarterly rate of 0.4 per cent in the first three months — the same as in the previous quarter.

“A very weak export performance, measurement differences, and a downgraded picture of construction activity from Statistics Canada all point to quarterly GDP underperforming the monthly indicators,” he said in a note on Friday.

The first quarter GDP data is scheduled to be released May 31.

Canada’s main stock index ended a two-day skid as a flash of optimism on trade lifted oil prices, but not enough to prevent the worst week for crude this year.

The S&P/TSX composite index closed up 65.43 points to 16,230.04.

In New York, the Dow Jones industrial average was up 95.22 points at 25,585.69. The S&P 500 index was up 3.82 points at 2,826.06, while the Nasdaq composite was up 8.73 points at 7,637.01.

The Canadian dollar traded at an average of 74.37 cents US compared with an average of 74.19 cents US on Thursday.

The July crude contract was up 72 cents at US$58.63 per barrel and the July natural gas contract was up 1.9 cents at US$2.61 per mmBTU.

The June gold contract was down US$1.80 at US$1,283.60 an ounce and the July copper contract was up 1.9 cents at US$2.70 a pound.

Torstar Corp. says it will close its Hamilton printing and mailroom operations this summer and look at selling the property.

The newspaper publisher says the printing work done at the facility will be transferred to TC Transcontinental Printing and other Torstar-owned facilities as well as other external printers.

The decision will affect approximately 73 full-time and 105 part-time staff.

In connection with the move, Torstar says it has extended its printing arrangements with TC Transcontinental Printing to 2024.

Torstar expects to save approximately $4 million to $6 million annually once the change is fully implemented. It expects to record a roughly $6-million restructuring charge in connection with the closure.

If the property is sold, the company says it expects the Hamilton Spectator will continue to operate a head office in a new location in the Hamilton area.

“This was a difficult but necessary decision in order to operate more efficiently,” Torstar chief executive John Boynton said in a statement.

“This is in no way a reflection of the print and mailroom quality at the Hamilton facility, but rather a decision based on aging presses and more cost-effective alternatives.”

The notion of a pan-Canadian corridor dedicated to rail, power lines and pipelines has been around for at least half a century but it looks like it’s about to get a big publicity boost.

Last week, Conservative Leader Andrew Scheer used a major pre-election policy speech to dust off a similar idea. Scheer promised, if he wins October’s election, that he would to work towards establishing a cross-country “energy corridor.”

He said planning for the route would be done up front, in consultation with provinces and Indigenous communities. A right-of-way would make iteasier to lower environmental assessment costs, improve certainty for investors and increase the chances more projects will be built, Scheer said.

Interest in a coast-to-coast corridor has picked up in recent years. Energy infrastructure proposals have failed to secure approval due to tough regulatory processes and community concerns over environmental impacts.

For instance, the shortage of pipeline capacity out of oil-rich Alberta has created a bottleneck that’s harmed both the provincial and national economies. Sellers have had to sell at deep discounts because there simply isn’t the transportation capacity to get oil to willing buyers.

In the last few years, a few academics and senators have recommended the federal government give the corridor concept a serious look, even though making it happen would be a big, multi-jurisdictional undertaking.

Scheer’s pitch appears to have drawn inspiration from a 2016 University of Calgary paper that offered possible solutions through a northern corridor for transportation and infrastructure.

G. Kent Fellows, who co-authored the report, said the right-of-way could be used for roads, rail, pipelines, electricity transmission lines and telecommunications. The study’s proposed 7,000-kilometre corridor would also serve communities well north of the existing east-west routes that run closer to the U.S. border. In concept, a main line and offshoots would connect ports in northern British Columbia and the Northwest Territories to Churchill, Man., eastern Quebec and Labrador.

The hurdles of consultations and regulatory oversight for new projects are significant, Fellows said.

“Those regulations are definitely there for a reason, but we were trying to come up with a better model,” he said.

Dedicated infrastructure corridors have had success in other jurisdictions, including Europe and Australia, Fellows said.

Pipelines are very good at generating economic benefits at both ends of the line, and not so much in the middle — but roads, rail, electricity and telecom can help people all along the route, Fellows said.

“You might not make everyone 100-per-cent happy, but the goal is to try to make everyone a little bit happier than they are now,” said Fellows, who co-wrote the paper with Andrei Sulzenko.