Cautious Canadian Oil Majors Forced To Cut Spending

Canada’s biggest oil companies sent mixed signals with a series of budget announcement this week, with some upbeat about next year and others more cautious, with plans to cut spending in a depressed growth environment.

Husky Energy (TSX:HSE, OTCMKTS: HUSKF) seems to be the most cautious. In its 2020 capital spending and production guidance report released early this week, the company said it planned to cut its capex by US$379 million (C$500 million) over 2020-2021, with the sum budgeted for 2020 at US$2.4-$3.6 billion (C$3.2-3.4 billion). Most of the spending cuts, Husky said, will be effected in 2021.

Suncor (NYSE: SU) is another cautious player in Canadian oil. The major plans to spend between US$4.1 billion and US$4.55 billion (C$5.4-6 billion) in 2020, with spending on oil projects unchanged on this year. At the same time, Suncor expects 5 percent higher production from its oil operations, at between 800,000 and 840,000 bpd of oil equivalent.

Canadian Natural Resources (NYSE: CNQ) is the most upbeat one in the small group. The company plans to hike its budget for 2020 from 2019 levels, to US$3.07 billion (C$4.05 billion), and boost production to 1.172 million bpd of oil equivalent. However, the company noted in its budget report that if it weren’t for the production caps introduced by the previous Alberta government and maintained by the current one, production growth would have been 10,000-25,000 bpd higher.

The curtailment, as the industry calls it, seems to be one big reason for the spending adjustments. Initially set at 325,000 bpd, the curtailment has been reduced several times since the start of the year. Still, it does limit large companies’ growth plans and will continue to do so until the end of next year when it is set to expire. Alberta’s Premier said recently that he hoped the curtailment could be removed earlier than that, by November 2020. Meanwhile, in a further relaxation, Alberta’s government removed the caps for newly drilled conventional oil wells.