Cenovus Energy Inc., a major developer of Alberta oilsands properties, plans to reduce its capital spending by 13 per cent next year to $2.8 to $3.1 billion, it announced Thursday.
Cenovus plans to spend 40 per cent less on emerging oilsands assets and will instead concentrate on increasing production in existing fields, it said in a note to investors.
“In 2014, we will focus on investment that will achieve cash flow and earnings growth from our approved projects in order to create the greatest value possible for shareholders,” Cenovus president Brian Ferguson said in a press statement.
The announcement is in line with the trend to tighter capital in the oilsands since the Harper government put the brakes on foreign investment in the oil patch.
After approving the CNOOC takeover of Nexen in 2012, the government said it would limit investment by state-owned enterprises in the oil patch to minority stakes.
That has put a chill on investment, critics say.
Oilsands are capital intensive to develop and, with the price of Canadian heavy oil languishing around $75 a barrel, companies have had to find a way to ensure returns on investment.
In the past year, Talisman Energy has sold its non-core assets, Syncrude’s production has fallen, Suncor has slowed development of some projects and MEG Energy has turned its focus to lower-cost brownfield development.
Bottleneck in reaching markets
There remains a bottleneck in getting the oil to market, with neither the Keystone XL link to the U.S., nor the pipeline to the B.C. coast a sure thing.
Cenovus anticipates its conventional oil, natural gas and refining operations will generate the operating cash flow needed to support the growth of oilsands projects in 2014.
The narrowing price difference between crude oil and the petroleum products extracted from it had hit refining margins at the company and its rivals in the September quarter.
Cenovus will invest 15 per cent more on its Christina Lake oilsands operation and 42 per cent more on its Narrows Lake project, both in Alberta, but will cut its investment in the newer Foster Creek project by 12 per cent. These projects are jointly owned with ConocoPhillips and operated by Cenovus.
The company expects to produce 190,000 to 208,000 barrels of oil per day in 2014 and says it is still on track to produce 525,000 barrels per day within 10 years.
Cenovus, which launched in 2009, anticipates approval of its Grand Rapids and Telephone Lake projects in 2014, but will devote just $140-$160 million to emerging oilsands projects.