Falling Oil Prices Means Investment Will Drop By A Third: CAPP

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FORT MCMURRAY, Alta. - The Canadian Association of Petroleum Producers is expecting oilpatch investment to drop by a third — or $23 billion — this year compared with 2014, while output is seen growing at a slower clip than previously predicted.

The oil and gas industry group normally releases its annual production outlook every June, but decided to provide a mid-year update on Wednesday given the "meaningful changes" that have occurred in crude oil markets, CAPP president Tim McMillan said in an interview.

Crude has been languishing below US$50 a barrel in recent weeks, less than half of where it was in mid-2014.

He cautioned the outlook is just a "snapshot in time" based on member feedback taken a few weeks ago.

The industry in Western Canada is expected to spend $46 billion this year, down from the $69 billion it shelled out last year.

Yet output is expected to grow to 3.6 million barrels a day in 2015. That's an increase of 150,000 barrels from last year. A similar rate of growth is expected in 2016.

However, the rate of growth is slower than previously expected — 65,000 barrels a day lower than what CAPP had previously forecast for 2015 and 120,000 barrels a day lower than what it had predicted for 2016.

Despite this, McMillan, the former Saskatchewan politician who became CAPP's new president last fall, said new pipelines are necessary to carry Western Canadian crude to market.

CAPP expects capital spending for to drop much more steeply in conventional oil and gas than in the oilsands — 42 per cent versus 24 per cent.

"I think that is a phenomenon based on the long-term nature of investments in the oilsands," said McMillan.

On the flip side, for conventional wells, projects are developed in a much shorter time and production declines much more sharply.

"I know that the effects here are likely being felt across the country," McMillan said.

Among those concerned about the knock-on impacts from lower crude is Malcolm Brost, who owns a welding and sandblasting business east of Calgary.

"This might just be a hiccup," he said while preparing to meet with customers in Fort McMurray, Alta., in the heart of the oilsands.

So far, Brost's business hasn't been affected, but he's bracing for tough times.

"The second quarter might be a lot scarier than this one," he said. "We exist because of oil and gas."

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