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The Year That Broke Oil

But the damage had already been done.

Energy companies, particularly in Canada, started cutting planned capital expenditures, head counts and existing operations, and revenues and profits plunged. As a result, such companies mostly dropped on the FP500 ranking — for example, last year’s No. 1, Suncor Energy Inc., slid all the way to No. 7 — as did the banks, which depend on a comfy economic environment to soothe investor fears about household debt levels and possible housing crunches. And that’s even though only two quarters of oil’s price slide is included in the FP500 tally. The effect has shown up even more prominently on the stock market. The biggest market cap drop, as of May 4, 2015, from a year ago was $7.6 billion by Husky Energy Inc., with Encana Corp. and Cenovus Energy Inc. rounding out the top three.

Things in the global oil patch got so bad that Harold Hamm, the billionaire founder and CEO of Continental Resources Inc., in December filed an appeal of a US$1-billion divorce settlement for his ex-wife, saying his wallet had been hit hard by oil’s price drop from over US$100 a barrel to less than US$60 at the time. He later cut a cheque for the full amount, and his wife launched an appeal asking for more, which was denied.

But if history has taught us anything, it’s that it repeats. It’s not a question of if oil prices will recover as much as it is when. But then what?

Canadian energy companies have been slashing their head counts, operations and planned capital expenditures to the bone in response to oil’s price slide. Ramping it all back up won’t be easy, especially since it may take a while before they have some degree of confidence that higher prices, when they do return, are back for the foreseeable future. But in the meantime, production levels have barely budged. Indeed, they are actually higher.