Husky, Penn West pull back on oil patch spending

Two more Calgary-based oil companies – Husky Energy Ltd. and Penn West Petroleum Ltd. – announced reductions to their 2015 capital budgets on Wednesday.

Encana has plans to spend more, but is diversifying its product mix

Oil companies are reassessing their 2015 spending plans in the wake of falling oil prices. (Gregory Bull/Associated Press)

Two more Calgary-based oil companies – Husky Energy Ltd. and Penn West Petroleum Ltd. – announced reductions to their 2015 capital budgets on Wednesday.

The cuts to spending come after a fall in which oil prices dove from more than $90 US a barrel in September to just above $56 US today.

Falling oil prices eased Spanish oil company Repsol’s takeover of Talisman on Tuesday, but for most companies in the oil patch, the response has been greater caution in their 2015 spending plans.

One of Canada’s biggest oil players, Encana Corp., is the exception with a 2015 budget that's expected to be higher than this year's. Encana said it will lift spending to between $2.7 billion US and $2.9 billion US, up from $2.5 to $2.6 billion US in 2014.

Encana has been diversifying its production mix, shifting toward oil from its traditional natural gas focus, and adding new assets such as the Permian and Eagle Ford crude deposits.

CEO Doug Suttles said its 2015 budget has built in the current challenges in the oil markets. Encana is forecasting an average price for crude of $70 US.

 "Commodity price volatility and the continued decoupling of oil and gas prices are challenges we expected to face at some point in the future. And that's why we have moved to diversify our portfolio," CEO Doug Suttles told a conference call with analysts on Tuesday.

Husky to spend 42% less

Husky Energy has set its 2015 budget at $3.4 billion, about $1.7 billion less than it expects to spend this year on major projects.

That’s a cut of about 42 per cent that will mostly affect its heavy oil, oilsands and conventional operations in Western Canada.

The impact will be smaller on its offshore production off the coast of Newfoundland, which sees spending cuts of about 14 per cent.

The company said it expects to spend about $5.1 billion on capital projects in 2014, including about $3.1 billion in production assets in Western Canada. Overseas, Husky and CNOOC — one of China's biggest oil and gas companies — have been ramping up production at the Liwan natural gas field in the South China Sea.

Penn West reduces by 26%

Penn West Petroleum is reducing its 2015 capital budget by 26 per cent from its original guidance, to $625 million. When it first announced 2015 spending plans on Nov. 17, it assumed it would receive $86.50 US per barrel for its product.

Now it is assuming it will receive $65 US a barrel, still an optimistic assessment of where oil prices are going. 

It also announced it will cut its dividend, scheduled to be paid April 15, by three cents to 14 cents a share.

"Penn West's business model assumes a conservative long run-term commodity price; however, the recent downturn falls outside our lowest probabilistic expectations," Penn West president and CEO Dave Roberts said in a statement.