Welcome to the Billion-Dollar Club. Price of admission: $50-per-barrel oil and an oilsands plant.
Record-high world prices for Alberta's black gold helped push Husky Energy, Shell Canada, Petro-Canada, Imperial Oil and Suncor all past the $1-billion mark in earnings for 2004.
Imperial, Petrocan and Shell enjoyed the best profits in their companies' histories. Imperial racked up just over $2 billion, Petrocan about $1.8 billion and Shell Canada nearly $1.3 billion.
Husky and Suncor just squeaked past the bouncer at the Billion-Dollar Club, each with earnings of just over $1 billion.
Investment in the oilsands is becoming increasingly crucial to ensuring these annual profits in the 10-figure range.
Imperial's and Petrocan's earnings were partly fuelled by higher production from their Syncrude oilsands joint venture (with Nexen and the Canadian Oil Sands Trust) north of Fort McMurray.
Imperial also got an earnings boost from increased bitumen production at its heavy oil operation at Cold Lake.
Shell Canada's bottom line got a significant uptick from its Athabasca Oil Sands Project (in which Western Oil Sands and Chevron Canada each own 20 per cent).
Shell is expanding the project, which ships bitumen from the Muskeg River Mine north of Fort McMurray through the Corridor pipeline to the Scotford upgrader north of Fort Saskatchewan.
Suncor, despite having only a slight increase in oilsands production (to more than 263,000 barrels of oil equivalent per day in 2004, compared with just over 251,000 barrels in 2003), still made more than a billion bucks.
As for Husky Energy, its first oilsands investment, the $500-million Tucker project northwest of Cold Lake, is expected to begin production by mid-2006.
It's clear that if Canada's Big 5 integrated petroleum companies want to keep their membership in the Billion-Dollar Club, they need to include some major oilsands production.
Drilling rig workers had better keep their boots laced up this year.
It looks like they're going to be busier than Gov. Gen. Adrienne Clarkson at an airport terminal.
The Petroleum Services Association of Canada (PSAC) predicts a record 24,075 wells to be drilled across the country this year, including 18,625 in Alberta and 1,300 in B.C.
Last year, 22,696 wells were drilled, up four per cent from the 21,802 drilled in 2003.
PSAC's forecast for a record number of wells this year looks pretty solid, as long as oil and natural gas prices remain strong - and there's nothing on the horizon to suggest a price collapse.
PSAC president Roger Soucy expects that about 70 per cent of this year's wells will be for natural gas. That includes 3,000 new wells targeting coalbed methane (CBM), more than twice as many as last year.
If natural gas prices stay high, you can count on the percentage of CBM wells to keep rising. Canada's CBM industry - most of it drilling in Alberta coal seams - is gearing up for expansion.
Ottawa is walking into a minefield in deciding who gets to build the $20-billion US Alaska Highway natural gas pipeline.
Calgary-based rivals TransCanada Corp. and Enbridge Inc., as well as the U.S. and Alaska governments, have asked the federal government to clarify the regulatory process under which the Canadian section of the pipeline would be built.
TransCanada wants the line constructed under the Northern Pipeline Act. It's the legislation that awarded TransCanada the rights-of-way and other permits for the Canadian section of the line in the late 1970s, when the project was first proposed.
But Enbridge CEO Pat Daniel reiterated his company's position last week that the federal government must allow the market to decide which companies are involved in the project.
Enbridge and Alaska producers - BP PLC, ConocoPhillips Co. and ExxonMobil Corp. - want construction of the line to be regulated as a new project by the National Energy Board.
Natural Resources Minister John Efford, during a visit to Calgary last month, promised the government would soon provide regulatory clarity.
In doing so, Ottawa must neither disadvantage nor reward one side or the other in what is essentially a battle between two major pipeline giants to build the project.
TransCanada has spent hundreds of millions of dollars to maintain its rights-of-way and prebuild a stretch of the line within Alberta.
At the same time, Enbridge and the Alaska producers make a compelling argument to let the market decide on the most efficient regulatory process.
The federal government must come up with a compromise that satisfies both sides, or Ottawa will be facing multimillion-dollar lawsuits.
For Efford, achieving that compromise will be a lot like Solomon deciding which mother gets the baby.
East is East and West is West and never the twain shall meet? Not when it comes to Alberta's oilsands.
China and Canada last month signed agreements in Beijing to promote co-operation in the oil and gas sector, including developing the oilsands.
Enbridge is also hoping that PetroChina Co. or China Petroleum and Chemical, the country's two biggest oil companies, will agree to buy oil from the oilsands to meet China's seemingly insatiable demand for energy.
Getting the Chinese companies onboard would enable Enbridge to build a $4-billion pipeline from Fort McMurray to the Pacific coast to export Alberta crude to California, China and other markets.
But Canada and the Canadian petroleum industry should be cautious in laying out the welcome mat.
Industry Minister David Emerson said last week that Ottawa is concerned about China buying up Canada's natural resources firms and is reviewing the Investment Canada Act to ensure the country's interests are protected.
Emerson was quick to add that Canada welcomes Chinese investment.
But at the same time, he said that he shares critics' concerns that enterprises in Canada owned or controlled by the Chinese government might not be entirely driven by free- market forces and things such as transparency and public accounting.
It's a legitimate concern, especially since Canada is committed under the North American Free Trade Agreement to ship oil and gas to the U.S.
No doubt the Bush administration is watching very closely to ensure its strategic supply of Canadian oil and gas doesn't come under Chinese control.
(Mark Lowey can be reached at mark@businessedge.ca)
