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By Rod Nickel and Julie Gordon
CALGARY, Alberta/VANCOUVER, May 31 (Reuters) - Years of lowoil prices and high costs spurred a stampede by multinationalmajors out of Canada's oil sands last year, leaving theremaining crude producers struggling to weather painful drops inprofit.
Environmentalists derided the "tar sands" as too dirty forinvestment, and analysts said the region's high production costsmade little sense in a world of $50-a-barrel oil.
But this month, global benchmark prices rebounded to$80 per barrel, cheering oil executives in the Canadian energycapital of Calgary, Alberta, who are shifting from survival modeto cautious expansion to capitalize on healthier cash flowexpected this year.
Although most producers remain hesitant to commitsubstantial new capital, a few are restarting mothballed wellsand many are pencilling out tentative plans for their extra cashas investors brighten their outlooks for the sector.
Plunging output from heavy-crude competitor Venezuela - amida sprawling crisis in its socialist government's state-run oilfirm, PDVSA - adds further opportunity for sales of Canadiancrude to U.S. Gulf of Mexico refiners.
"It hurts on the downside, but boy is there opportunity onthe way up," said Ed LaFehr, chief executive of Baytex EnergyCorp, which drills in Western Canada and Texas.
The improved prospects are already translating into jobcreation in an economy where the oil sands' fortunes are socritical that the nation's currency rises and falls in step withoil futures prices.
Matt Munro, Canada market manager for UK-based recruiterPetroplan, said the sector's job postings have more than doubledso far this year compared with 2017 and salaries are up,particularly in oilfield services.
One company, for example, has boosted base salaries, beforebonuses, from C$80,000 to C$110,000 in the past 18 months, Munrosaid. Average weekly salaries for oil and gas extraction workersin Alberta jumped 13.8 percent from February 2017 to February2018, according to the most recent available data fromStatistics Canada.
The number of people employed by Alberta resource companies,meanwhile, jumped 6.8 percent to nearly 106,000 in the sameperiod, the data showed, though that is still well below theAugust 2014 peak of about 135,000 people.
(For a graphic on oil-and-gas employment and pay in Alberta,see: https://tmsnrt.rs/2s222V0 )
Baytex delayed starting production on three wells in thefirst quarter but now plans to launch the wells this spring,LaFehr said.
The company's hedging strategy could prevent it from reapingthe full upside of higher prices this year. But if prices holdit may see an extra C$200 million ($155.27 million) in free cashflow in 2019, which it could use to expand output and repaydebt, LaFehr said.
Heavy oil producer BlackPearl Resources Inc shutdown 10 wells in the first quarter that were not worth theexpense of maintenance work at lower oil prices. Now it'srestarting them to capture profits from the rebound.
With U.S. benchmark West Texas Intermediate crudeprices up 13 percent so far this year, BlackPearl CEO JohnFestival is mulling further expansion further next year.
"Higher prices certainly help the mood," he said.
At current prices, BlackPearl might move more quickly toboost production at its Onion Lake, Saskatchewan project, whichit had expected to expand by 6,000 barrels per day (bpd) in2019, he said.
Beyond those tentative steps, Festival will hold back onmore substantial investments to see if market dynamics cansustain higher prices.
"One month of good prices is not enough to cause us tocommit," Festival said.
SCARS FROM THE DOWNTURN
The recent upturn by no means solves the structural problemsin Canada's sector that were exposed when global prices crashedstarting in 2014 from a height of more than $100 a barrel.
Oil sands drilling costs remain high, and Western Canada isstill producing far more oil than its congested pipelines candeliver. The oil-transport crisis is so severe, in fact, thatmany companies are shipping their oil one truckload at a time -at steep costs - for a lack of cheaper pipeline and railoptions.
On Tuesday, the Canadian government announced it would takethe drastic step of purchasing the Trans Mountain pipeline fromKinder Morgan Canada Ltd in a bid to rescue anexpansion project facing fierce opposition in British Columbia.
High transportation costs translate into deep discounts onWestern Canadian oil, relative to the U.S. benchmark, with thegap reaching $30 a barrel in January, the biggest in four years.That has since narrowed to as little as $13, but the reductionis mainly due to oil producers taking more maintenance downtimeearlier in the year than planned, reducing the strain onpipelines.
Even so, big Canadian producers that snapped up stakes fromthe retreating foreign owners during the downturn arewell-positioned for any sustained rebound.
Rising prices have sparked "dramatic shift" in the cash-flowexpectations for oil sands producers this year, equity analystsat Eight Capital said in a May report. The analysts raised shareprice targets of Canadian Natural Resources, CenovusEnergy and Suncor Energy.
Suncor and Canadian Natural may fare particularly wellbecause they have secured enough pipe capacity for their currentoperations, both firms said last month.
Suncor also has space lined up for output from its stake inFort Hills, the oil sands' newest mine. For every $1 per barrelprices climb, Suncor's cash flows rise by about $225 million.
Investors have noticed the reversal of fortune in the oilpatch. The TSX Energy Index has gained 24 percentsince its 2018 low in early February.
Higher oil prices make more regions, like the oil sands,considerations again for wary investors, said Trip Rodgers,portfolio manager at BP Capital Fund Advisors, which currentlyfocuses upstream investments on U.S. shale producers.
"You're able to look at names that may not be as low-cost."
Higher prices are whetting appetites for more mergers andacquisitions, said Andrew Botterill, national oil and gas leaderat Deloitte, which advises producers.
Even so, he said Canadian oil companies are more "mature"than they were before prices collapsed in recent years, and arelikely to take a measured path to growth, he said.
Consultancy Wood Mackenzie estimates that Canada's totalcapital spending in 2018 will drop 10 percent year-over-year asbetter prices take time to revive the industry, compared with a15 percent spending increase in the United States.
($1 = 1.2881 Canadian dollars)
(Reporting by Rod Nickel in Calgary, Alberta and Julie Gordonin VancouverEditing by Simon Webb and Brian Thevenot)
