Falling oil prices hitting production
Husky cancels plan to sell off network of retail gasoline stations
Oil and gas prices continue to move downward despite moves from OPEC+ and others to curtail supply. The response from producers has been to cut spending, trim outputs and curtail share buybacks and dividends as the world reels from both the COVID-19 slowdown and the recent Saudia-Russia output feud.
Despite last week’s OPEC+’s output deal, the oil market is hugely oversupplied. This comes at a time when COVID-19 lockdowns have reduced global crude demand by about 30%. Storage tanks around the world are rapidly filling, including at the key U.S. storage hub in Oklahoma.
Monday (April 20) saw oil suffering its biggest one-day price plunge ever. Reports have levels crashing about 40% to below US$11 a barrel as the industry deals with a record glut of supply. Futures contracts for May and June also fell precipitously with traders running what amounted to a fire sale due to their inability to store production. Influential petroleum sector Hedge Fund manager Pierre Andurandhas even suggested the world could well see negative prices in the coming period. “There is no limit to the downside to prices when inventories and pipelines are full,” he said in a recent Tweet. Texas-based buyers are offering as little as $2 a barrel for some oil streams, raising the possibility that producers may soon have to pay to have crude taken off their hands.
The impact of oversupply is resulting in well shutdowns and changes in corporate planning. In the U.S., companies involved in crude exploration idled 13% of the American drilling fleet by mid-April. Here in Canada prices for Western Canadian Select dropped below zero on Monday. Producers are in crisis mode.
For example, Husky Energy has cut its 2020 capital expenditure by an additional C$700 million and reduced production by more than 80,000 barrels per day (BPD). And, yesterday Husky told OCTANE they have now dropped their plan to sell off their network of retail gasoline stations.
“Due to the current market environment, Husky has suspended the strategic review of its Canadian retail and commercial fuels business, which consists of more than 500 stations, travel centres, cardlock operations and bulk distribution facilities,” says Husky Energy spokesperson Kim Guttormson.
Another producer, ConocoPhillips, announced that it expects to reduce production at its Alberta facilities by approximately 100,000 barrels of oil per day to 35,000 BPD by May. Company CEO Ryan Lance cited COVID-19 and general market uncertainty with oversupply and demand falling as reasons for the reduction in production.
Suncor Energy Inc. said last week that it too planned to cut output. The Calgary-based oil co reported it would reduce production at its Fort Hills oilsands by about 70,000 BPD.
Crescent Point Energy Corp. is also planning to cut. The company reported that it will slice its capital spending plan for a second time and reduced its production guidance for the year. The company lowered its capital spending to about $675 million, down from its original budget of $1.15 billion. It also lowered its annual average production forecast by 20,000 barrels of oil equivalent per day or about 15% to about 112,000 BPD for 2020.
Cathedral Energy Services Ltd. and McCoy Global Inc. both announced job cuts, reductions to executive pay and lower capital spending plans this week. Cathedral told media that it has cut its office and shop staff by 22%, while the remaining Canadian non-field staff has moved to a four-day workweek with a corresponding 20% reduction in salary.
Analysts are forecasting that Canadian petroleum production could fall by more than one million barrels per day if market prices remain depressed.