The first of the Canadian oilsands producers are noting the impact of a lower price for oil and increased development costs for new projects as they report third-quarter earnings.
Husky Energy Inc. and Cenovus Energy Inc. reported increased earnings Thursday, but the results were not as high as they could have been, because of the falling world price of oil.
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The price of oil has fallen from the $105 US a barrel range in June to $82.51 for West Texas Intermediate today in New York. Western Canada Select, the price received by many Canadian producers, was trading at $66.31.
There is a glut of oil as North America increases its production and OPEC production remains unchanged. Meanwhile, global demand is not increasing quickly enough to maintain the higher prices.
Much of the slide in oil prices has been seen since mid-September, so is not fully reflected in earnings for the third quarter.
Neither Cenovus nor Husky have immediate plans to throttle back spending, but assured investors they have the flexibility to do so if needed.
Nonetheless analysts were disappointed with Husky’s results. It earned $571 million or 49 cents a share in its third quarter, up from $512 million from the same period a year ago. CIBC World Markets analyst Arthur Grayfer said he had expected 67 cents a share.
Revenue climbed to $6.43 billion, up from $5.8 billion, while daily production also increased 10 per cent to 341,000 barrels of oil equivalent per day.
Husky production increases
Husky said the increased production reflected increased volumes from its Liwan Gas Project, which started earlier this year, and from heavy oil thermal projects.
But its average realized price for crude sand to $68.35 per barrel, from $72.13 in the third quarter of 2013.
CEO Asim Ghosh said Husky’s strong balance sheet gave it the flexibility to manage through economic cycles.
"With all areas of our business, we are carefully staging our activities to not only provide dependable cash flows and returns, but to also fund future projects,” he said.
Husky points to the increasing cost of developing the first phase of its Sunrise steam oilsands project in northern Alberta, a collaboration with BP Plc.
The cost of the project jumped 19 per cent to $3.2 billion for the first phase, to start production at the end of this year.
Cenovus notes impact of lower crude prices
Cenovus Energy Inc. reported earnings that beat analysts expectations, with increased production volumes in its oilsands operations partly offset by lower prices.
The company had $354 million of net income, down four per cent from the previous year. Revenue was $4.97 billion, down from $5 billion in the third quarter of 2013.
Cenovus noted higher prices for gas this year, improving revenues from its gas properties. It also reduced financing costs to improve its results.
But it estimates its net return from its Foster Creek oilsands operation is down nine per cent and its net return from Christina Lake is down 12 per cent because of lower oil prices. Production at those two properties increased by 23 per cent.
Cenovus said it is increasing its hedging positions in the fourth quarter to guard against a widening differential between WTI and WCS crude prices. It said the average realized price it received for its oil was $76.12 US a barrel in the quarter, including the benefits of hedging.
Cenovus is developing several new projects, but said it is “currently assessing its resources” and would prioritize development for the coming year.
CEO Brian Ferguson said about $2 billion in spending that's been earmarked for the company's flagship Foster Creek and Christina Lake oilsands projects will be proceeding as planned. But there's more discretion when it comes to growth projects.
"You should expect us to be very prudent in terms of any decisions with regard to that growth capital, beyond $2 billion, as to how much we will actually choose to invest in 2015 or in subsequent years."