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Canadian dollar gains come at price Dollar’s 22% surge in past year is taking bite out of oil patch investment; Burlington shifts some spending back to Lower 48 Gary Park Petroleum News Calgary correspondent
It has been a treat for those who like to escape Canada’s winter clutches and head for California, Arizona or Florida. It has also been a boon to industries that make heavy equipment purchases from the United States.
But there is an emerging downside to the 22 percent rise over the past year in the value of the Canadian dollar against the U.S. currency.
Canada’s once-burgeoning trade surplus, because it is so dependent on the two-way flow of goods with the United States, has started to evaporate.
Now the U.S.-based oil and gas companies who scooped up assets in the late 1990s and early 2000s when the Canadian dollar was at a low ebb are rethinking their investment in Canada.
Burlington Resources delivered the harshest blow yet when it announced plans to “ration” its Canadian spending.
“We have actually reduced our Canadian capital budget $50 million to $100 million in 2004 from 2003 on a Canadian dollar basis and in effect shifted this capital to the Lower 48, where we are not facing some of the same margin pressures,” Chief Operating Officer Randy Limbacher told a conference call Jan. 22.
He said that with the exchange rate moving against Burlington, the Houston-based independent will be “very prudent” with its capital in Canada.
Burlington spent US$695 million in Canada last year and has actually earmarked US$741 million for 2004, but if current exchange rates prevail that translates into a drop from C$999 million in 2003 to C$953 million in 2004. Other companies looking at reductions Now attention is shifting to Anadarko Petroleum, Apache and Devon Energy, the other three largest U.S.-based companies with Canadian operations.
Anadarko Senior Vice President Richard Sharples told a Houston conference in December that the stronger Canadian dollar has affected the relative attractiveness of Canada against the rest of the company’s portfolio.
He said “you can’t take a 25 percent hit (in currency values) and not feel the impact.”
Anadarko spent about C$500 million in Canada in 2003, but is not expected to disclose its 2004 spending plans until February, although a spokeswoman has said the company is in talks with contractors to reduce costs.
Devon Energy has indicated it will likely come close to repeating its 2003 spending of C$1 billion, but president John Richels told the Financial Post that the stronger Canadian dollar “certainly makes a difference.”
Calgary-based EnCana is reportedly taking another look at its capital program, with an eye on a more aggressive spending strategy in the United States.
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