Page 4 - NorthAmOil Week 10

NorthAmOil COMMENTARY NorthAmOil
Oil price collapse a major threat to Canada’s oil producers
The collapse in crude prices is expected to hit Canada’s already struggling oil industry hard
CANADA
WHAT:
Canadian energy companies are bracing themselves for severe headwinds.
WHY:
An already challenging operating environment will be much worse given lower crude prices.
WHAT NEXT:
Cenovus Energy has already cut spending, and others are likely to follow.
THE collapse of the OPEC+ alliance and the sub- sequent escalation of what is being described as an oil price war between Saudi Arabia and Russia is reverberating around global oil markets. (See next story) And Canada’s oil industry looks set to be among those that will be hit particularly hard.
The development comes as only the latest in a series of blows for Canadian oil producers, which have long been struggling to operate in an environment characterised by low prices, limited takeaway capacity and environmental concerns. At least one company – Cenovus Energy – is already taking steps to respond to the new oil market crisis. Others are anticipated to follow.
Mitigation measures
On March 9, Cenvous announced a roughly 32% reduction to its planned capital spending for2020.Thecompanysaiditwouldalsotempo- rarily suspend its crude-by-rail programme, and would defer final investment decisions (FIDs) on major growth projects. Cenovus’ revised budget is expected to be between CAD900mn and CAD1bn ($655-728mn), down from CAD1.3- 1.5bn ($946mn to $1.1bn) previously.
These moves are anticipated to result in reduced production, with Cenovus projecting that its oil sands output for 2020 will now be
350,000-400,000 barrels per day, down 6% from 390,000-410,000 bpd previously. The company expects its overall production to come in at 432,000-486,000 barrels of oil equivalent per day (boepd), down 5% from 472,000-496,000 boepd in its original budget.
Cenovus said in a statement that it was con- tinuing to work towards funding its revised capi- tal programme and current dividend within cash flow.
“We have top-tier assets, one of the lowest cost structures in our industry and we’ve made significant progress in deleveraging over the past few years,” said Cenovus’ president and CEO, Alex Pourbaix. “Consistent with our commit- ment to balance sheet strength, we’re exercising our flexibility to reduce discretionary capital while maintaining our base business and deliv- eringsafeandreliableoperations.”
The company said that capital originally budgeted for expansions at its Christina Lake and Foster Creek projects had been put on hold, while the majority of the remaining planned capital spending at its Deep Basin and Marten Hills operations had been suspended. It added, however, that modest spending on engineering and permitting for a potential diluent recovery unit (DRU) would still go ahead. Beyond that,
Cenovus is holding off on sanctioning any new projects this year.
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w w w . N E W S B A S E . c o m Week 10 12•March•2020