Capital spending cuts may be coming down the pipe soon

Capital spending cuts may be in the cards when oilpatch earnings season kicks off this week, according to an analyst’s report. “With the rapid drop in commodity prices we would not be surprised to see some producers start to reconsider capital plans,” wrote CIBC’s Andrew Potter.

CALGARY — Capital spending cuts may be in the cards when oilpatch earnings season kicks off this week, according to an analyst’s report.

“With the rapid drop in commodity prices we would not be surprised to see some producers start to reconsider capital plans,” wrote CIBC’s Andrew Potter.

Nexen Inc. (TSX:NXY), which is on the hunt for a new CEO after Marvin Romanow’s exit earlier this year, is the first to report on Thursday.

Potter said Nexen will be one of the few to post stronger production, as its offshore Usan project in West Africa ramps up and volumes at its Long Lake oilsands project and North Sea platforms improve.

The most likely to reduce capital spending is Canadian Natural Resources Ltd. (TSX:CNQ), which reports on Aug. 9. Its latest budget of $7.4 billion was based on West Texas Intermediate oil prices of US$104. With prices looking like they’re heading closer to US$90, it could mean a spending reduction of $500 million to $1 billion.

“We believe CNQ would most likely cut capex out if its oilsands budget, implying there should be little impact to short-term production forecasts,” Potter wrote.

Canadian Oil Sands Ltd. (TSX:COS) raised its dividend from 30 cents to 35 cents last quarter — a level Potter called “unsustainable” in the current oil price environment.

“We believe the company will most likely wait another quarter before making any decisions on dividend cuts,” he said.

Generally, Potter doesn’t see much to get excited about this earnings season.

“Overall, second-quarter results will likely be quite weak as producers grapple with low natural gas prices, declining benchmark oil prices and widening North American oil differentials vs. benchmarks.”

Canadian producers will continue to be whacked by the double-discount they get for their crude.

Pipeline bottlenecks have eroded the value of landlocked U.S. West Texas Intermediate crude compared to international varieties that can be transported by tanker to several markets.

And oilsands crude, because it’s heavy and more difficult to refine, already trades lower than WTI.

“We believe that Q2/12 will continue to illustrate the magnitude of the opportunity cost to Canadian producers as pricing worsened from the levels seen in Q1,” wrote Potter.

Oil companies that have refinery interests, such as Suncor Energy Inc. (TSX:SU) and Cenovus Energy Inc. (TSX:CVE) are expected to do better than peers that don’t. Having a downstream business cushions them against the lower crude prices because it means the cost of the oil they buy to run through their refineries goes down.

Just Posted

One person dies in hospital after house fire erupts in Calgary

CALGARY — The Calgary Fire Department says a person has died in… Continue reading

Jury finds former SNC-Lavalin executive Sami Bebawi guilty on all charges

MONTREAL — A former SNC-Lavalin executive on trial for fraud and corruption… Continue reading

Festival of Trees volunteers honoured at breakfast

This year’s Festival of Trees was able to provide the Red Deer… Continue reading

Two Red Deer filmmakers are finalists in web-series contest

Angel Peterson and Jason Steele are each creating pilot episodes with $20,000 prize

Sexual predator preyed on his own young daughter and niece

Eckville man sexually assaulted numerous children as young as two for nearly a decade

Drug bust: Red Deer RCMP seize drugs, cash, vehicles

Criminals are getting creative. Red Deer RCMP have seized cash and vehicles… Continue reading

Your community calendar

Thursday Join us at the Senior Center Downtown House (5414 43 St.… Continue reading

Red Deer Vipers earn wild comeback win

The Red Deer Vipers needed a comeback to top the Mountainview Colts… Continue reading

Big Valley’s Zeke Thurston captures second world title at NFR

Zeke Thurston is quickly becoming one of the most decorated saddle bronc… Continue reading

Edmonton faces Dallas, seeks to end 4-game skid

Edmonton Oilers (18-13-4, second in the Pacific Division) vs. Dallas Stars (19-11-4,… Continue reading

Tiger Woods caps comeback year by leading emotional team win

MELBOURNE, Australia — The emotions poured out of Tiger Woods, just like… Continue reading

Carriers’ new financing plans offered as way to ease the cost of smartphones

TORONTO — The weeks before Christmas 2017 were especially frenzied for Canada’s… Continue reading

Five things to watch for in the Canadian business world in the coming week

TORONTO — Five things to watch for in the Canadian business world… Continue reading

Mexico disputes language in US bill on ratifying trade pact

MEXICO CITY — Just days after a landmark agreement on a trade… Continue reading

Most Read