Pumpjacks pull oil from a well in a Pembina oil field near Pigeon Lake, Alta. in February, 2012. Across the industry, major oil sands producers are not yet willing to allocate capital for big-ticket growth projects.Norm Betts/Bloomberg
Major oil sands producers are touting stepped-up cost savings at their operations as signs of optimism emerge in global oil markets, but they remain cautious about committing new capital to big-ticket growth projects.
Suncor Energy Inc., Cenovus Energy Inc. and MEG Energy Corp. signalled Thursday they are reluctant to dial up spending levels even after stripping hundreds of millions of dollars in costs from their businesses to weather the oil-price crash.
The restraint underlines wariness among the biggest companies in the oil patch even as crude markets show tentative signs of recovery.
West Texas intermediate oil has rebounded sharply since September to around $50 (U.S.) a barrel as hopes build for a possible deal among the world's top producers to curb oversupply in the market. WTI settled up 54 cents Thursday at $49.72 a barrel.
The strengthening price outlook has helped ease immediate financial pressures in the sector, but large oil sands producers are nonetheless taking a measured approach as they contemplate plans for reviving growth.
Suncor, Canada's dominant oil sands producer, has taken advantage of the downturn to snap up a controlling interest in the Syncrude Canada Ltd. bitumen mine and extraction project, acquiring stakes from Canadian Oil Sands Ltd. and Murphy Oil Corp. last year.
It said late on Wednesday that increased production stemming from those deals and lower costs led to a third-quarter profit of $392-million (Canadian), or 24 cents a share. That's up sharply from a $376-million loss, or 26 cents, in the same period a year ago.
On Thursday, the shares rose 5.66 per cent to $41.61 on the TSX. The company told analysts it is on track to save $900-million this year, well above an original target of $500-million. Meanwhile, per-barrel oil sands costs have dropped by almost a fifth from a year ago to around $22 a barrel.
However, chief executive officer Steve Williams said the company's growth plans don't include building new projects until the next decade. He also dismissed speculation it is building a war chest for further acquisitions following a major share issue in June that raised $2.9-billion.
The company lowered its 2016 capital expenditures by nearly 6 per cent to about $5.9-billion, citing productivity gains. Spending will drop to around $5-billion in 2017 as its massive Fort Hills, Alta., bitumen mine and Hebron project offshore Newfoundland near completion.
Despite cost pressures at Fort Hills, the investments will help boost production to around 800,000 barrels a day by 2019, representing a 40-per-cent increase over five years, he said.
"To be very frank, we don't need to do any further M&A," Mr. Williams said on a conference call. "With our increased stake in Syncrude already generating strong returns, and Fort Hills and Hebron progressing to completion, Suncor is growing both quickly and profitably."
Rival Cenovus Energy, known for its Alberta Foster Creek and Christina Lake projects, said spending this year would drop 9 per cent to about $1.05-billion.
The company said its third-quarter net loss was $251-million, or 30 cents a share. A year ago, net earnings were $1.8 billion, or $2.16 a share, partially due to a $1.9-billion gain on asset sales.
Next year, it is planning modest spending increases as it contemplates reviving some growth projects stalled during the downturn, chief executive officer Brian Ferguson said.
The company has slashed capital and operating expenses this year by $500-million. Mr. Ferguson said it has enough staff for one or two new oil sands projects despite recent layoffs, and that the company is keen to take advantage of a lull in industry activity.
"But we're not going to be doubling the capital program," he said in an interview. "It will be a very measured increase."
MEG, which has struggled with high debt through the downturn, chopped its 2016 budget to $140-million from its already-reduced level of $170-million, citing efficiency improvements.
The company's net loss for the third quarter narrowed to $109-million, or 48 cents a share, from $428-million, or $1.90 a share, in the same period a year ago.
The company has reduced its employee head count by 40 per cent since late 2014. It is targeting shorter-cycle projects with lower costs to boost production, chief executive officer Bill McCaffrey said.
Similarly, Husky Energy Inc. is eyeing a return to expansion, albeit modestly. The company reported third-quarter earnings of $1.4-billion, helped by an after-tax gain of $1.3-billion tied to recent asset sales. A year ago, the net loss was $4.1-billion.
Chief executive officer Asim Ghosh, who is stepping down in December, said the company plans to boost heavy oil production next year at operations in the Lloydminster area near the Alberta-Saskatchewan boundary. He will be replaced at the helm by chief operating officer Rob Peabody.