Canadian Gas Capex Cuts Nearing C$2bn
Some Canadian natural gas producers have cut planned 2020 capital spending by nearly C$2bn (US$1.4bn) as they seek to strengthen their balance sheets in the face of a global oversupply of oil and natural gas and demand destruction stemming from the Covid-19 pandemic.
A review of capital expenditure cuts on March 16 showed reductions ranging from 18% to as high as 45%, led by Husky Energy, which has major natural gas operations in the Asia-Pacific region, and Ovintiv, a significant producer in Canada’s Montney play and in the Permian and Anadarko basins in the US.
Husky Energy has cut its upstream capex budget to C$1.75bn-C$1.9bn (US$1.25bn-US$1.36bn) from C$2.625bn-C$2.8bn.
In Canada, Husky has cut all investment in resource plays and conventional heavy oil projects, with a focus on optimising existing production and lowering costs.
In the Asia-Pacific region, development of the Block 15/33 oil field offshore China and the shallow water MDA-MBH gas field in Indonesia have both been deferred a year. The Liuhua 29-1 field at the Liwan gas project in the South China Sea is being advanced as planned, with first production expected by the end of 2020.
Ovintiv – formerly EnCana – has cut its Q2 2020 capital budget by US$300mn (C$419mn) and its full-year cash costs by US$100mn, effectively eliminating 10 operated drilling rigs immediately and another six rigs in May.
“It is imperative to take immediate action and we are dropping roughly two-thirds of our operated rigs and reducing our cash costs by $100 million,” CEO Doug Suttles said. Following the reductions, Ovintiv will have two rigs operating in each of the Montney in Canada and the Anadarko in Oklahoma and three rigs operating in the Permian basin.
Ovintiv is prepared to make further capex reductions through the year “to ensure free cash neutrality and balance sheet strength” and expects to update its full-year guidance when it releases Q1 2020 financial results.
Vermilion Energy, which produces oil and natural gas in Canada and in various parts of Europe, said March 16 it would reduce its 2020 capital budget by C$80mn-C$100mn, to C$350mn-C$370mn, and slash its monthly dividend to C$0.02/share from C$0.115/share, effective with the April dividend.
“The new capital investment and dividend reductions reduce our annualized cash outlays by an additional C$260mn to C$280mn, providing greater flexibility to manage our business through this period of depressed and uncertain commodity prices,” the company said. “In combination with the dividend reduction we announced on March 6 (to C$0.115 from C$0.23), our annualized cash outlays will have been reduced by C$465mn to $485mn.”
ARC Resources is cutting its capital budget by 45%, to no more than C$300mn from C$500mn, and its monthly dividend by 65%, to C$0.02/share from C$0.05/share for March, and will thereafter pay the dividend quarterly, at C$0.06/share.
“The rapid decline in global commodity prices has created a significant headwind for energy producers, and we feel it is prudent to adjust our spending levels in order to protect our balance sheet and to ensure the sustainability of our business based on our current understanding of existing business conditions,” CEO Terry Anderson said.
Birchcliff Energy is immediately deferring C$65mn of 2020 capital expenditures from a budget of C$340mn-C$360mn, but will focus the reduction entirely on its Montney oil operations at Gordondale, where 10 planned wells will be deferred.
Finally, Seven Generations Energy is reducing its 2020 capital budget by 18%, to C$900mn from C$1.1bn, reflecting “a temporary deferral of planned activity in the present commodity price environment that will afford the company the opportunity to high-grade drilling locations and improve efficiencies.”