Canadian Oil Producers Expect Less Activity in ’89

Wary over the ability of the Organization of Petroleum Exporting Countries to maintain its latest production accord, Canada’s oil industry is expecting a sharp decline in activity this year.

The president of one of Canada’s largest petroleum companies says that most firms will play a waiting game in 1989.

“No one believes OPEC will near its price target of $18 in the near term, and companies are setting their budgets based on cash flow from $14 to $15 oil,” said the top executive who spoke on the condition he not be identified.

“Companies will survive at that level, but very few will make major expenditures they can’t postpone. Basically everyone is going to retrench, keep themselves financially strong and wait for prices to recover,” he said.

OPEC has an agreement for the first 6 months of the year designed to reduce production and boost the world price of oil. But industry analysts are divided on whether the cartel can stop the excess production by members that has undermined previous similar accords.

Petroleum analysts say the one bright spot in the oil patch may be the sales of natural gas, with exports to the United States expected to match or exceed the record of 1.3 trillion cubic feet reached in 1988.

Also, they say that gas prices, unlike oil prices, are believed to have bottomed out.

However, the analysts point out that Canadian domestic and export pipelines are nearing capacity, limiting the industry’s ability to cash in on increased demand. Also, competition from fuel oil could limit potential gas price increases.

The Canadian Petroleum Assn. has been predicting a 25% decline in industry capital expenditures. It also expects the number of wells drilled in 1989 to decline to about 6,000 from more than 8,500 in 1988.

Association Vice President Hans Maciej told Reuters that most companies probably will not revise their exploration budgets until they are confident that the OPEC pact will hold.

“The test will come in the first quarter when we see what happens to the large oil inventory already out there,” Maciej said. “Industry will take a wait-and-see attitude until then.”