ANALYSIS: The worst may be over for crude oil prices, but the darkest days for Canada’s oil and gas industry still lie ahead.

Next week, major Alberta producers will begin disclosing their financial results for the first three months of this year. From the start of January 2016 until the end of March, the North American benchmark oil price – West Texas Intermediate – averaged just US$33.41 per barrel, or roughly five dollars below the average break-even price for oil sands production.

Canada’s largest oil sands producers – Husky, Cenovus, Suncor and Imperial Oil – will all be releasing what could be their worst quarterly results in decades over the next seven days.

“Historically speaking, [first-quarter results] are going to be horrible,” said Mike Tims, who recently retired as chairman of Peters & Co. after 33 years holding various executive roles at the Calgary-based investment bank and is now vice-chair of Matco Investments, in an interview with BNN.

“Commodity prices have been, by any historical standard, extraordinarily weak in the most recent quarter; in addition you are getting, not an elimination of hedging gains, but far fewer hedging gains than before.”

Hedging, a process whereby oil and gas producers lock in certain prices for longer terms to avoid short-term volatility, helped to insulate energy producers from being fully exposed to crashing prices in the spot market during the final three months of last year. Not only have most of the hedging contracts set in 2015 expired over the course of early 2016, but the average WTI price during the fourth quarter of 2015 was nearly US$9 per barrel higher than during this year's first quarter, at US$42.02.

“Headlines in Q4 were record high losses and record low revenues, well this is going to be a wakeup call moment,” Darrel Bishop, head of energy research for Calgary-based Haywood Securities, told BNN via telephone. “The damage is going to be even worse in Q1.”

Natural gas producers with only a minority of their output in the form of liquid hydrocarbons are at risk of significantly more damage than their more crude-focused counterpoints. Bishop said there was “bigger downside risk on the gas side than on the liquids side, especially when compared to the Street’s expectations.”

While analysts are well-aware of what has been happening with crude oil prices and how they relate to Canadian producers, Bishop believes there is less understanding when it comes to Canada’s natural gas producers.

Most gas producers in North America sell their product based on the Henry Hub benchmark price, which averaged US$1.96 per million British Thermal Units during the first quarter of the year. The lion’s share of Canadian natural gas production, however, sells for the AECO price, which averaged US$1.81 during the same period.

“I don’t think a lot of people are necessarily paying close attention to the fact that AECO is down 27 per cent in the first quarter,” Bishop said. “That compares to Henry Hub, which was still down but only by seven per cent.”

Rising debt loads will undoubtedly be in focus, with both Tims and Bishop noting the much-watched ratio of debt-to-cash flow has been steadily growing for several quarters since producers have been forced to borrow increasingly large sums to keep their rigs running at below break-even levels. Bank line reviews tend to come up in May, Bishops noted, “so guys are going to be pressured into doing some [asset sales], especially if they’re coming off of weak Q1 results.”

For those expecting this to be the “kitchen sink” quarter where companies try to get all their negative results out of the way at once and point to brightening outlooks and a rebounding oil price, that might be wishful thinking. Bishop notes despite the recent rebound in prices, the failures of the first quarter are likely to follow the sector beyond this round of results.

“Typically Q1 is the highest spending quarter, you drill the most wells and you carry that momentum into Q2,” Bishop said, “Well, this winter is much less busy than it has been in many years, so that momentum going into Q2 is going to be very low.”