Rows of steam generators at the Cenovus Energy Christina Lake Steam-Assisted Gravity Drainage (SAGD) project south of Fort McMurray, Alta., on Aug. 15, 2013.Todd Korol/Reuters
Three mainstays of Canada’s oil sector took financial blows in the third quarter, reporting deep losses as they dealt with the energy market downturn.
The hits to Cenovus Energy Inc., Husky Energy Inc. and Suncor Energy Inc. reflect the strain the industry is under partly because of the drop in energy demand that began in the spring, as governments imposed global restrictions on transportation to prevent the spread of COVID-19. Commodity prices have improved since the second quarter, but remain at or below breakeven levels, and some analysts see little on the horizon to change this.
Margins at refineries, especially in the United States, also remain under pressure.
Those factors, coupled with the need to remain relevant to major investors, were drivers behind Cenovus’s $3.8-billion takeover of Husky. As part of that deal, announced Sunday, the companies expect to save as much as $1.2-billion annually by reducing capital spending and overhead costs. Measures include deep staff cuts.
Cenovus posted its third consecutive quarter of red ink Thursday, recording a net loss of $194-million for the three months ended Sept. 30, compared with a profit of $187-million for the same period in 2019.
The Calgary-based company increased output by just more than 5 per cent to 470,000 barrels a day (b/d) last quarter, despite mandatory production caps imposed by the provincial government.
Those caps are set to be lifted in December. Cenovus chief executive Alex Pourbaix told an investor call that he thinks much of the curtailed production will return when that happens, thanks in part to industry moves to reduce costs.
And while he doesn’t expect crude transportation by rail to return to 2019 levels, he said he “wouldn’t be at all surprised to see rail volumes increase over the next few months.”
Suncor CEO Mark Little told investors Thursday that Alberta’s move to lift production caps was a “positive signal” for the industry.
“We’re really looking forward to this being a fully unencumbered market,” he said.
Suncor decreased its oil production by 146,000 b/d in the third quarter compared with the same period last year, to 616,000. Much of that was because of a fire at the company’s base plant operation in Fort McMurray, Alta., in August, an incident Mr. Little called “extremely disappointing.”
The plant returned to full capacity within a few weeks, Mr. Little said, but the company restrained production to make sure it wasn’t putting too much sediment into the upgrader. He expects the plant to ramp up to full output by the end of November.
In all, Suncor posted a net loss of $12-million for the quarter ended Sept. 30. The company is in the midst of an overhaul in a bid to become more efficient. Last month it announced it would cut up to 15 per cent of its work force – or around 2,000 jobs – over the next 18 months as part of a plan to reduce operating costs by $1-billion and capital costs by $1.9-billion.
Husky’s revenue skidded by two-thirds from the year earlier, and it recorded a net loss of $7-billion. Much of that was because of a $6.7-billion non-cash writedown of the value of its reserves because of a lower price outlook and expectations of sharply lower capital spending.
The company, which is majority-owned by interests controlled by Hong Kong billionaire Li Ka-shing, said it also applied higher discount rates to the value of its assets, in anticipation of the planned takeover by Cenovus.
Husky has cut its capital spending by more than $1.8-billion this year to preserve cash and limit increases in its debt, and it is working to reduce its costs by $150-million, CEO Rob Peabody said. The combined Husky and Cenovus has targeted $600-million in annual cost savings, including cuts of as many as 2,100 staff and contractor jobs.
Oil and gas prices improved from the last quarter, but refinery profit margins in the United States have proven to be a drag on Husky’s returns, Mr. Peabody said.
With a report from Reuters
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