Depressed prices wreak havoc unequally
CALGARY — The shock of collapsing commodity prices is dividing the oilsands sector, leaving certain producers struggling while others find ways to thrive a year after the oil price rout began.
Cenovus Energy Inc. and Royal Dutch Shell’s Canadian arm announced hundreds of oilsands job cuts Thursday, even as executives at the country’s largest oilsands company, Suncor Energy Inc., mused about new acquisitions and buying back stock, following quarterly results that smashed analysts’ expectations.
While Suncor increased its dividend by one cent to $0.29 per share ahead of Thursday’s earnings call, the company did acknowledge lower oil prices have prompted it to cut its capital budget for the second time this year, this time by $400 million, to a spending target between $5.8 billion and $6.4 billion.
“Despite a very challenging macroeconomic environment, we delivered on our commitments in these (capital discipline and operational) areas,” Suncor’s president and CEO Steve Williams said on an earnings call.
Williams said the company had even considered making a few acquisitions earlier in the year, but asking prices were still too high. Given how long the oil price collapse has lasted, he said, “There are better opportunities.”
The company’s net earnings for the second quarter were $729 million, up from $211 million in the same quarter last year, when the company took a large impairment charge. Still, Suncor’s earnings would have been even higher if not for the change in Alberta politics.
Suncor took a $423-million deferred income tax charge as a result of the provincial NDP government’s increase in corporate tax rates from 10 per cent to 12 per cent.
Cenovus, meanwhile, announced Thursday it was cutting its dividend by 40 per cent to $0.16 per share, after posting $126 million in net earnings in the second quarter, an 80 per cent drop from the same period last year.
The company, which laid off 800 people earlier this year, also said it had identified as many as 400 more positions that are “no longer required because of a decrease in work due to the continued low oil price environment.”
In addition to its most recent job cuts, Cenovus said it was reviewing its benefits, perks and compensation practices in light of the now yearlong oil price rout, “to ensure they align with current and anticipated market conditions.”
Cenovus wasn’t the only oilsands producer to announce staff cuts Thursday. Royal Dutch Shell’s Canadian arm confirmed it has laid off 400 people this year, in addition to the roughly 300 jobs the company cut in the oilsands in January.
“They are reductions that have happened already,” Shell Canada spokesperson Cameron Yost said. He confirmed all 700 job cuts were in the company’s heavy oil division and split between field positions in Fort McMurray and office jobs in Calgary.
Shell Canada has realized $450 million in annual cost savings so far this year, Yost said, adding staff reductions account for a small part of that number.
Those cuts are part of a global downsizing Shell announced Thursday, when the company said it was cutting 6,500 jobs worldwide as a result of the oil price collapse.
Many energy sector companies in Alberta have reduced salaries in light of the oil price swoon. The West Texas Intermediate benchmark price rose slightly Thursday to close at $48.44 US per barrel, but is still roughly just half of the price at this time last year.
Cenovus’ second-quarter results show the company has been able to cut $280 million in costs so far this year, not including the $100 million in cuts it announced Thursday. Cenovus president and CEO Brian Ferguson said those initial savings are already 40 per cent higher than initial targets.
Similarly, Suncor, which announced 1,000 job cuts in Dec. 2014, had been trying to drive down its costs by between $600 and $800 million between 2015 and 2016.
Equity and credit analysts were delighted with Suncor’s surprising performance.
“Suncor remains our top investment recommendation,” BMO Capital Markets analyst Randy Ollenberger said in a research note entitled “Now That’s a Quarter!”
Canadian Oil Sands Ltd., which is the largest shareholder in oilsands conglomerate Syncrude Canada Ltd., also announced “lower workforce expenses” when it reported its results after markets closed Wednesday. A spokesman said there have been no layoffs, but numbers have been reduced by attrition.
Canadian Oil Sands posted a $128-million loss, down from earnings of $176 million in the same quarter last year.