By Kevin Orland
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.