Canadian Oil Sands Ltd. has cut its dividend by 42 per cent as it faces a growing pile of debt and an oil sands project with inconsistent operations.
The company expects to end 2014 with $1.9-billion of debt on its balance sheet, and would quickly exceed the top end of its targeted debt of between $1-billion to $2-billion if it did not adjust its financial plans. This forced Canadian Oil Sands to trim payments to shareholders, even as its budget for 2015 drops compared to this year.
Investors pummelled the company, pushing it down 16 per cent to close at $10.98 on the Toronto Stock Exchange Thursday.
Canadian Oil Sands' asset is its 37-per-cent stake in Syncrude Canada Ltd., the second-oldest oil sands mine. The aging project is prone to mechanical breakdowns that pinch production. That, coupled with falling oil prices, put the company in a sticky financial situation.
The company, however, has limited control over Syncrude's operations. Imperial Oil Ltd., controlled by Exxon Mobil Corp., controls 25 per cent and runs the project. Syncrude's major mechanical breakdowns forced Canadian Oil Sands to cut its production expectations three times this year.
"I think it's an indication of the complexity of the facility you have up there," Canadian Oil Sands chief executive officer Ryan Kubik said during a conference call Thursday, according to transcripts published by Thomson Reuters.
"It is a large facility, with many aspects to the operation. As we fix significant things, we have seen other issues crop up."
Canadian Oil Sands expects Syncrude to produce between 95 million to 110 million barrels of oil in 2015, according to the budget released Thursday. It made the same call in its 2014 budget, although its latest revision brought guidance down to between 95 million to 100 million barrels for the year. Mr. Kubik said the final tally for 2014 will ring in at the low end of this range.
Canadian Oil Sands now intends to pay a dividend of 20 cents a share per quarter, down from 35 cents. The company budgeted $564-million for capital expenses and $1.7-billion for operating expenses in 2015. Its original 2014 budget earmarked $1.1-billion for capital expenses and $1.6-billion in operating expenses. The drop comes as spending on major projects at Syncrude wraps ups.
The company's forecast assumes the North American oil benchmark will trade at an average of $75 (U.S.) a barrel in 2015.