Oil downturn could spell the end of junior oil companies: Calgary professor

Junior oil companies are suffering huge losses in the current economy, and with poor market conditions expected to persist, it's unclear how many will survive the downturn, says one energy economics professor.

The list of casualties continues to grow, with the recent bankruptcies of Calgary-based Terra Energy Corp., Calgary-Shoreline Energy Corp. and Spyglass Resources Corp., followed by the multimillion-dollar fourth-quarter net losses reported by two Calgary-based junior oilsands producers this week.

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Sunshine Oilsands Ltd. reported a net loss of $325.8 million in the fourth quarter of 2015, compared to a net loss of $12.3 million for the same period in 2014, while Connacher Oil and Gas Ltd. suffered a net loss of $56 million.

"I have to admit, the staggering change in the economy is really starting to overwhelm a lot of us," said University of Calgary professor Michal Moore. 

Moore said low global oil prices, coupled with Saudi Arabia's apparent commitment to keep surplus oil on the market, are likely what is driving the losses among smaller competitors. 

"Trying to find the money that it takes to keep operating is becoming tougher and tougher," he said.

Likely a big boys' game now, says prof

Moore called these junior companies "overly ambitious" in hindsight, but said they were responding to signals that in the past had been very lucrative for them. 

"They were doing what we've been trained to do, and that is jump in when the jumping's good."

Under the current circumstances, the days of junior oil and gas companies going out and exploring on their own are unlikely to return, he said. 

Instead, Moore said big corporations are likely to dominate and will begin to "scoop up" some of the smaller competition.

"It will be not only their playground, but they're going to be the ones who will be the recipients of the new investment capital coming into the country."