Volatile oil prices force oil company cutbacks

oil
Oil companies all over the Bonnyville/ Cold Lake region are facing tough decisions due to declining oil prices. Nouvelle photo.

Energy sector powerhouses across the region have announced a series of cutbacks in the face of weak, steadily declining oil prices, with one company set to implement a hiring freeze.

Cenovus Energy Inc. revealed its projected 2015 budget on Dec. 11, in which it announced that no new workers would be added over the course of the coming year.

“We are looking to become more productive with the strong base of people that we already have,” said Ivor Ruste, Executive VP and Chief Financial Officer at Cenovus. “This means that we do not plan to grow our workforce in 2015.”

Although no new employees will be added to the Cenovus team, the company did reiterate that they would continue on with their planned expansions at both their Foster Creek and Christina Lake sites, but that it would be at a more moderate pace compared to prior years.

The Foster Creek project, situated on the Cold Lake Air Weapons Range about 100 kilometers north of Bonnyville, is in the midst of an expansion that will see the operation add several new phases. According to John Brannan, executive VP and COO, Phase G is 66 per cent complete and Phase H is 50 per cent complete.

Brannan expects first oil at Phase G to come sometime in early 2016, with first oil at Phase H following in early 2017.

Overall, Cenovus plans to reduce capital spending by roughly 15 per cent in the coming year, cutting spending to between $2.5 billion and $2.7 billion.

“The recent volatility in world oil prices is creating a challenging environment in which to set plans for 2015,” said Brian Ferguson, President and CEO of Cenovus. “It is the kind of price environment that demands flexibility and financial resilience.”

The local oil giant has announced that a large portion of their 2015 capital budget will be committed, but they have addressed areas for further cutbacks if the oil prices don’t rebound.

“Approximately $2.1 billion of our 2015 capital program is what we describe as committed,” said Ferguson. “This includes sustaining (our) growth capital at Foster Creek and Christina Lake, as well as investment on safety, maintenance, and meeting contractual obligations on our conventional and refining assets. We consider this to be the first priority for our capital.”

The company’s committed capital will drop to $1.8 billion in 2016 and $1.7 billion in 2017 and will include the scale back of discretionary spending.

Ferguson pointed out that the budgetary cutbacks and hiring freezes will force the company to get creative in how they utilize their staff.

“We will be looking at how and where we allocate staff. We do have several projects (Foster Creek and Christina Lake) that will be growing, so it will be a question of reallocating staff,” said Ferguson. “We have never laid staff off. We have always focused on ways to make our staff more productive and that will be one of the key things we will be looking at in 2015.”

Cenovus expects a total cash flow for 2015 to be between $2.6 billion and $2.9 billion, based on West Texas Intermediate (WTI) crude oil price between $74 and $81 (US) per barrel.

As of Dec. 15 the WTI price of crude oil was down under $57 a barrel.

A Canadian heavy oil benchmark, Western Canada Select, sits at an even lower level, selling at roughly $49 per barrel.

With Alberta’s heavy crude at its lowest price in five years, other companies have also taken measures to ensure no significant impacts occur.

Baytex Energy Corp, announced a 2015 budget of $575 to $650 million, approximately 30 per cent lower than originally expected.

“Given the recent collapse in world oil prices, we believe our 2015 budget strikes the right balance between preserving our operational momentum in delivering organic production growth and managing our dividends prudently to maintain strong levels of financial liquidity.”

Approximately 23 per cent of their 2015 capital budget will be invested into Baytex’s heavy oil operations in the Peace River and Lloydminster region, which includes an expansion at their Gemini site.

Imperial Oil Ltd., who operates one of the biggest facilities in the region, expects there to be no impact from the current weak price of oil.

Pius Rolheiser, the public relations officer for the large oil company, said that they are operating a long-term project in Cold Lake and will continue to do so for the foreseeable future.

“Imperial’s approach to Cold Lake, as well as all of our other assets, is a very conservative, very long term view and our long term plans are not significantly affected by near term crude price fluctuations,” said Rolhesier.

“We don’t see this having any appreciable impact on our long term plans for Cold Lake. Cold Lake is an asset that will be producing for the coming decades.”

Canadian Natural Resource Limited (CNRL) management declined a request for a comment.

 

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