Oil patch companies cautious as price pressures build

The Globe and Mail

Workers tap deep into North Dakotas Bakken formation on a Precision Drilling rig. (Nathan VanderKlippe For The Globe and Mail)

The latest quarterly results from some key oil patch companies show how pricing pressures are translating into cutbacks or flat growth in their expansion plans this year.

Precision Drilling Corp., for example, is planning $526-million in capital expenditures this year, half the $1.1-billion it budgeted for in 2012.

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“If low natural gas prices continue, Precision and the North American drilling industry could see a further reduction in demand for natural gas drilling,” the Calgary-based company warned in its fourth-quarter report Thursday.

“Precision continued to exercise capital discipline by reducing its capital expenditure plan several times throughout 2012 in response to softening industry conditions and by maintaining rigid return hurdles for evaluating investment opportunities,” the company said.

Encana Corp., Canada’s largest natural-gas company, says its capital investment for 2013 is estimated to be between $3-billion and $3.2-billion, up slightly from last year’s $2.9-billion.

But the company is putting most of its money in oil and natural gas liquids plays because they offer a better potential payoff than the natural gas projects that dominate it’s portfolio.

“Our first priority for 2013 is profitability and running a business that continues to be sustainable in the current low natural gas price environment,” Encana interim president and chief executive officer Clayton Woitas said in a news release.

Meanwhile, Cenovus Energy Inc. booked a $393-million goodwill impairment in the fourth quarter related to the decline in estimated future cash flows for its Suffield assets, largely due to a drop in forecast natural gas prices over the long term.

Cenovus is planning for between $3.2- and $3.6-billion in capital spending this year, about the same as in 2012.

Canadian oil and gas companies are taking a more cautious approach to spending in order to deal with the yawning gap between U.S. and global oil prices and low natural gas prices.

An oil glut in the U.S. Midwest, coupled with a dearth of pipeline capacity to ship Canadian crude to market, have resulted in a huge price discount for oil produced in Canada, compared with the price of the North American benchmark crude, West Texas intermediate, or the world standard, Brent crude.

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