OIL EXTRACTION INDUSTRY EXPECTED TO REGAIN STRONG PROFITABILITY THIS YEAR

www.conferenceboard.ca

OTTAWA, Sept. 2 /CNW/ - Canada's oil producers can expect another period of strong profitability to begin this year, thanks to a revival in global demand and rising prices, according to The Conference Board of Canada's Canadian Industrial Outlook: Canada's Oil Extraction Industry - Summer 2010.

"Global consumption has rebounded almost to pre-recession levels. As a result, prices have nearly doubled from their lows of 2009, boosting the industry's profitability," said Todd Crawford, Economist.

Production in the Canadian oil extraction (upstream) industry will expand by 4.1 per cent in 2010. Increased drilling in the conventional extraction industry will help, but future growth is expected due to higher oil sands production.

Prices rose in steadily in the first quarter of 2010, though they remain below their 2008 peak. Continuing uncertainty over the global recovery and high inventories will limit further price increases this year.

The large drop in prices last year translated directly to the industry's bottom line, with profits falling by 90 per cent in 2009. Despite the dramatic drop in revenues, the oil extraction industry managed to remain profitable because of its ability to rapidly curtail costs, which fell by 20 per cent last year.

Pre-tax profits are expected rise from $1.7 billion in 2009 to $8.4 billion this year, as revenue growth outpaces cost increases. Because activity in the industry is expected to rise in the next few years, Canadian oil companies can expect competition for materials and labour to be fierce. As a result, keeping costs under control will once again be a priority for Canadian companies.

The outlook assumes a status quo regulatory regime, and it does not consider the impact of environmental concerns on the industry. Changes to tighten environmental regulations would pose a downside risk to the industry's medium-term outlook. Earlier this year, the Conference Board published its first greenhouse gas emissions forecast - projecting emissions to 2030 based on economic outlooks and trends in emission intensity levels among industrial sectors and households.

For further information:

Brent Dowdall, Media Relations, Tel.: [phone] ext.  448
E-mail: [email protected]