Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.
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4 www.lexpert.ca AN OIL BOOM IN TRANSITION GEOPOLITICS AND A REVIVAL IN DEMAND HAVE SENT PRICES SOARING, BUT THIS OIL PARTY IS DIFFERENT THAN PREVIOUS BOOMS, WRITES AIDAN MACNAB Feature THE 2022 oil rally has not been like past booms. Recovery from the COVID-induced demand dip and the Russian invasion of Ukraine helped push prices north. ough it has tapered off since, the cost of Western Canada Select rose 73.1 percent between June 2021 and June 2022, while the price of West Texas Intermediate climbed 60.2 percent over the same period, according to Alberta Energ y and the US Energ y Information Administration. But despite the high prices, lawyers advising companies in the oil and gas sector say they are not seeing the industry reinvest these gains in further production, directing it instead toward share buybacks and dividends. Producers are also investing in technolog y and processes focusing on emissions reduction. "We're not seeing that money go back into the ground in ways that, I think, may have happened in earlier bust-and-then- boom cycles," says Simon Baines, a partner in the energ y group at Osler Hoskin & Harcourt LLP's Calgary office. "Boom times come around, [and] oentimes the oil and gas companies couldn't get the money back into the ground fast enough to produce more oil and gas. We're really not seeing that in the same way." "Even though everything is very profit- able right now, there's still a lot of head- winds facing the traditional oil and gas industry," says Xiaodi Jin, a partner at Borden Ladner Ger vais LLP in Calgary who advises companies in the oil and gas sector. "I think companies are just very cautious about what to do, what the future holds, and how to spend their money and time." On top of uncertainty about future prices and the future policy outlook, the sector is also at capacity for services and skilled labour, adds Jin, who focuses on M&A, securities and corporate finance, structuring , and governance. "Companies are buying back shares and companies are doing acquisitions," he says. "Some companies are just doing one-off dividends." According to Baines, capital invest- ment has also been on the wane for several years, even before the pandemic's demand destruction. "A lot of people, myself included, have been expecting there to be difficulties on the supply side," he says. "I think we're now really seeing that, and obviously exac- erbated by the war in Ukraine, but I don't think really caused by the war in Ukraine." "Issues around the supply side of the industry have been coming for a number of years now. And with the demand rebounding coming out of the pandemic, I think we were already going to see a tight- ening of markets." With climate change and rising interest