Two days, two budget cuts.
When oil first traded above $80 (U.S.) per barrel on Sept. 13, 2007, it was declared sky-high. But eighty bucks only looks good on the way up. Now, that same price has energy executives pulling back on spending plans. Whitecap Resources Inc. on Wednesday said the oil patch is in a "lower commodity price environment" and, as a result, the company trimmed its 2012 spending plans.
The Calgary-based oil company will shave off $40-million to $45-million, or about 17 per cent, from most recent 2012 budget. It now intends to spend between $220-million and $225-million this year, the company said in its statement. This comes just one day after Longview Oil Corp. made its revisions.
"In light of the significant decrease in our realized oil price and continuing volatility in the crude oil markets, we are proactively reducing our development capital program," Whitecap said. Oil has slid about 24 per cent since March, which Whitecap called a "dramatic drop."
Whitecap recently made two cash-and-stock acquisitions, which both came with changes to Whitecap's budget and production expectations. But in those cases, Whitecap was spending rather than saving.
The light oil company announced a deal with Midway Energy Ltd. on Feb. 28, when oil closed at $106.59 a barrel. The transaction price including debt totaled $550.3-million, Whitecap said when the deal was announced.
As part of that deal, Whitecap increased its projected 2012 capital expenditures to $265-million, up from $185-million.
Whitecap also struck a $97.8-million deal with Compass Petroleum Ltd. on December 15, when a barrel of oil was worth $93.84. It nudged its 2012 spending plans to $185-million then, up from $150-million.
Oil prices, however, have headed south since Whitecap's deals. A barrel of West Texas Intermediate crude, the North American benchmark, closed around $80 Wednesday.
Canadian oil companies are hit twice over in today's oil market: Not only has WTI fallen about 24 per cent since March, the spread between the price of oil produced in Canada versus WTI has widened. The so-called differential hit a high of $19.85 per barrel in March, Whitecap noted, and is currently trading at a discount of between $10 and $14. A glut of crude in Cushing, Oklahoma, caused by pipeline constraints in Canada and the United States, is behind this price gap.
Whitecap now expects to produce an average of 14,200 barrels of oil equivalent per day in 2012, down 5 per cent from its previous estimate of 15,000 barrels of oil equivalent per day, the company said in Wednesday's press release. (In the February press release detailing the Midway deal, Whitecap said production would hit 15,500 barrels oil equivalent per day, up from its previous guidance of about 10,800 barrels, which was up from earlier guidance of between 9,000 and 9,200 barrels of oil equivalent per day).