Oil Sands’ First Capital Spending Gain in Years Put In Doubt
Kevin Orland Bloomberg March 10, 2020
(Bloomberg) -- The first capital spending boost in Canada’s oil sands in half a decade is in doubt after the global oil-price plunge prompted one major explorer to slash its 2020 budget.
Cenovus Energy Inc. is cutting spending by 32% to a range of C$900 million ($653 million) to C$1 billion, suspending its crude-by-rail program and deferring investment decisions on major growth projects, according to a statement Tuesday. The company also is dialing back its production outlook to 432,000 to 486,000 barrels a day, down from 472,000 to 496,000.
MEG Energy Corp. followed suit later in the day, cutting its capital budget 20% to C$200 million. Production this year will be 93,000 to 95,000 barrels a day, down from an original forecast of as much as 94,000 to 97,000, the company said.
If other producers follow suit, the oil sands are at risk of posting their sixth straight year of declining investment, a trend that has weighed on Alberta’s oil-dependent economy.
Before international crude posted its worst decline since 1991 on Monday, capital spending in the world’s third-largest crude reserves was projected to rise 8.4% to C$11.6 billion this year, according to a January forecast from the Canadian Association of Petroleum Producers.
“Given recent oil market developments, investors were expecting Cenovus and its peers to announce spending austerity measures,” Michael Dunn, an analyst at Stifel FirstEnergy, said in a note. “Essentially, spending on growth projects has been put on the shelf.”
The investment slump has taken a toll on Alberta. After the last oil-market crash, unemployment in the province surged to 9.1% by late 2016.
Despite the oil-price recovery of the following years, explorers continued trimming jobs to reduce costs, and a shortage of pipeline capacity kept a brake on expansion plans. The province’s unemployment rate has remained above 6% since September 2015 and was at 7.2% last month.
Even before this week’s rout, some major oil-sands projects had been scrapped or postponed because of pipeline shortages and production limits imposed by provincial leaders.
Imperial Oil Ltd., Exxon Mobil Corp.’s Canadian unit, last year delayed its C$2.6 billion oil-sands project that was scheduled to start production in 2022. Last month, Teck Resources Ltd. withdrew its application for the C$20.6 billion Frontier oil-sands mine.
(Updates with MEG cutting budget in third paragraph)
--With assistance from Michael Bellusci.
To contact the reporter on this story: Kevin Orland in Calgary at korland@bloomberg.net
To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, ;Derek Decloet at ddecloet@bloomberg.net, Carlos Caminada
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Cenovus Energy To Suspend Crude-By-Rail Program In 2020
FreightWaves Benzinga March 13, 2020
Falling crude oil prices have prompted Canadian oil and natural gas producer Cenovus Energy (NYSE: CVE) to stop its crude-by-rail program temporarily.
Cenovus is "temporarily suspending its crude-by-rail program and deferring final investment decisions on major growth projects. These measures are being taken in response to the recent significant decline in world benchmark crude oil prices," the company said on March 9. Cenovus' operations include oil sands projects in northern Alberta and oil and gas production in Alberta and British Columbia.
Because Cenovus is suspending its crude-by-rail program, it will no longer be making use of the credits under Alberta's Special Production Allowance program. The program allowed crude producers to increase their crude oil production if producers agreed to ship it by rail. The Alberta government set production limits so that Alberta heavy crude would not be sold at steep discounts.
As a result of not increasing crude production and sending crude volumes via rail, Cenovus said it expects oil sands production to average 350,000-400,000 barrels a day, which is 6% lower than the 2020 guidance the company provided last December.
Crude oil prices in "this challenging commodity price environment" have fallen sharply in recent days as Saudi Arabia has sought to ramp up crude production in hopes of slashing prices, including those of competitors such as Russia.
Alberta crude producers look at the pricing spread between Brent crude and West Texas Intermediate (WTI) as they assess their ability to ship via rail. Western Canada Select (WCS) crude, which is Alberta heavy crude, is typically priced against WTI.
WCS gets hauled to the U.S. East or Gulf coasts, and so producers consider rail costs. If the price of WCS, which is WTI minus the prevailing market differential, is competitive with Brent crude, then producers are more willing to bear the rail costs and ship WCS.
Cenovus to Curb Capital Spending in Weak Pricing Environment
Zacks Equity Research Zacks March 11, 2020
Cenovus Energy Inc. CVE recently announced plan to slash 2020 capital budget by around 32%. Moreover, the company will likely put its crude-by-rail program under temporary suspension, while postponing final investment decisions of some major growth projects. This move was triggered by the recent events in the OPEC+ meeting, which ended up creating a Saudi Arabia-Russia oil price war and pushing oil prices to historical lows.
Budget Cut
Oil prices have witnessed a massive tumble recently, highest since the 1991 Gulf War, which dealt a huge blow to the already struggling Canadian hydrocarbon industry. Reacting to the market situation, Cenovus decided to curb capital spending in a bid to maintain balance sheet strength. Per the revised budget, the company is expected to make capital spending of C$0.9-C$1 billion in 2020. Notably, as of Dec 31, 2019, the Canadian energy player had cash and cash equivalents of C$186 million, and total long-term debt of C$6,699 million. Its total debt-to-capitalization ratio was 25.9%, considerably lower than the energy sector’s more than 31%.
Lowered Production Guidance
The temporary suspension of the crude-by-rail program is expected to halt the usage of credits under Alberta’s Special Production Allowance program. This will likely take a toll on the company’s total production by 5%. Production is now expected within 432-486 thousand barrels of oil equivalent per day. Oil sands production is now expected in the range of 350-400 thousand barrels per day, reflecting 6% fall from the original guidance.
Major Projects to Suffer
The company’s Christina Lake and Foster Creek projects, which were earlier expected to reach sanction-ready status in 2020, are kept on hold. Capital spending in its Deep Basin and Marten Hills operations is also likely to be suspended. The company will avoid making new projects sanctions owing to low oil price environment.
Price Performance
The stock has plunged 63.8% in the past year compared with 44.2% decline of the industry it belongs to.
Zacks Rank & Stocks to Consider
Cenovus currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Apache Corporation APA, Matador Resources Company MTDR and Phillips 66 Partners LP PSXP, each having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Apache beat the Zacks Consensus Estimate for earnings thrice in the last four quarters, with an average positive surprise of 119.7%.
Matador Resources’ 2020 earnings per share are expected to gain more than 5% year over year.
Phillips 66 Partners’ first-quarter 2020 earnings per share are expected to gain 10% year over year.
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Zacks Equity Research Zacks March 11, 2020
Cenovus Energy Inc. CVE recently announced plan to slash 2020 capital budget by around 32%. Moreover, the company will likely put its crude-by-rail program under temporary suspension, while postponing final investment decisions of some major growth projects. This move was triggered by the recent events in the OPEC+ meeting, which ended up creating a Saudi Arabia-Russia oil price war and pushing oil prices to historical lows.
Budget Cut
Oil prices have witnessed a massive tumble recently, highest since the 1991 Gulf War, which dealt a huge blow to the already struggling Canadian hydrocarbon industry. Reacting to the market situation, Cenovus decided to curb capital spending in a bid to maintain balance sheet strength. Per the revised budget, the company is expected to make capital spending of C$0.9-C$1 billion in 2020. Notably, as of Dec 31, 2019, the Canadian energy player had cash and cash equivalents of C$186 million, and total long-term debt of C$6,699 million. Its total debt-to-capitalization ratio was 25.9%, considerably lower than the energy sector’s more than 31%.
Lowered Production Guidance
The temporary suspension of the crude-by-rail program is expected to halt the usage of credits under Alberta’s Special Production Allowance program. This will likely take a toll on the company’s total production by 5%. Production is now expected within 432-486 thousand barrels of oil equivalent per day. Oil sands production is now expected in the range of 350-400 thousand barrels per day, reflecting 6% fall from the original guidance.
Major Projects to Suffer
The company’s Christina Lake and Foster Creek projects, which were earlier expected to reach sanction-ready status in 2020, are kept on hold. Capital spending in its Deep Basin and Marten Hills operations is also likely to be suspended. The company will avoid making new projects sanctions owing to low oil price environment.
Price Performance
The stock has plunged 63.8% in the past year compared with 44.2% decline of the industry it belongs to.
Zacks Rank & Stocks to Consider
Cenovus currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Apache Corporation APA, Matador Resources Company MTDR and Phillips 66 Partners LP PSXP, each having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Apache beat the Zacks Consensus Estimate for earnings thrice in the last four quarters, with an average positive surprise of 119.7%.
Matador Resources’ 2020 earnings per share are expected to gain more than 5% year over year.
Phillips 66 Partners’ first-quarter 2020 earnings per share are expected to gain 10% year over year.
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Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
