Canadian oil producers cut capex

Canadian oil producers are slashing their 2015 capital budgets in response to a halving of crude prices since the second quarter, with further spending cuts expected.

Companies are reducing or eliminating dividends to maintain liquidity in anticipation of an extended period of lower oil prices. Spending cuts are deepening as Alberta's oil sands operators complete a spate of capacity additions and wait to see where crude prices find a new floor before revising investment plans for longer-term projects.

Husky Energy has cut its capital expenditure (capex) plans by a third to C$3.4bn ($2.9bn) next year. Cenovus Energy has cut capex by about 15pc and could reduce spending further in 2015 if crude prices continue to slide. It plans to spend C$2.5bn-2.7bn next year, focusing primarily on producing assets and completing expansions at its Christina Lake and Foster Creek thermal oil sands operations, albeit at a slower pace.

Canadian Oil Sands, the biggest shareholder in Syncrude Canada, projects a 40pc drop in spending as the consortium wraps up major projects and focuses on maintenance. Syncrude will spend C$564mn in 2015, down from C$938mn this year. And it is cutting its quarterly dividend to avoid increasing its debt load.

Smaller oil sands producers Athabasca Oil and Baytex Energy will implement large capex cuts of around 49pc and 20pc, to C$245mn and C$190mn, respectively. And service companies are preparing for a drop in drilling activity. Canada's largest drilling business, Precision Drilling, plans a 44pc cut in capital spending next year to C$493mn.

Canadian output is expected to rise in 2015 following the completion this year of new oil sands projects and capacity expansions. These include US independent ConocoPhillips and Total's 118,000 b/d Surmont, phase-one of Husky's 60,000 b/d Sunrise, and 40,000 b/d from Cenovus' Christina Lake and Foster Creek expansions. Oil sands output will reach 3.7mn b/d by 2020, up from 1.98mn b/d last year, the Canadian Energy Research Institute says.

Industry association Capp warned in June that spending next year will slide to C$69bn from an estimated C$73bn in 2014. But it has yet to revise its outlook in light of falling crude prices and reported capex cuts. Growing expectations of an extended period of lower oil prices could bring a sharp downward revision in Capp's next update.

Drilling down

Scotiabank forecasts a 15pc drop in drilling activity in western Canada based on US benchmark WTI prices averaging $70/bl. The Canadian Association of Oilwell Drilling Contractors in late November projected a 10pc cut in drilling activity next year, but the steady fall in crude prices since then suggests this figure will be revised.

Away from the oil sands, at least one Canadian producer is bucking the trend. Encana plans to increase capex by 15pc to $2.7bn-2.9bn. Canada's largest gas producer will focus on liquids production in Canada's Montney and Duvernay shales and in the US Eagle Ford and Permian regions, driven by its recent $7bn acquisition of US shale-focused independent Athlon Energy.

For more intelligent and thought-provoking opinion and analysis, request a free trial of Petroleum Argus .

Send comments to feedback@argusmedia.com

Request more information about Argus' energy and commodity news, data and analysis services.

Related News