Cenovus forecasts capital spending bump for 2023

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Cenovus Energy Inc. CVE-T has forecast a bump in its capital spending next year, as the Calgary-based company looks to increase both oil production and refining.

The move reflects a wider trend among fossil fuel companies, many of which have cautiously raised forecast capital spending after reaping record profits because of sky-high global energy prices. Canadian Natural Resources Ltd., for example, announced last week it expected to spend $5.2-billion in its capital budget next year to help grow production, and Suncor Energy Inc. also forecast higher capital expenditures.

Alex Pourbaix, the president and chief executive officer of Cenovus, said in an interview Tuesday that most of the oil and gas industry has been cautious about increasing capital spending over the past two years. But he said he expects that to change.

“Almost overwhelmingly, most companies were really just spending the bare minimum to sustain production, if they even sustained production. We’re finally at a point now where I think most companies have recovered their balance sheets to a position of strength,” he said.

“All around the world, countries and economies are screaming for more oil and gas. So I suspect this trend of moving to a little bit more of a growth footing is something that we are going to see more of in the industry.”

Cenovus expects to spend between $4-billion and $4.5-billion next year on capital activities, the bulk of which – about $2.8-billion – will go toward maintaining base production and reliable operations at its various sites.

But Cenovus also expects to grow production in 2023.

The company said in its 2023 budget, released Tuesday, that its forecast upstream production will increase by about 3 per cent, to between 800,000 and 840,000 barrels of oil equivalent a day. Downstream production – which includes processing crude, for example by making refined products – will likely see an even bigger bump, with Cenovus forecasting 28-per-cent growth compared with 2022, owing mostly to increased output from the company’s Superior and Toledo refineries.

Cenovus’ 2023 budget earmarks up to $1.7-billion for a range of projects to improve reliability and efficiency in the oil sands, including at its Christina Lake, Foster Creek and Sunrise sites, and at its Lloydminster Refinery on the Alberta-Saskatchewan border, where it intends to work on small capacity-expansion projects.

And about $500-million of that will go toward construction of the West White Rose project, an expansion of an existing offshore oil field in Atlantic Canada.

The field sits around 350 kilometres east of Newfoundland. It produces about 26,000 barrels a day, but that number is falling as its oil reserves decline. The planned expansion will add about 75,000 barrels a day to production.

Husky Energy Inc., which owned the majority of the expansion project before Cenovus acquired the company last year, paused West White Rose in March, 2020, when the COVID-19 pandemic obliterated oil demand and prices.

Cenovus announced in May that it would restart work on the half-finished project.

That work has recently ramped up at the Port of Argentia, about 130 kilometres west of St. John’s, where a partly built concrete gravity structure on dry land is currently dwarfed by a towering crane. Eventually, the structure will rise to 145 metres and be moved out to sea.

“If there was a positive side to the pandemic in the case of West White Rose, it gave us the time to really think very carefully and thoughtfully about the project, and did it make sense for us,” Mr. Pourbaix said.

“We were able to restructure a number of elements of it and we’re quite confident that, with the work that has been put into that project, the execution is going to go well.”

What the Cenovus budget doesn’t include is cash for the huge oil sands carbon capture project being planned by the Pathways Alliance, a multicompany group that aims to reduce greenhouse gas emissions from oil sands production to net-zero by 2050. The project would lower emissions from oil sands facilities by sending their excess carbon dioxide through a pipeline to a sequestration hub in Cold Lake, Alta.

The six companies in the alliance are Cenovus, Canadian Natural, Imperial Oil Ltd., MEG Energy Corp., Suncor, and ConocoPhillips Canada.

Mr. Pourbaix said all of the companies are “spending significant capital” on various smaller emissions-reduction projects, such as improving the energy efficiency of their facilities and lowering methane pollution. But he added that larger joint plans, such as the pipeline and the sequestration hub, will require years more permitting work and engineering procurement before they can get under way.

He said the group is still collectively on the path to spending $23-billion on greenhouse gas reduction projects by 2030. “But there is just a massive amount of work that needs to be done to set up to invest in those projects.”

“We can’t just start throwing money at megaprojects until we have all of the building blocks in place,” he said.