Cenovus eyes restarting projects
After slashing costs and cutting its workforce by almost a third, Cenovus Energy Inc. is looking at resuming construction on projects put on hold when oil prices took a nose-dive.
The Calgary-based producer posted a net loss of $267 million in the second quarter, due in part to lower operating earnings and currency fluctuations.
But Cenovus said it was on track to cut costs by $500 million and believes it can sustain most of the savings over the long term.
Chief executive Brian Ferguson said the cuts along with the company’s strong financial position make him “optimistic about the potential to resume construction on some of our deferred projects.”
“We’ve been playing defence for the past 18 months,” Ferguson said, “and we are now well positioned to resume value-added growth in the months ahead.”
Still, signs of optimism at Cenovus are not a signal of any new wave of spending in the oilsands, said Jackie Forrest, vice-president of energy research at ARC Financial.
“There may be some projects that make sense, but in general our outlook is that capital spending keeps declining next year in the oilsands as some of these big projects ramp down,” Forrest said.
One of Cenovus’s deferred projects under consideration is a planned phase of its Christina Lake oilsands project southeast of Fort McMurray that it jointly owns with ConocoPhillips Canada.
Cenovus had already procured some equipment and began field construction before it suspended the project in late 2014 due to the slide in oil prices.
There may be some projects that make sense, but in general our outlook is that capital spending keeps declining …
The phase is expected to produce 50,000 barrels per day split evenly by the partners.
The company is now re-evaluating construction plans and will provide updates on timing and cost estimates on this and other deferred projects in December.
Kevin Birn, director at IHS Energy, said Cenovus appears to be taking a long-term view that while prices aren’t favourable at the moment, they may rise in the future.
“Given the lead time of an oilsands project, two to three years, if your expectation is that the prices will be there by the time that project is brought online, and you’re in a financial position to do it, you can see some players move,” Birn said.
Whileoilpricesremainlow,Ferguson said he wants to take advantage of lower construction costs to build projects with 30 to 50-year lifespans “to create long-term value.”
Ferguson noted the projects were deferred to cut costs, not because of their economic viability.
As part of its plans to slash half a billion dollars from its original 2016 budget, Cenovus finished its latest round of layoffs in the second quarter.
The company has reduced its workforce by about 31 per cent since the end of 2014.