CPA: CANADIAN BUDGET CUTS OF 10-12% LIKELY
Sagging profits may force Canada's oil and gas industry to cut forecast 1991 spending by as much as $600 million (Canadian), says Canadian Petroleum Association.
Meanwhile, budget cuts by Shell Canada Ltd. were among the first signs of such cuts.
PROFITABILITY SAGGING
CPA Chairman Lorne Gordon said Canadian industry return on investment has been only 5% despite a jump of $1.35 billion in revenues stemming from higher oil prices during the Persian Gulf crisis.
Forecast spending increases of 10-12% from 1990 levels may be canceled as companies review spending in the light of poor earnings, he said. CPA earlier estimated Canadian oil industry capital spending would rise to $5.6 billion this year from $5 billion in 1990.
Gordon said that although oil prices have remained firm at more than $20 (U.S.)/bbl, there remains a prospect for a price drop because of surplus crude oil supplies worldwide.
He noted Canadian natural gas exports are increasing but have not been sufficient to compensate for the effect on prices of recession and a warm winter.
Budget cuts will affect some gas drilling and development plans, he said.
SHELL CUTS
Shell Canada reported a record quarterly loss of $35 million in the first quarter compared with a profit of $63 million for first quarter 1990.
The loss came after a profit of $146 million in fourth quarter 1990. Shell blamed economic recession and a highly competitive gasoline and chemicals market for the loss. The company said there will be cuts in a capital spending budget previously planned at $1.1 billion but added it is too soon to say how much.
There have been cuts of about $70 million in exploration and development spending, and further staff cuts are possible, Shell Canada said.
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