Cenovus Energy Inc. boss Alex Pourbaix believes that the worst of the pandemic-caused downturn is behind the Canadian oil sector, but still doesn’t think it wise to be “counting on a big demand recovery to save your bacon.”
“We’re on the road to recovery from the low point of the downturn in April, though we expect commodity price volatility for the foreseeable future,” Mr. Pourbaix, the company’s president and chief executive, told investors Thursday morning on a call going over second-quarter results.
Oil producers were hit hard by the COVID-19 lockdown. As people remained home across the globe, demand for crude and refined products went into free fall.
Production levels in Western Canada dropped by more than a million barrels of oil a day as a result, though not every company took the same approach.
“April and May were no fun at all,” Mr. Pourbaix told The Globe and Mail in an interview, but said the Calgary-based company’s pragmatic oil production and its ability to store crude meant Cenovus escaped the worst of the damage.
When oil prices fell dramatically and crude output stalled for many Alberta producers, he said Cenovus took the opportunity to buy up production credits from other companies at “very low cost.” That move allowed the company to ramp up output beyond curtailment levels imposed by the Alberta government.
Cenovus then stored that oil in its reservoirs during April and May – when Western Canadian Select (WCS) prices slipped below $5 – and sold it off in June when prices rebounded to more than $30 a barrel.
Keith Chiasson, vice-president of Cenovus’s downstream division, told investors that a low differential between WCS and West Texas Intermediate crude prices also helped the company’s bottom line.
“We increased production at the Christina Lake oil sands project by 80,000 barrels a day to capture that record tightness,” he said, which helped generate close to $300-million in free cash flow by the end of June.
Suncor Energy Inc., on the other hand, saw its total production plunge to 655,500 barrels a day during the quarter, as the company cut output to keep pace with reduced demand.
“We experienced unprecedented volatility this quarter in all facets of our business as the COVID-19 pandemic and OPEC+ supply issues continued to impact the industry,” chief executive Mark Little said in a statement.
Suncor ended up with a larger-than-expected net loss of $614-million in the second quarter of 2020, compared with net earnings of $2.729-billion a year ago. The company said it remains on target to reduce operating costs by $1-billion – and capital costs by $1.9-billion – by the end of the year.
And while Mr. Pourbaix doesn’t see the world returning to the widespread shutdowns of April and May, he told The Globe that the company won’t be relying on a swift recovery.
Instead, he said, Cenovus is focused on driving down costs and capital spending. Even if the price environment improves over the coming months, Mr. Pourbaix said Cenovus will maintain the 32-per-cent cut to its capital budget announced in March after the company’s share price fell by half.
Cenovus posted a second-quarter net loss of $235-million Thursday, compared with net earnings of almost $1.8-billion in the same period in 2019.
The company’s net debt was around $8.2-billion at quarter’s end, though Mr. Pourbaix told investors that Cenovus continues to shoot for a net debt level of $5-billion or lower over the long term.
With a report from Reuters
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