Canada’s biggest oil companies sent mixed signals with a series of budget announcement this week, with some upbeat about next year and others more cautious, with plans to cut spending in a depressed growth environment.
Husky Energy (OTCMKTS: HUSKF) seems to be the most cautious. In its 2020 capital spending and production guidance report released early this week, the company said it planned to cut its capex by US$379 million (C$500 million) over 2020-2021, with the sum budgeted for 2020 at US$2.4-$3.6 billion (C$3.2-3.4 billion). Most of the spending cuts, Husky said, will be effected in 2021.
Suncor (NYSE: SU) is another cautious player in Canadian oil. The major plans to spend between US$4.1 billion and US$4.55 billion (C$5.4-6 billion) in 2020, with spending on oil projects unchanged on this year. At the same time, Suncor expects 5 percent higher production from its oil operations, at between 800,000 and 840,000 bpd of oil equivalent.
Canadian Natural Resources (NYSE: CNQ) is the most upbeat one in the small group. The company plans to hike its budget for 2020 from 2019 levels, to US$3.07 billion (C$4.05 billion), and boost production to 1.172 million bpd of oil equivalent. However, the company noted in its budget report that if it weren’t for the production caps introduced by the previous Alberta government and maintained by the current one, production growth would have been 10,000-25,000 bpd higher.
The curtailment, as the industry calls it, seems to be one big reason for the spending adjustments. Initially set at 325,000 bpd, the curtailment has been reduced several times since the start of the year. Still, it does limit large companies’ growth plans and will continue to do so until the end of next year when it is set to expire. Alberta’s Premier said recently that he hoped the curtailment could be removed earlier than that, by November 2020. Meanwhile, in a further relaxation, Alberta’s government removed the caps for newly drilled conventional oil wells.
Yet curtailment is not the only problem for large oil companies in Canada. The investment climate in both Alberta and Canada as a whole is the opposite of favorable when it comes to oil, with the industry blaming the government for making it hard to survive and grow in the industry. As a result, some businesses are moving south of the border where there are no caps on production and no pipeline shortages.
Those that remain are shoring up their defenses. When the Daily Oil Bulletin released its industry survey in April this year, it forecast that the bulk of oil companies’ budgets for this year would go into maintenance and repairs rather than exploration and production. While this has probably been true for smaller companies, some of the top players have invested in more production, despite the cuts.
Suncor and Canadian Natural Resources reported production increases in their third-quarter reports. So did Husky Energy. Imperial Oil reported the highest third-quarter production rate in three decades.
The other thing they continued doing was cutting costs. Cutting costs has truly become the new normal both in Canada and the United States. But while in the U.S. there is little regulatory pressure on the oil industry, Canadian oil businesses are under pressure to become greener, cleaner, and, if possible, stop being oil companies at all.
“(Canadian companies) will have to start expanding elsewhere or consolidate inside Canada. But it’s not a great place to invest at the moment,” an investment adviser from Acumen Capital Partners told Reuters this week. “The long-term impact will be detrimental to Alberta and eventually to Canada,” Curtis Schirrmacher said.
It’s not a good time to be an oil company in Canada at all, but if you are going to be an oil company in Canada, it’s a little better to be a large one. Larger companies have the cash to withstand a protracted industry depression, and some of them—the integrated ones—can even benefit from price slumps because it means they can get cheaper feedstock for their refining operations. For smaller players, times will continue to be hard.
By Irina Slav for Oilprice.com
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