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Oil sands feel the crunch Cenovus Energy, Canadian Oil Sands, make deep cuts for 2015; Cenovus’ capital budget down C$700M, COS cuts dividend to 5 cents Gary Park For Petroleum News
Cenovus Energy and Canadian Oil Sands, two of the biggest players in northern Alberta’s bitumen region, are making even deeper cuts to their 2015 capital budgets, raising concerns about increased layoffs in the engine room of Canada’s oil patch.
Cenovus slashed another C$700 million from its spending program and sidelined plans for further additions to its Christina Lake and Foster Creek thermal-recovery operations, which have completed about two-thirds of their current expansions, while cancelling the “bulk” of its conventional drilling in Alberta and Saskatchewan.
The company is now budgeting C$1.8 billion-C$2 billion, which is 27 percent less than the budget it unveiled less than two months ago and a drop of 37 percent from last year.
Cenovus said it is also aiming to remove up to C$500 million from its operating and capital expenses over the course of 2015, but it was unable to say how many of its 5,200 contract jobs will be eliminated, while full-time employee numbers will be retained.
Chief Executive Officer Brian Ferguson said the overriding objective is to proceed “at a pace we believe is more in line with the current pricing environment.”
The revised spending is based on a projected average West Texas Intermediate price of US$50.50 a barrel, compared with the previous Cenovus estimate of US$74.
The company is forecasting cash flow of C$1.3 billion-C$1.5 billion based on production of 195,000-212,000 barrels per day, while continuing to “declare our dividend.”
COS shrinks dividend Canadian Oil Sands opted to take a more drastic route, shrinking its quarterly dividend to 5 cents a share from 35 cents - two months after announcing its intention to cut 20 cents - and removing C$400 million from its operating and development spending in 2015, while its capital budget has been cut by 20 percent or C$113 million.
Chief Executive Officer Ryan Kubik said the actions were needed to enable the company to ride out a “prolonged period of low prices” and help COS reduce its operating costs to C$40 per barrel from an average C$48.86 in 2014.
COS is the largest of seven partners in Syncrude Canada, holding a 36.74 percent ownership stake in a consortium that has nameplate capacity of 350,000 bpd and proved plus probable reserves of 5.1 billion barrels.
It said Syncrude is “undertaking a comprehensive review of costs ... to examine the longer-term opportunities to achieve a sustainable, lower-cost structure,” including “deferrals of discretionary projects.”
A combination of unscheduled maintenance at the facility and collapsed oil prices saw the company’s cash flow for the final quarter of 2014 tumble by 31 percent from a year earlier to C$207 million, while its net earnings fell 71 percent to C$25 million.
Analysis says US$50 needed Toronto-Dominion Bank analyst Menno Hulshof said Syncrude needs a North American benchmark oil price of almost US$50 a barrel just to break even, compared with US$43.74 for Suncor Energy’s Millennium mine and US$54.02 for Imperial Oil’s Kearl operation.
But because Kearl is a new mine, its break-even point is much higher, he said.
Imperial said it plans to start production from an C$8.9 billion expansion phase at Kearl later this year, months earlier than expected, while anticipating the first flow of oil within months from its C$2 billion Nabiye heavy oil project, which is designed to operate for 40 years.
The company reported a 36 percent plunge in its fourth quarter earnings to C$671 million and announced it was reducing its capital and exploration budget for this year to about C$4 billion, down C$1.65 billion from last year.
However, Imperial said its “near-term investment plans remain largely unchanged,” although it will closely monitor and respond to market conditions and “rigorously” examine operating costs and capital outlays.
The cost-cutting may include 500 Esso-branded gasoline stations across Canada.
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