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Canadian oil producers are raking in the highest revenues in five years thanks to strong global oil prices and Alberta’s production cuts, but government intervention has hamstrung their spending abilities, encouraging many to buy back shares and pay down debt.

Alberta effectively became a mini-OPEC this year after the provincial government imposed production quotas to relieve pipeline congestion and drain a glut of crude in storage.

The move boosted prices dramatically but leaves Canadian producers starved of opportunities to grow output – usually the go-to strategy of any energy firm flush with cash.

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The oilpatch’s caution has contributed to a slow pace of deal-making, despite plenty of assets being up for sale. Several companies that announced big deals last year saw their stocks slide.

The energy sector’s cash flow is projected to be $52.7 billion this year, the highest in five years, yet spending is declining year-on-year, said ARC Financial analyst Jackie Forrest.

That is prompting producers to ramp up share buybacks and debt repayment, as they bide their time pending two key political decisions. New Alberta Premier Jason Kenney has yet to say what happens next with curtailments and Prime Minister Justin Trudeau’s government is due to decide by June 18 whether to expand the Trans Mountain pipeline it owns.

Canada, the world’s fourth-largest crude producer, has seen billions of dollars in foreign investment flee since 2017 because of delays in building new pipelines.

Surging crude prices are creating a “Canadian Nirvana” for large-cap Canadian energy companies, said BMO analyst Randy Ollenberger. At the current U.S. benchmark price and Canadian heavy oil discount, the biggest producers would amass $13 billion in surplus cash this year, he said.

Canadian oil producers’ coffers are the fullest they have been since 2014, when global oil prices peaked before crashing due to a slowing global economy and booming production.

’NO POINT GROWING’

But producers have few options to spend.

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“There’s no point growing with the Alberta production curtailment in place and the lack of egress opportunities,” MEG Energy chief executive Derek Evans told Reuters.

The heavy oil producer reported $98 million in free cash flow during the first quarter, and intends to repay debt.

Suncor Energy raked in more than $1 billion in surplus cash flow last quarter and said it could increase stock buybacks if cash flow improves further.

“There is no sense spending money to generate additional production and drive further throughput if you can’t produce the oil. The economics of that are zero,” Suncor CEO Mark Little said on an earnings call.

The number of potential buyers for assets up for sale has dwindled, said Laura Lau, senior portfolio manager with Brompton Group, which owns shares in Suncor, Canadian Natural Resources and Cenovus Energy Inc.

“Canada is not a friendly place to do business. The cost of capital has gone up and that is referenced in valuations,” Lau said. “They are competing against the U.S., and it’s the most business-friendly jurisdiction in the world.”

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Canadian Natural, the largest Canadian energy producer, is the only oil sands major adding a new project this year with the ramp-up of its Kirby North oil sands plant. But to do so, the company will have to cut production elsewhere because of Alberta’s limits on output, President Tim McKay said.

“Investment in Canada is stymied,” McKay said. “You have regulatory uncertainty and a system where market access doesn’t exist.”

MEG’s Evans said Alberta lifting the curtailments would be a “big check mark” that would encourage companies to boost spending, adding that progress on replacing the U.S. portion of Enbridge’s Line 3 is a needed second check mark.

Sentiment could change quickly with construction starting on expanding Trans Mountain or another new pipeline, because producers could then time their investments with take-away expansion, said Grant Fagerheim, chief executive of Whitecap Resources.

“You can understand people like me wanting to be more conservative and defensive than aggressive,” Fagerheim said.

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