Husky Energy Inc. is cutting its planned capital spending by $500-million over the next two years as the company projects lower oil prices and implements new technology to trim costs.
The majority of the savings will come in Husky’s Western Canadian conventional oil business as the company revised its projection for the price a barrel for West Texas Intermediate down to US$55 from US$60. It cited “changing market conditions,” but didn’t elaborate.
The company now expects to spend between $3.2-billion and $3.4-billion next year, about a $100-million less than a previous forecast. A bigger cut will come in 2021. The reduced spending comes after Husky laid off hundreds of people in Calgary in October. The company would not disclose how many jobs were lost then, but on Monday confirmed 370 workers – most in Alberta – were let go this year to save about $70-million.
Husky president and chief executive officer Robert Peabody told an investor call on Monday morning the cut to capital spending will have a “relatively modest” impact on production.
“Because we’re spending less, we’re also producing a little less in 2020” than originally planned, he said. Still, he expects overall production next year to increase by about 4 per cent compared with 2019, bringing output to between 290,000 and 305,000 barrels a day.
The cuts to jobs and capital spending reflect Husky becoming a “more focused and simpler” company, Mr. Peabody said, with capital spending expected to continue at reduced levels over a five-year period, down by a total of $1.7-billion from earlier projections.
Chief operating officer Robert Symonds said advancements in technology will help bring about that reduction, including artificial-intelligence programs to accelerate oil well planning and screen storage reservoirs, a diluent-reduction pilot program at its Sunrise oil sands facility, and using robotics to process data.
Spending in 2020 will be directed toward the Lloyd thermal project, which straddles the Alberta-Saskatchewan border, completing the Liuhua 29-1 gas project in the South China Sea and construction of the West White Rose Project in the Atlantic region.
Husky is somewhat shielded from oil price volatility owing to the company’s integrated supply-chain assets, running from production to refining, although Mr. Peabody said he expects provincial quotas to reduce output by about 5,000 barrels a day into the first half of 2020.
Alberta Premier Jason Kenney is keen to rid the province of the limits, known as curtailment, which the former NDP government introduced in January to address the glut of oil in storage and help ease a wide gap between Canadian and U.S. crude prices.
Mr. Kenney’s United Conservative Party government has taken small steps to relax the limits, including a break for companies that ship crude by rail. However, he said last week that production quotas would remain unchanged in January to deal with the lingering consequences of delayed oil shipping due to a strike at the Canadian National Railway Co. and the temporary shutdown of the Keystone pipeline after a leak in North Dakota.
Mr. Peabody said on Monday that Husky trying to get its inventory moving again after those market access challenges.
“We were making good progress and [oil-storage] levels were falling quite nicely, but that set everything back a bit,” he said. “We’re hopeful when we move out of the first quarter we’ll see some real relief.”
The company’s share price slipped 0.9 per cent on Monday; it’s down about 60 per cent over the past five years. In an update to investors, CIBC Capital Markets handed Husky a neutral rating, adding the company’s major projects remain on track and production can likely be increased when the market dictates.