CALGARY — Oil and gas producer Whitecap Resources Inc. said Tuesday it will choke back spending in the first half of 2019 in view of recent volatility in world and western Canadian oil prices, despite the resulting reduction in average production for the year.
The mid-sized producer said it plans to spend about $450 million next year, about the same as this year, to take average production to about 71,000 barrels per day, about 3.4 per cent less than its current production of 73,500 bpd.
“Given the extreme volatility in crude oil prices … we want to take a cautious and defensive approach to our capital planning for 2019,” said CEO Grant Fagerheim on a conference call.
“By shifting growth capital from the first half of the year into the second half, it reduces our average production for the year but allows us to repay $74 million of debt by the end of the second quarter and gives us maximum flexibility for organic growth in the second half of the year.”
The company usually spends more than half of its budget in the first six months of the year, when frozen ground allows better access to backcountry drilling sites in Western Canada.
In 2018, it spent 55 per cent in the first half of the year and production peaked in March; next year it plans to spend only 30 per cent in the first half, then ramp up spending in the summer to allow production to peak in November.
Uncertainty over prices has forced intermediate companies like Whitecap, Baytex Energy Corp. and Obsidian Energy Ltd. to be conservative as they rolled out their budgets this week, said analyst Thomas Matthews of AltaCorp Capital.
“Everyone’s taking a pretty cautious view for the first half of the year next year,” he said.
“The real risk now is WTI (West Texas Intermediate). You’re looking at WTI trading in that US$48 range now so let’s be conservative in the front half and then you can adjust in the back half if pricing continues to go away from you.”
Crude prices in Western Canada suffered deep discounts in October and November as a glut of oil overwhelmed pipeline and rail export capacity.
Those discounts eased after the Alberta government announced early this month it would impose industry-wide production curtailments of 325,000 bpd in the first part of 2019.
Meanwhile, New York-traded West Texas Intermediate crude has also fallen, from a peak of over US$76 per barrel in October to less than US$48 per barrel this week.