Skip to main content
Complete Olympic Games coverage at your fingertips
Your inside track on the Olympic Games
Enjoy unlimited digital access
$1.99
per week for 24 weeks
Complete Olympic Games coverage at your fingertips
Your inside track onthe Olympics Games
$1.99
per week
for 24 weeks
// //

Suncor Energy Inc. is working to replace its fleet in the oil sands with autonomous trucks ‘by the end of the decade.’

Ben Nelms/Bloomberg

Calgary-based oil producers are tightening their belts a few more notches to confront a punishing downturn that could last several more years, while insisting that they remain committed to long-term production growth.

Two of the country's leading oil sands producers – Suncor Energy Inc. and Cenovus Energy Inc. – announced further cuts to capital spending and jobs after a springtime recovery in crude prices turned into a July swoon. The oil sands giants set the tone on Thursday for the Canadian-based industry, which is bracing for several more quarters – at least – of pain before they expect prices to recover in a meaningful way.

Troubled independent Penn West Petroleum Ltd., a leading independent producer, announced further cuts to its capital spending after it lost $28-million in the second quarter and was forced to shut in about 2,000 barrels a day of production.

Story continues below advertisement

The crisis management – and the fact that major producers outperformed dismal expectations for the second quarter – was greeted warmly by investors on Thursday. Canadian oil stocks gained across the board on the Toronto Stock Exchange, led by Suncor, which posted a 5.5-per-cent gain.

But the flicker of optimism on Bay Street was not reflected in Calgary. The city's oil-based economy faces another wave of retrenchment, which will deepen Alberta's slump, add to the woes of Calgary's battered housing market and put further pressure on the sinking Canadian dollar.

Producers had been counting on some signs of recovery at this juncture after global crude prices tanked in late 2014 and early 2015, following the decision by the Organization of Petroleum Exporting Countries to allow a price war as key exporters such as Saudi Arabia battled to reclaim lost market share.

With the North American benchmark West Texas intermediate falling below $45 in late January, the activity in the once-booming U.S. shale-oil sector fell precipitously – the number of operating drilling rigs is down by half since last year. Many analysts expected U.S. production to decline by now, but it has proved more resilient than anticipated.

Even as OPEC produces full-out and the non-OPEC supply continues to grow, the global economy remains weak and the International Monetary Fund recently downgraded its growth forecast for 2015 to a tepid 3.3 per cent. As a result, global oil prices retreated through July, with WTI closing Wednesday at $48.52 (U.S.) a barrel.

Cenovus said on Thursday that it would eliminate an additional 400 jobs – on top of the 800 cut earlier this year. It is also slashing its capital budget by $80-million beyond the $200-million reduction previously announced.

"It is always difficult to let good staff members go, and we take these decisions very seriously," Cenovus chief executive officer Brian Ferguson said in a conference call. "These work-force reductions are directly related to a more focused pace of work in response to the continued low-price environment."

Story continues below advertisement

Several recent measures to shore up Cenovus's finances, including the $3.3-billion sale of royalty and fee lands to the Ontario Teachers' Pension Plan Board in June, have put $4.9-billion in cash into its coffers. Meanwhile, it faces no debt maturities until 2019. The company had net earnings of $126-million the second quarter, down 80 per cent from the $473-million it posted in the second quarter of 2014.

Cenovus has deferred a number of longer-term projects, but oil sands expansions already under way will increase production capacity over the next few years by 50,000 b/d, or 25 per cent, he said.

"The cost-cutting measures we've undertaken and our financial strength positions us to be able to invest countercyclically," he said. "This is important for Cenovus as we do not want short-term pricing to dictate our investment in long-life, high-return oil sands projects."

Suncor is cutting its capital budget by an additional 10 per cent – or about $200-million – after reducing it by $1-billion earlier this year. The company has reduced its costs by 18 per cent over the course of the past year through a combination of project deferrals, layoffs and overtime freezes, improved productivity and concessions from contractors, Suncor CEO Steve Williams said on Thursday.

"There's more to come … but I'm very encouraged by the progress we've made," he said in a conference call. "This is not slashing and burning. It's been a very measured reduction."

The company expects to maintain its planned growth of 5 per cent a year, through the completion of projects such as the Fort Hills oil sands mine and the Hebron project offshore from Newfoundland and Labrador, and a series of smaller efforts in the mines and in situ projects in the oil sands.

Story continues below advertisement

Oil companies across the globe are cutting spending to cope with the downturn.

Royal Dutch Shell PLC said on Thursday that it expects to shed 6,500 staff and direct contractor positions this year from a total of 100,000. The group said it would reduce its 2015 capital expenditures for the second time this year, to $30-billion (U.S.) – down by 20 per cent from 2014 levels.

"We have to be resilient in a world where oil prices remain low for some time whilst keeping an eye on recovery," Shell CEO Ben van Beurden said.

But the major integrated firms have more staying power than the independents.

Travis Wood, an energy analyst at Toronto-Dominion Bank, said in a note that unless energy prices rise, Penn West will "continue to face liquidity constraints," with the "potential" to breach its debt covenants next year.

But Penn West CEO David Roberts said he remains "confident" in the company's strategy. "We believe the best economic decision for the business is to maintain the majority of our second-half drilling program, which allows us to sustain operational momentum into 2016," he said in the company's second-quarter conference call on Thursday.

Story continues below advertisement

The firm said it is in compliance with all of its freshly finalized amended debt covenants.

                                                                       *********************

Suncor coker unit in Montreal

Suncor Energy Inc. is actively pursuing plans to add a coker unit to its Montreal refinery, which would allow it to process oil sands bitumen, and will make a decision next year, chief executive officer Steve Williams said Wednesday.

The Calgary-based company has been keen to switch its 137,000-barrel-a-day Montreal plant off a diet of more expensive imported crude to process cheaper North American feedstock, and a coker would expand its ability to refine diluted bitumen without requiring the ultraheavy oil sands production to be upgraded first in Alberta.

"Development is still happening of that project, and I would expect that probably in the first half of next year, the business will be presenting that project to us" for approval, Mr. Williams told a conference call Thursday. The project was once estimated to cost $1-billion but it's unclear what that price tag would now be.

Story continues below advertisement

Suncor killed plans in 2013 to build the $11.6-billion Voyageur upgrader that would have produced light, synthetic crude (syncrude) in Alberta. Mr. Williams said the move was driven by the company's view that North America will be awash in light crude – against which syncrude competes – but relatively short of heavy grades for which there is ample refining capacity.

Oil sands producers are keen to expand their markets for the diluted bitumen but have been stymied by opposition to the Keystone XL line to the U.S. Gulf Coast, and Enbridge Inc.'s Northern Gateway project to B.C.'s west coast.

The company built a rail terminal at its Montreal plant capable of handling up to 40,000 barrels per day of western crude, and Mr. Williams said it has been fully utilized. Suncor is also a major customer for Enbridge Inc.'s Line 9 project, which reversed the flow of an import pipeline to bring western crude into Montreal. After receiving conditional approval 18 months ago, Enbridge has faced a number of delays as the National Energy Board ordered more work to satisfy its conditions.

"We've been disappointed by the NEB process," Mr. Williams said. "Of course, we completely support the need for stringent safety and environmental controls but the length of this process in our judgment has been too long."

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the authors of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies