Small Canadian oil companies will lead the increase in production in the country to benefit from the continued rise in oil prices, amid the need for more supplies following the Russian invasion of Ukraine; the CEO of Canadian Precision Drilling, Kevin Neveu, stated that demand for rigs is now higher than it has been in recent years, and the summer drilling season is likely to start earlier than usual.

He said in an interview: "This is definitely more activity than we expected even three weeks ago"; the war in Ukraine has "tightened the resolve" of producers to act.

Early signs of drilling interest in Canada contrast with the industry in the United States; President Joe Biden and oil executives differ on increasing production, according to Bloomberg.

Awakening in Canadian Oil Companies

Among the Canadian oil companies that appeared eager to benefit from the price increase, the CEO of Delta Stream Energy announced that he will drill more wells this year to increase production by 18%.

The CEO of Whitecap Resources, Grant Fagerheim, said his company will soon review planned spending for the second half of the year, which may boost the company's production for 2023, but not before that.

These are smaller producers who focus heavily on non-oil sand projects that can be executed faster than those run by larger producers; however, they represent a clear awakening among Canadian oil companies.

Spending on the production of conventional oil and gas in Canada is expected to rise to 28.9 billion Canadian dollars (22.6 billion US dollars) this year, up 36% from 21.3 billion Canadian dollars (16.6 billion US dollars) in 2021, according to a March 7 report from the ARC Energy Research Institute.

In total, the Canadian oil industry can raise production by more than 200,000 barrels in a short period of time, according to Suncor Energy CEO Mark Little, during his participation in the CERAWeek Energy Conference in Houston last week.

Obstacles to Increasing Production in Canada

Canadian oil companies have become more cautious about spending following Biden's decision to block the Keystone XL pipeline project, which could have transported more than 800,000 barrels per day to the United States.

Moreover, companies set their capital budgets last year, with the focus for major players — including Suncor and Cenovus Energy — on paying down debt and returning remaining funds to shareholders after suffering significant losses in 2020.

Some simply do not believe that oil prices will remain high long enough to justify major investments in higher production; investment decisions must be made based on long-term prices.

Some analysts confirmed that the Canadian industry is looking for clearer signals from investors and American companies that growth will be rewarded by dividends and debt repayment before increasing their capital spending.

Geology and Export Capacity

It is noted that the geology of Canada's vast oil sands — covering a remote area in northeastern Alberta and the third-largest oil reserves in the world — does not leave much room for Canadian oil companies to improvise; raw materials must be mined or forced out of the ground by injecting steam underground to push the sticky bitumen to the surface.

Current projects tend to operate near full capacity, and building new projects takes years; therefore, Canadian oil companies cannot quickly ramp up additional production.

Additionally, there are strict pipeline network restrictions, even with the inauguration of Enbridge's expanded Line 3 last year, which transports crude to refineries in the US Midwest.

Commodity analyst at investment bank TD Securities, Bart Melek, said, "It's not about drilling more.. It's about how much export capacity you have now.. It seems that US interest is, let's go ask Iran, let's ask Venezuela.. Canada was not mentioned."