Major Canadian companies are pressing their cost cutting and debt reduction efforts because of persistently weak oil prices.
Imperial Oil Ltd., Toronto, is studying ways to cut operating costs in its Calgary resource division by 25%. The company is profitable overall.
Shell Canada Ltd., Gulf Canada Resources Ltd., and Husky Oil Ltd., all of Calgary, also have disclosed plans to study costs or cut spending on various programs.
Imperial, which lost $7 million on its resource operations in the first quarter, plans to cut costs by $150 million. The company wants to get operating costs below $5 (Canadian)/bbl by 1995 from a current $6.25/bbl.
A company spokesman described as "speculation" unconfirmed reports that it plans to lay off 25% of its 2,300 resource division employees. Earlier, Imperial put expansion of its Cold Lake heavy oil operations on hold and reduced 1994 capital spending plans by $250 million.
Imperial's oil production from all sources, including synthetic oil, fell in 1993 to 247,000 b/d from 251,000 b/d.
Shell Canada, which reported an $86 million profit in first quarter 1994, is conducting an efficiency review of all its operating divisions. Chief Executive Officer Charles Wilson said the company must continue efforts to reach sustained profitability. The company is seeking at least a 12% return on investment, compared with only 1.6% in 1993.
Shell Canada cut 700 workers in 1993 and more than $100 million in costs in first quarter 1994.
It is cutting capital spending to $275 million this year from about $400 million in 1993. The company said it plans to pay off $400 million in debt this year and reduce total debt to about $900 million.
Gulf Canada said the economics of a Russian project have seriously eroded and it is substantially reducing capital spending.
Pres. Charles Schultz said there will be no large capital spending on the joint venture KomiArcticOil project, and development has been slowed. The company is producing 4,000 b/d of Russian crude with a joint venture 25% interest.
Schultz said there have been changes to the project's financial conditions and problems with oil exports. He said exports were blocked from September to the end of 1993, there is an unresolved export tax issue, and new taxes or tax increases have been imposed.
Reduced outlays in Russia, Australia, and Algeria will contribute to capital spending cuts to $215 million from $247 million in 1993.
Low oil prices were a major factor in a first quarter loss of $20 million. Schultz said he is optimistic Gulf Canada can improve earnings from western Canada core holdings in 1994 and reduce corporate debt.
Husky plans to lay off 112 employees at its money losing heavy oil upgrader at Lloydminster on the Alberta-Saskatchewan border. Husky operates the BiProvincial Upgrader in which Ottawa and the Alberta and Saskatchewan governments are partners.
The 46,000 b/d upgrader is losing money because the price spread between light and heavy crude has fallen to less than $6/bbl. Husky is negotiating with government partners to cover shortfalls.
Alberta Energy Minister Patricia Black said a complete review of the upgrader operation is under way.
Copyright 1994 Oil & Gas Journal. All Rights Reserved.
