Canadian oil producers recorded a sharp improvement in operating profits in the second quarter of 2026, but investment spending has yet to match the pace of earnings growth. According to a new report from Deloitte Canada, operating profits across the sector increased by 68 per cent between the first and second quarters, highlighting the financial benefits of higher crude prices while underscoring continued caution over major capital commitments.
The consulting firm attributes much of the improvement to significant volatility in global oil markets linked to the war in the Middle East. Brent crude, the international benchmark for light oil, traded between US$68 and US$105 per barrel during July and August alone.
The resulting price environment has provided a substantial financial boost to Canadian producers. Statistics Canada identified the oil sector as the largest contributor to non-financial industry profits in the second quarter.
However, the increase in profitability has not translated into a comparable acceleration in capital expenditure. Separate Statistics Canada data show that investment spending rose by approximately seven per cent between the first and second quarters, reaching $11 billion.
Drilling activity has nevertheless strengthened. Baker Hughes rig count data cited by Deloitte indicate that Canadian drilling increased by 17 per cent in the second quarter compared with the same period a year earlier.
Producers favour shorter-cycle projects over major long-term commitments
Rather than committing substantial sums to capital-intensive projects with extended development timelines, companies are concentrating on opportunities that can generate returns more quickly.
Deloitte identified the Montney, Duvernay and Clearwater plays as examples of areas attracting investment because of their efficient, short-cycle economics.
The firm said producers are treating the current oil price environment as potentially temporary or uncertain, rather than evidence of a fundamental shift in the balance between supply and demand.
That cautious approach reflects the financial pressures the industry has faced over the past decade. Andrew Botterill, head of Deloitte Canada’s oil, gas and chemicals practice, said investors have spent the past five to eight years pushing companies to control both capital expenditure and debt.
The COVID-19 pandemic and the accompanying collapse in oil prices dealt another serious blow to industry finances when companies had only just begun recovering from the 2014–2015 downturn.
Today, however, the outlook is beginning to change, with Botterill describing a growing sense that Canada’s energy sector could achieve substantially more growth.
Proposed pipeline and regulatory changes could unlock investment
Several developments are contributing to renewed optimism about the country’s long-term production potential.
A new export pipeline capable of transporting one million barrels of oil per day to the British Columbia coast has been proposed. At the same time, Prime Minister Mark Carney’s government has taken steps to simplify regulatory procedures, roll back environmental policies introduced under former prime minister Justin Trudeau and expand investment-related tax incentives.
Together, these measures could improve the conditions for future energy projects and encourage companies to reconsider their investment strategies.
“We could see significant growth coming from Canada,” Botterill said.
He expects the coming year to be particularly important as producers assess where to allocate capital and whether to increase spending on projects designed to deliver results over the medium and long term.
The question is no longer simply how companies can maintain financial discipline, but where they should position their portfolios to take advantage of potential growth opportunities.
Cenovus and Suncor reposition their portfolios
Recent transactions illustrate how major Canadian energy companies are preparing for their next strategic moves.
Last week, oilsands producer Cenovus Energy Inc. announced an agreement to acquire Athabasca Oil Corp. for $5.7 billion. The deal would expand Cenovus’s position through the acquisition of a smaller industry peer.
Meanwhile, Suncor Energy Inc. reached an agreement to sell certain offshore holdings in Atlantic Canada for $1.2 billion as it sharpens its focus on its core oilsands operations.
Botterill described such transactions as preparatory steps for companies considering growth over a longer investment horizon. Acquisitions and asset disposals can help producers reshape their portfolios before committing additional capital to selected opportunities.
The objective, he explained, is to determine where future investment is most likely to generate value and align the company’s asset base accordingly.
Weak Alberta prices don’t dampen demand for natural gas
The picture is more mixed in the natural gas sector in Canada where production and export activity are increasing despite relatively weak prices.
Alberta natural gas prices have averaged less than C$2 per thousand cubic feet year-to-date, according to Deloitte. The dampening of the price has not been stopped by increased shipments from LNG Canada, the liquefied natural gas facility in Kitimat, British Columbia, that began production in mid-2025.
Canadian natural gas production averaged 20 billion cubic feet per day in the second quarter, about five percent higher than in the same period in 2014.
One reason companies have kept boosting output is to capture the value of natural gas liquids like propane that are produced along with dry natural gas.
Seasonal price action has also provided some encouragement. August and September are usually two of the weaker months for Alberta natural gas prices, but Botterill said prices held relatively steady in that period rather than the sharp declines typically seen at that time of year.
For Deloitte, that resilience points to a domestic demand base that is strengthening, helped in part by the capacity to export Canadian natural gas through the nation’s West Coast infrastructure.
“What that tells you is there is a demand for natural gas building in Canada. “We can export off our West Coast and that’s making a difference,” Botterill said.
He said the natural gas market in Canada is now structurally better than it was a year ago.
Deloitte expects the average price for natural gas in Alberta to be C$1.75 a thousand cubic feet in 2026, and to rise to C$2.15 in 2027. The company expects prices to rise above C$3 per thousand cubic feet after 2029.
The energy industry is still uneven in its adoption of artificial intelligence.
The report also featured a look at the adoption of AI in the oil and gas sector, building off a separate Deloitte study released in February.
The findings reveal that 72 percent of energy, resource and industrial companies use physical AI to some degree. This category includes AI embedded in industrial control systems, machinery and equipment.
Even at that level of adoption, companies are still struggling to move beyond pilot projects and deploy AI solutions across their entire organizations. Only 16 per cent of firms reported extensive use of AI.
The gap reveals a larger challenge for an industry used to making massive capital investments in complicated operations.
The oilsands show how the sector is willing to take big financial risks in pursuit of major projects, Deloitte said. However, AI investments have to compete with other priorities like developing, expanding and optimizing core operations.
That means companies need a well-defined business case before they can channel more capital into AI projects.
“The challenge to getting the technology funded in parallel with traditional operational investments is to demonstrate the value of individual AI applications,” the report said.
So for Canada’s oilpatch, the next round will be a balancing act of improved earnings and new growth opportunities, and disciplined capital allocation. The outlook is being lifted by higher oil prices and more natural gas exports but producers still need confidence in long term market conditions before making bigger commitments to infrastructure, production and digital transformation.
