Calgary, Alberta – September 30, 2025 – The Canadian energy sector finds itself at a crossroads, with a recent Fall 2025 Energy Sector Survey from ATB Capital Markets revealing a "lukewarm" outlook characterized by a stark divergence in sentiment: robust optimism among producers contrasted with persistent caution from institutional investors. Conducted from late August to early September 2025, the survey paints a picture of a sector grappling with growth opportunities, capital allocation debates, and an enduring battle against federal policy uncertainties.

This nuanced perspective suggests that while the engines of production are revving up, particularly in the natural gas segment, the financial markets are pumping the brakes, demanding disciplined returns over aggressive expansion. The findings underscore a critical tension that will shape investment decisions and strategic directions for Canadian energy companies in the coming months.

Divergent Paths: Producer Ambition Meets Investor Prudence

The ATB Capital Markets report highlights a significant drive for growth among Canadian energy producers. A striking 88% of exploration and production (E&P) companies surveyed indicated plans to increase production over the next 12 months, marking the strongest growth sentiment observed since 2022. Gas-weighted producers are leading this charge, projecting production growth of 6-7%, while their oil-weighted counterparts anticipate a more modest 4-5% increase. This optimism is fueled by strong short-term commodity price expectations, with 61% of producers expecting natural gas prices to rise and 41% anticipating an increase in oil prices. Crucially, the expansion of Canadian LNG export capacity is a major catalyst, with expectations for at least 3.2 billion cubic feet per day (bcf/d) of incremental LNG export capacity to be green-lit before 2027. LNG Canada Phase 1 is slated to reach full capacity by the first half of 2026, and there's strong consensus regarding positive final investment decisions for LNG Canada Phase 2 and the Ksi Lisims LNG projects.

Conversely, institutional investors maintain a more measured and cautious stance. While generally positive, fewer investors now perceive energy equities as undervalued compared to the Spring 2025 survey, and expectations for the sector's outperformance against the broader market have moderated. A key concern for investors revolves around the longer-term sustainability of commodity prices, with only 38% believing West Texas Intermediate (WTI) crude will average above US$75 per barrel over a three-to-five-year horizon, a significant drop from 75% a year prior. Similarly, only 45% expect Henry Hub gas to average above US$3.50 per thousand cubic feet (mcf), down from 64% in Spring 2025. This tempered outlook on long-term prices, combined with a strong preference for shareholder returns like share buybacks over production growth, creates a "wedge" between producer strategies and investor demands. Furthermore, the energy services sector faces increasing challenges, including mounting margin pressures, cost inflation, and limited pricing power, despite modest activity growth expectations for 2026.

Corporate Fortunes in the Balance

The "lukewarm" outlook presents a mixed bag for public companies operating within the Canadian energy landscape. Gas-weighted E&P companies are poised to be potential winners, leveraging the anticipated growth in LNG export capacity. Companies such as Tourmaline Oil Corp. (TSX: TOU), ARC Resources Ltd. (TSX: ARX), and Ovintiv Inc. (TSX: OVV/NYSE: OVV), which have significant natural gas assets, are likely to increase capital expenditures and production to capitalize on these new export opportunities. Their focus on growth aligns with the short-term market dynamics and infrastructure developments.

On the other hand, oil-weighted producers, while also planning modest production increases, face a more challenging long-term outlook, particularly concerning oil pipeline infrastructure. The skepticism about new major oil pipelines and concerns that existing pipelines will be full before 2029 could act as a barrier to foreign capital investment and limit their growth potential. Companies like Canadian Natural Resources Limited (TSX: CNQ) and Suncor Energy Inc. (TSX: SU/NYSE: SU) might find themselves under increased pressure from investors to prioritize shareholder returns through buybacks and dividends over aggressive production expansion, especially if long-term oil prices remain subdued. The energy services sector, represented by companies like Precision Drilling Corporation (TSX: PD/NYSE: PDS) and Calfrac Well Services Ltd. (TSX: CFW), is likely to continue facing margin compression due to cost inflation and limited pricing power, despite some activity growth. Their profitability could be squeezed, making them potential losers in this scenario.

Wider Implications: Policy, Pipelines, and Global Positioning

This internal dynamic within the Canadian energy sector plays out against a backdrop of significant broader trends. Federal energy and environmental policies continue to be ranked as the number one risk for the seventh consecutive survey, overshadowing even tariff threats. Despite an open-mindedness toward the newly elected federal Liberal government potentially having more favorable policies, a general skepticism persists among both industry and investors regarding its willingness to actively promote sector growth. Concerns over federal permitting processes and the perceived "very impactful" effect of legislation like Canada's Bill C-59 on E&P willingness to invest in environmental technologies and improve ESG disclosures underscore the regulatory hurdles.

The robust outlook for natural gas infrastructure, particularly West Coast LNG projects, positions Canada to become a more significant player in the global LNG market. This could have ripple effects, increasing demand for Canadian gas and potentially shifting the country's energy export profile. However, the less optimistic outlook for new major oil pipelines, following historical precedents of cancelled projects like Keystone XL and Energy East, continues to raise concerns about egress capacity for oil, potentially capping future growth and deterring long-term foreign investment in the oil sands. This divergence in infrastructure development further solidifies the two-speed nature of the Canadian energy sector – a gas sector with clear export avenues and an oil sector still constrained by transportation bottlenecks.

The Road Ahead: Balancing Growth with Returns

Looking ahead, the Canadian energy sector will be defined by its ability to navigate these divergent forces. In the short term, the natural gas segment is poised for continued growth, driven by the commissioning of LNG Canada Phase 1 in the first half of 2026 and the anticipated final investment decisions for LNG Canada Phase 2 and Ksi Lisims LNG projects. This will likely lead to increased capital expenditures and production from gas-weighted companies.

Longer term, the fundamental tension between producers' growth ambitions and investors' demands for disciplined capital returns will remain a defining feature. Energy companies will need to strategically pivot, balancing their investment in growth projects with robust shareholder return programs to attract and retain capital. The ongoing evolution of federal energy policy will also be critical; any perceived shift towards more supportive policies could alleviate some investor caution, while continued uncertainty will likely perpetuate the current "lukewarm" sentiment. Furthermore, the industry will need to closely monitor the long-term trajectory of commodity prices and explore innovative solutions for oil egress if new major pipelines remain elusive before 2029. Market opportunities will emerge in the expanding global LNG market, but challenges will persist from regulatory hurdles, cost inflation in the services sector, and the overarching need to demonstrate sustainable value creation to a skeptical investor base.

A Sector in Transition: Key Takeaways for Investors

The ATB Capital Markets Fall 2025 Energy Sector Survey provides a comprehensive snapshot of a Canadian energy sector in transition. The key takeaway is the significant divergence in sentiment: producers are bullish on growth, particularly in natural gas driven by LNG export opportunities, while investors remain cautious, prioritizing disciplined capital allocation and shareholder returns amidst tempered long-term commodity price expectations. Federal energy and environmental policies continue to cast a long shadow, posing the greatest perceived risk to the sector.

Moving forward, the market will assess companies based on their ability to judiciously balance growth investments with robust return-of-capital strategies. Canada's role as a global LNG supplier is set to expand, but the long-standing challenge of oil egress remains a critical concern for the oil segment. Investors should closely watch for progress on major LNG projects, any shifts in federal energy policy, and the long-term trends in global commodity prices. Furthermore, paying close attention to individual companies' capital allocation strategies – whether they prioritize production growth or shareholder returns – will be crucial in identifying potential outperformers in this complex and evolving market.

This content is intended for informational purposes only and is not financial advice