Alberta oil sand giant Cenovus says it will cut its 2020 capital spending by approximately 32 per cent in response to falling oil prices.
The Calgary-based company says it is also temporarily suspending its crude-by-rail program and deferring final investment decisions on major growth projects.
Between Sunday and Monday, oil prices fell about 34 per cent, the most in decades, before stabilizing to a 20 per cent drop in later trading. The dramatic drop in oil prices came after Saudi Arabia dropped its price for crude in retaliation to Russia refusing to agree to cut its production.
Cenovus says it will continue to work toward funding its revised capital program and current dividend within cash flow in this challenging commodity price environment.
“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 Alex Pourbaix, Cenovus President & Chief Executive Officer.
Pourbaix adds “Consistent with our commitment to balance sheet strength, we’re exercising our flexibility to reduce discretionary capital while maintaining our base business and delivering safe and reliable operations.”
|2020 budget forecast|
|Revised budget||Original budget1||% change2|
|Total capital investment ($ billions)||0.9 – 1.0||1.3 – 1.5||-32|
|Total oil sands production (Mbbls/d)||350 – 400||390 – 410||-6|
|Total production (MBOE/d)||432 – 486||472 – 496||-5|
1 Original 2020 budget announced December 10, 2019.
2 Based on the midpoint of the ranges.
As a result of Cenovus’s decision to temporarily suspend its crude-by-rail program, the company says it will no longer be making use of credits under Alberta’s Special Production Allowance (SPA) program.
As such, oil sands production in 2020 is now expected to average between 350,000 barrels per day (bbls/d) and 400,000 bbls/d, approximately 6 per cent lower than the company’s December 9, 2019 guidance for the year.
The company said in a press release that capital originally budgeted to progress potential phase H expansions at both Christina Lake and Foster Creek to sanction-ready status this year has been put on hold, and the majority of the remaining planned capital spend at the company’s Deep Basin and Marten Hills operations has been suspended.
Meanwhile, modest spending on engineering and permitting for a potential diluent recovery unit (DRU) will be completed, however, in the current environment, Cenovus says it does not intend to sanction any new projects.
Cenovus reports it currently has liquidity of approximately $4.4 billion, including undrawn credit facility capacity and cash on hand. Under the terms of Cenovus’s committed credit facility, the company is required to maintain a debt to capitalization ratio, as defined in the agreement, not to exceed 65 per cent.
At the end of 2019, Cenovus says it was well below this limit and has no near-term debt maturities.
The company says it will continue to monitor the macro-economic and oil price environment and will look for additional opportunities to reduce operating and capital spending if necessary and it expects to provide an updated corporate guidance document in the future.
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