Providing coverage of Alaska and northern Canada's oil and gas industry
August 2020

Vol. 25, No.31 Week of August 02, 2020

Wary mood in Canada

Kenney holds out signs of hope; Suncor, Cenovus leaders don’t see quick recovery

Gary Park

for Petroleum News

Alberta Premier Jason Kenney is predicting that when the global economy rebounds from COVID-19 “we are going to see something of a supply shortage.”

Two of his province’s largest oil sands producers - Suncor Energy and Cenovus Energy - both believe the outlook is starting to improve, though most upstream companies are barely able to break even when oil nudges US$40 a barrel.

Kenney bases his hopes on the cancellation of exploration and development drilling that he is counting on to apply upward pressure on commodity prices.

“That will be a great opportunity for Alberta especially as we make progress on pipelines,” he said.

Not everyone agrees with his view of pipelines, except for completion of the Trans Mountain expansion, which will add a net addition of 590,000 barrels per day when it comes on stream by late 2022.

But Kenney is alone in believing that Keystone XL will be completed, which could be tied less to reality and more to his desperate commitment of C$7 billion for the 830,000-bpd system to the Texas Gulf Coast.

Hesitancy on recovery

The leaders of Suncor and Cenovus, two of the Canadian industry’s most trusted voices, are hesitant about committing to a recovery strategy.

“I’m wary to say the worst is behind us,” said Cenovus Chief Executive Officer Alex Pourbaix, after reporting his company posted a net loss in the second quarter of C$235 million, compared with earnings of C$1.8 billion a year earlier.

He bluntly declared that Cenovus is “not counting on a big demand recovery to save our bacon.”

“We’re on the road to recovery from the low point of the downturn in April, though we expect commodity price volatility for the foreseeable future.”

For now, he said Cenovus has applied itself to driving down costs and capital spending, even if the price environment improves.

Pourbaix said Cenovus was supported by its ability to store crude that helped it escape the worst of the spring price collapse, combined with seizing the opportunity to buy up production credits from other producers at “very low cost.”

However, Cenovus shut in 60,000 bpd in April, although it pumped an average 400,000 bpd in the second quarter, up 8% from the same period in 2019.

Adding to debt

Cenovus and Suncor both added to their short- and long-term debts in the first half of 2020, contributing to a long-term debt of C$8 billion for Cenovus at the end of June.

Suncor’s short-term debt rose to C$3 billion at the end of June, up C$900 million from the end of 2019, while its long-term debt climbed to C$16 billion from C$12.9 billion over the same period. The company posted a net loss of C$614 million in the second quarter compared with net earnings of C$2.7 billion a year earlier.

“We knew that the second quarter would be challenging ... certainly the most challenging in our modern history,” said Suncor Chief Executive Officer Mark Little.

But he and other Suncor executives doubted the company will take on more debt through the second half of 2020, although Little was unwilling to commit to a strategy amid volatility in crude markets.

Crude-by-rail exports down

Reduced oil demand and a sharp easing of pipeline congestion has landed heavily on Canada’s railroads, with crude-by-rail exports plunging to their lowest levels in four years in May.

The shipments were down 63% in May from April at 156,242 bpd, a sunning descent from an all-time high of 411,991 bpd in February.

The slump in oil demand in the United States forced Canadian shut-ins of about 1 million bpd, while Enbridge, operator of the Mainline (the largest pipeline network in North America), said throughout on that system was down 400,000 bpd in April, compared with a normal first-quarter average of 2.84 million bpd.

The joint price and demand nosedive contributed to a fall in Canadian production to 4.4 million bpd in May, the lowest output since mid-2016 when wildfires in northeastern Alberta crippled oil sands operations.

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