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Cenovus CEO Says High Oil Prices Won’t Last, Rejects ‘Spending Spree’ on New Projects

February 9, 2022
Reading time: 3 minutes
Full Story: The Canadian Press @CdnPressNews with files from The Energy Mix
Primary Author: Amanda Stephenson @AmandaMsteph

http://www.greenpeace.org/canada/en/campaigns/Energy/tarsands/

Jiri Rezac / Greenpeace

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The CEO of one of Canada’s leading tar sands/oil sands companies is admitting that this year’s surge in global oil prices won’t last, projecting future prices that set the broader industry on a course for financial failure.

Cenovus Energy CEO Alex Pourbaix told analysts his company will continue to keep a tight rein on capital spending even as crude prices surge to eight-year highs, The Canadian Press reports.

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Pourbaix said the company has been pleased to see oil’s recent rally to heights not seen in years, as low global supply and increased economic activity due to the easing of pandemic health restrictions drives demand. Last week, the benchmark price West Texas Intermediate (WTI) crude oil soared above US$90 per barrel, and some analysts have predicted it will break the $100-per-barrel threshold later this year.

But Pourbaix said those sky-high prices won’t prompt a significant spending spree by Cenovus. [Not that Cenovus has been shy about demanding a taxpayer spending spree to fund its adventures into carbon capture and storage technology—Ed.]

“I’m kind of old enough and bear enough scars that I guess when it comes to pricing, I’m always very cautious,” Pourbaix said.

“We anchor all of this company’s development plans at the bottom of the cycle for oil and gas,” he added. “We won’t invest in a project that doesn’t deliver an acceptable return at the bottom of the cycle… which we would describe as kind of $45 WTI.”

That price might work well enough in Cenovus’ published analysis. But earlier this month, the UK’s non-profit Carbon Tracker think tank concluded that several big international fossils were banking on climate failure by undertaking new development projects that needed oil above $50 per barrel to break even. Canada’s tar sands/oil sands are generally considered a high-cost source of oil, as well as a notably high-carbon source.

Cenovus, like other major Canadian oil producers, spent several years cutting spending during a period of depressed commodity prices, CP writes. Since oil prices rebounded last year, like many other fossils, the company has been focused on increasing dividends to shareholders, share buybacks, and debt reduction.

According to the Canadian Association of Petroleum Producers, capital spending across the entire industry this year will remain well below boom-time levels, in spite of surging prices. CAPP projects capital spending in the oilpatch will grow by C$6.0 billion this year to $32.8 billion, but that’s still less than half the 2014 record high of $81 billion.

But while major new capital projects may not be in the cards, sustained current commodity prices will mean significantly more day-to-day activity for Cenovus in 2022. In the last three months of 2021, the company’s upstream production rose to 825,300 barrels of oil equivalent per day, compared with 467,200 per day over the same three months in 2020. Total downstream output for the quarter was 469,900 barrels per day, up from 169,000 a year earlier.

“We’re going to be employing a lot of service—a lot of drilling and service rigs, a lot of contractors, just with our basic sustaining capital program,” Pourbaix said on the analysts’ call. High oil prices also mean Cenovus has been rapidly paying off its accumulated debts, leaving it more free cash flow to allocate in 2022.

Pourbaix said increasing shareholder returns will be a top priority for the company. “I assure you we will continue the capital discipline you’ve come to expect from us,” he said.

CP says Cenovus’ stock price fell Tuesday after the company reported a $408-million loss for the quarter ended December 31, as it took a one-time, $1.9-billion impairment charge related to its U.S. refinery business.

The main body of this report was first published by The Canadian Press on February 8, 2022.



in Canada, Community Climate Finance, Ending Emissions, Energy / Carbon Pricing & Economics, Oil & Gas, Tar Sands / Oil Sands

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