The first capital spending boost in Canada’s oilsands 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 per cent to 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 on Tuesday. The company also is dialing back its production outlook to a range of 432,000 to 486,000 barrels a day, down from 472,000 to 496,000.
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 per cent 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 per cent 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 six per cent since September 2015 and was at 7.2 per cent last month.
Even before this week’s rout, some major oilsands projects had been scrapped or postponed because of pipeline shortages and production limits imposed by provincial leaders.
Imperial Oil Limited, Exxon Mobil Corporation’s Canadian unit, last year delayed its C$2.6 billion oilsands project that was scheduled to start production in 2022. Last month, Teck Resources Limited withdrew its application for the C$20.6 billion Frontier oilsands mine.
© 2020 Bloomberg L.P.