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Suncor, which mines the Athabasca oil sands, so far hasn’t changed its spending plans.Ben Nelms/Bloomberg

Husky Energy Inc. and MEG Energy Corp. led a fresh wave of deep cuts in the oil patch, as the energy industry digs in for a prolonged stretch of weaker earnings and slower production growth.

The darkening outlook for oil is a sharp reversal of expectations used to underpin spending plans set as recently as early December, forcing major energy players to rewrite budgets on the fly amid gyrating crude prices that have dropped to five-year lows.

Oil's free fall has now washed through all quarters of the energy sector, hitting capital plans from oil sands and shale zones in Alberta to the Grand Banks offshore Newfoundland and Labrador, and the icy waters of the Beaufort Sea.

Husky lowered its 2015 budget by a third to $3.4-billion, from $5.1-billion this year, as spending winds down on its Liwan gas project in the South China Sea and its Sunrise joint venture in the oil sands. The Calgary-based company, controlled by Hong Kong mogul Li Ka-shing, said it would delay a multibillion-dollar expansion at its White Rose field offshore Canada's East Coast for one year as it hunts for cost savings.

Oil sands player MEG chopped its 2015 spending plan to $305-million, down 75 per cent from $1.2-billion originally. Penn West Petroleum Ltd., pressured by high debt , slashed its budget next year by $215-million and cut its quarterly dividend by 78.5 per cent. Also Wednesday, U.S. oil major Chevron Corp. scrapped plans to drill in Arctic waters, citing "economic uncertainty."

U.S. crude on Wednesday traded at about $56 (U.S.). The benchmark is off more than 40 per cent since June because of a global oversupply of crude and weak demand.

Husky chief executive officer Asim Ghosh described oil's rapid descent as a sea change for energy markets, exacerbated by the Organization of the Petroleum Exporting Countries' refusal to cut production in November.

"OPEC has stated in the past couple of weeks on more than one occasion that it's taken its hand off the tiller and signalled it may do so for a while," Mr. Ghosh said in an interview. "I do not recollect OPEC doing that before. In the context of that, it may take some time for the supply surplus to be driven out of the market to reach a new price equalization point."

Husky has tailored its spending plans next year based on an average U.S. crude price of $60 a barrel – among the lowest forecasts used to date by a Canadian energy company.

Prices at that level could dramatically crimp the Canadian industry, cutting sector-wide cash flow by an estimated $38.3-billion (Canadian), or more than 50 per cent from 2014, according to estimates by ARC Financial Corp. chief economist Peter Tertzakian.

Still, investors have rewarded companies for prioritizing survival as conditions in the energy sector deteriorated.

The Toronto Stock Exchange's energy group rose 7.2 per cent on Wednesday, adding to a 6-per-cent jump the day before. The sector had previously fallen 44 per cent since June amid oil's decline.

Many investors had feared spending was looking to outpace cash flow, pointing to rising debt levels at the worst possible time, said FirstEnergy Capital Corp. analyst Michael Dunn.

"The process for setting these budgets up starts some time in the fall and it takes several weeks. So, by the time a company announces it this year, whether it be Canadian Oil Sands or MEG or Encana [Corp.], the price assumptions they're using to base their budget on are obsolete by the time they announce their budget because oil prices have moved so fast," Mr. Dunn said.

Not all companies have throttled back at this point. Suncor Energy Inc. so far hasn't changed plans laid out in October to boost spending to between $7.2-billion and $7.8-billion, from a projected $6.8-billion this year, although the company at the time did say it may revisit plans if crude dropped to the $40 (U.S.) or $50 range.

Husky's Mr. Ghosh said markets have overreacted, and that supply-demand imbalances today are not as pronounced as 2008 during the financial crisis.

"In other words, the market is reacting as if it's as cataclysmic an event, but in fact we don't have that much of an imbalance."

With a file from reporter Jeff Jones in Calgary.