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The question of how the U.S. levy and counter-tariffs could ripple through the sector is crucial, as trade disruptions could freeze investment and increase costs
Chris Varcoe • Calgary Herald
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As one of the country’s largest integrated producers with upstream operations and downstream refineries, Cenovus announced in December a $4.8-billion capital program for this year, with $1.6 billion allocated toward growth initiatives.
The company is in the final year of a three-year growth cycle, expecting to add about 150,000 barrels of oil equivalent (boe) per day by 2028.
During the fourth quarter, it produced 816,000 boe per day and forecasts output will average 825,000 boe per day this year.
For the Canadian oilpatch, crude prices remain relatively healthy, trading around US$72.50 on Thursday, and with a low dollar and strong corporate balance sheets, it should be a time for modest growth.
However, the biggest wild card remains tariffs. Across the oil and gas sector, companies are trying to understand the implications of a potential trade war between the United States and Canada.
U.S. President Donald Trump has threatened to slap 10 per cent tariffs on energy imports from his northern neighbour — possibly starting next month — and 25 per cent on other products.
Ottawa pledges it will retaliate if that happens.
Energy is the largest item that Canada sells to the U.S., with exports topping $170 billion in 2024.
The question of how the U.S. levy and counter-tariffs could ripple through the sector is crucial, as trade disruptions could freeze investment and increase costs.
Trican Well Service, a Calgary-based well completion firm, reported Thursday its overall outlook in Canada is positive for fracking and cementing services, but it also cautioned that tariffs — and retaliatory action by Canada on U.S. inputs such as sand — could increase well completion costs.
“Will it impact activity levels with our customers? It’s still too early to draw any firm or definite conclusions. At this point, there’s way more questions than answers,” company CEO Bradley Fedora said on an earnings call Thursday.
“But a 10 per cent U.S. tariff on energy, we don’t expect it to have a big impact on any activity here in Canada.”
Whitecap Resources, one of the country’s largest conventional oil and gas producers, isn’t adjusting its $1.15-billion capital budget for the year, said CEO Grant Fagerheim.
The Calgary-based company, which also released its fourth-quarter results on Thursday, expects to produce an average of about 178,000 boe per day in 2025.
With the winter drilling season in full gear and a seasonal slowdown typically occurring during the spring, the budget is “almost set in stone,” Fagerheim said in an interview.
“We’re not slowing up at this particular time,” he said.
“But I do think that you’re really going to have to recalibrate should the 10 per cent tariff come in. Approximately 60 per cent of our oil production ends up in the U.S., so it’s not catastrophic, but it does have an impact.”
It’s not an inconsequential issue.
If tariffs on oil were imposed for a full year, it could potentially lead to about $100 million in lost cash flow for the company, if Canadian petroleum producers were forced to bear the full brunt of the U.S. levy — through lower oil prices — instead of American consumers or refiners.
But the key question of who will ultimately foot the bill for any tariffs remains unanswered. Analysts say it will depend, in part, on the ability of U.S. refiners to access other crude that can replace Canadian barrels.
“There’s been a lot of discussion through industry, and through the press, on who’s going to be impacted by this, and it’s actually a pretty difficult question to answer,” McKenzie said Thursday.
“It’s really not clear to us who’s going to pay which portion of the tariff, as well as what the overall impact would be to the company,” he said.
“We’re watching the price signals very closely to get a feel for that. And if we are in a world, unfortunately, in March where tariffs do come, we will watch those price signals and react accordingly.”
An oil pumpjack is pictured with a drilling rig in the background at a work site in Alberta. Postmedia file
While the tariffs haven’t been imposed and are on pause until next month, it doesn’t mean they’ve not affected the energy sector.
The price differential between U.S. West Texas Intermediate (WTI) crude and Western Canadian Select heavy oil sat at US$14.71 a barrel on Wednesday and has widened since Trump’s election in November, according to data from ATB Financial.
Menno Hulshof, managing director of equity research at TD Cowen, pointed out that the Canadian energy index has underperformed its U.S. counterpart by 5.5 per cent since Jan. 10, reflecting the uncertainty caused by tariff talk.
There are also early signs that more oil that moved through the Trans Mountain pipeline to the Pacific coast for export this month was headed overseas than was sent into the U.S. market, he noted.
The broader issue for the Canadian industry is what happens if there is no clarity on tariffs in the coming months.
“I don’t think we’re going to see any sort of a real shift in spending patterns across the industry on the back of this risk in 2025, until we know definitively that tariffs are being imposed,” Hulshof said.
“But it’s possible there’s a scenario where this just hangs out there for a significant amount of time,” Hulshof said.
Chris Varcoe is a Calgary Herald columnist.
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