Cenovus Energy Inc., Calgary, will defer $700 million in additional capital expenditures originally planned for 2015 until crude oil prices recover, targeting a revised budget of $1.8-2 billion, the company says.
The company in December reported a capital budget of $2.5-2.7 billion (Can.) for 2015, down from an expected $3-3.1 billion in 2014 (OGJ Online, Dec. 16, 2014). The reduction has come as crude prices continue to fall. Cenovus anticipates prices may remain low through the year.
The planned impacts reductions include the suspension of the bulk of the company's 2015 conventional drilling program in southern Alberta and Saskatchewan and additional spending deferrals on all other longer-dated oil sands expansions and greenfield projects.
Cenovus in the coming weeks intends to realign its workforce based on its revised spending plans. Where work has been stopped or deferred, the company plans to reassign employees to core business areas and intends to begin reducing the size of its contract workforce.
The company now anticipates total crude oil production of between 195,000-212,000 b/d in 2015, relatively unchanged from its December 2014 guidance.
“I believe crude oil prices will rebound, but the timing is uncertain. We’re taking the actions we deem prudent to help protect the financial resilience of Cenovus without compromising our future,” commented Brian Ferguson, Cenovus president and chief executive officer.
“As a result of the dramatic slowdown across the energy sector, we expect to see continued reductions in demand for labor, service, and materials,” he said. “This should create potential opportunities for us to drive improvements in our cost structure.”
The company says it will continue to assess its spending plans on a regular basis and has the ability to make further budget adjustments, if required. The company has already identified to target between $400-500 million in sustained annual operating and capital cost reductions in the years ahead.
Cenovus, meanwhile, plans to continue funding its optimization program at Christina Lake. Construction of the Christina Lake phase F oil sands expansion and the phase G expansion at Foster Creek, each of which are two-thirds complete, are also planned to continue (OGJ Online, Sept. 19, 2014).
The expansions are expected to have strong economics, with supply costs for future capital investment at both Christina Lake and Foster Creek, including a 9% return on investment, of between $40-45/bbl West Texas Intermediate, Cenovus says.
Funding has also been allocated to maintain current production from Cenovus’s oil sands assets as well as to continue meeting all maintenance, safety, regulatory and contractual obligations across its portfolio.