Canadian oil producers see profit surge but hold back on major spending

CALGARY · Canadian oil producers recorded a 68 percent jump in operating profits from the first to the second quarter of this year, a new Deloitte Canada report says. Capital spending, however, rose only about seven percent to $11 billion over the same period. Statistics Canada data shows the oil sector was the biggest contributor to non-financial industry profits last quarter. Deloitte attributes the profit windfall to volatile crude prices, driven by the Middle East war, which saw the Brent benchmark swing from US$68 to US$105 per barrel this summer.

Drilling activity in Canada increased by 17 percent in the second quarter compared to a year earlier, according to Baker Hughes rig count data cited by Deloitte. The report states producers are choosing quick-return projects over large, long-term investments. "It's clear that producers are prioritizing drilling programs in plays which offer efficient, short-cycle economics, such as in the Montney, Duvernay and Clearwater, rather than pursue long-cycle, capital-intensive projects," Deloitte said. "Producers view the current price environment as temporary, or uncertain, rather than rooted in a fundamental supply-demand shift."

Andrew Botterill, who leads Deloitte Canada's oil, gas and chemicals practice, said investor pressure has kept a lid on spending and debt for years. The sector's finances were hit hard by the COVID-19 price collapse, coming so soon after the 2014-2015 downturn. Botterill said there is now a feeling in the industry that "we could be much more." He cited a proposed new export pipeline to the B.C. coast and regulatory changes by Prime Minister Mark Carney's government as reasons for optimism. "We could see significant growth coming from Canada," Botterill said.

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He expects companies to begin planning for larger, longer-term investments soon. "And I think what we are going to see play out over the coming year is companies are going start to look at, 'Where are we going to make our bets? Where are we going to start to make bigger capital spends for ... the medium and long term?'" Recent major deals, like Cenovus Energy's $5.7 billion agreement to buy Athabasca Oil Corp., are seen as part of this shift. Botterill called such transactions "preparatory steps" for long-term growth, adding, "Where would we be more likely to play that capital and let's make sure we get our portfolio in that direction."

The report also examined the struggling natural gas market, where Alberta prices have averaged below $2 per thousand cubic feet this year. This is despite rising exports from the LNG Canada terminal in Kitimat, B.C., which began operations in mid-2025. Production averaged 20 billion cubic feet per day in the second quarter, up five percent from 2025, as companies sought valuable natural gas liquids like propane. Botterill noted that prices held relatively steady during the typically weak months of August and September, a sign of growing demand.

"What that shows you is that there is natural gas demand building in Canada. The ability to export off our West Coast is making a difference," he said. "We're much more structurally sound on the natural gas market than we were say, a year ago." Deloitte forecasts Alberta gas prices will average $1.75 per thousand cubic feet this year, rise to $2.15 next year, and climb well above $3 after 2029. The consulting firm also forecasts West Texas Intermediate oil prices will average US$90 per barrel in 2026 before falling to US$76.50 in 2027.

AI adoption in the oilpatch

Deloitte's report briefly addressed the adoption of artificial intelligence in the energy sector, referencing a separate study from February. It found 72 percent of energy, resource and industrial companies use some form of "physical" AI in machinery and control systems. However, only 16 percent use AI extensively, with many firms stuck in the pilot project phase. "Oil and gas companies are used to capital intensive investments, with the oilsands as a prime example of making big bets. Simply put: it's a business that isn't afraid of risk," the report said. It added that for AI to compete for funding against core operations, "the value proposition for AI use cases needs to be well developed."

With files from The Canadian Press, The Globe and Mail and Narcity