Canada’s biggest energy producers now face the same prospects of shrinking budgets and declining profit as their smaller rivals as prices drop for what’s already the world’s cheapest oil.
If crude prices continue sinking following OPEC’s decision not to cut global oil supplies, Canada’s producers big and small will have to tighten their belts to prepare for declining profits.
“This is a pretty big shock,” said Justin Bouchard, an analyst at Desjardins Securities Inc. in Calgary.
Western Canada Select, the Canadian benchmark, has lost more than a third of its value since June, in step with declines for West Texas Intermediate and the international gauge Brent.
Large Canadian energy producers will probably trim capital spending with WTI below US$70 a barrel, which reduces cash flow about 30%, Matthew Kolodzie, a Toronto-based credit analyst at RBC Dominion Securities Inc., said in a note Thursday.
There are factors working in the Canadian producers’ favour.
To offset low prices, as well as the high cost of mining and steaming bitumen from northern Alberta, Suncor, Cenovus Energy Inc. and some competitors own refineries and use trains to move their products to coastal markets, where they get better prices.
‘Not a Holiday’
Stocks tied to oil-sands growth are falling less than Canadian producers focused on delivering output growth from shale, as well as those carrying high levels of debt, said Jennifer Stevenson, who helps oversee CUS$5.5 billion at Dynamic Funds in Calgary. That’s because investors consider oil-sands developers based on long-term prices for decades-long projects, she said.
Source: Jeremy van Loon and Rebecca Penty, Bloomberg News | November 28, 2014 12:36 PM ET