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Oil industry profits to tumble by 30% in 2007, says Conference Board

Ottawa, ON -- Lower oil prices will reduce profits in Canadas oil extraction industry by almost 30% this year, but...


Ottawa, ON — Lower oil prices will reduce profits in Canadas oil extraction industry by almost 30% this year, but profits will still remain high, according to the Conference Boards Canadian Industrial Outlook: Canadas Oil Extraction Industry – Winter 2007.

Rapid production growth and record high prices led to soaring profits last year, said Michael Burt, senior economist for the Board. But with oil prices down from their 2006 peak, industry profits are expected to weaken this year, before growing again beginning in 2008.

Oil extraction industry profits grew by 26.4% in 2006, reaching a record $15 billion. In line with lower oil prices, profits in 2007 are expected to decline, but at $10.6 billion they will still be high by historical standards. Gains in production and improvements in productivity will allow profits to increase again starting in 2008.

Following an increase of just over 5% last year, oil production in Canada is expected to rise by about 10% in 2007. Production growth will remain strong in the coming years thanks to ongoing development of Canadas oil sands resources.

Labour and material shortages in Alberta are causing concern about costs for energy companies. Fierce competition for both labour and materials increased the costs of extracting crude oil by 10.4% in 2006. Reduced exploration activity related to lower oil prices means that total costs for the industry are expected to decline by 3.3% in 2007, but the decline in revenues will be much larger.

This information is the first release of the Conference Boards new Canadian Industrial Outlook: Canadas Oil Extraction Industry. The content for this report used to be included in the Boards broader oil and gas industry report. Canadian Industrial Outlook: Canadas Oil Extraction Industry will be published twice a year.

For more information, visit www.conferenceboard.ca.