Canadian petroleum producers are busy updating action plans and examining options to withstand the stress of oil prices marooned in the mid-US$50-a-barrel range and mounting economic turmoil. Read More
’We are not in panic mode. We’re sort of in a wait-and-see mode’
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‘We are not in panic mode. We’re sort of in a wait-and-see mode’
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Canadian petroleum producers are busy updating action plans and examining options to withstand the stress of oil prices marooned in the mid-US$50-a-barrel range and mounting economic turmoil.
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Companies have been rolling out first-quarter results this week and detailing how they’ll navigate choppy waters created by lower oil prices, a tariff war, uncertain federal policies and a slowing global economy.
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Some are starting to trim their capital programs or review discretionary spending, trends already underway in the United States.
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Others are leaning on past efforts to pay down debt and lower operating costs to bolster their resiliency in anticipation of a future dip in a volatile commodity.
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“If you’ve been in this business long enough, you’ve seen this movie, it’s not new,” Suncor Energy CEO Rich Kruger told analysts on an earnings call Wednesday.
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“You do get more judicious on your economic spend . . . Do we need to spend it today? Or can we let the dust settle and see where we are six months or a year from now? Those are the prudent things we’re doing and looking at.”
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Suncor reported net earnings of $1.7 billion during the January-to-March period, up five per cent from a year earlier.
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On Wednesday, the U.S. Energy Information Administration’s short-term energy outlook forecast that West Texas Intermediate (WTI) crude prices will average about US$62 a barrel this year — below $59 during the second half — before averaging $55 in 2026.
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It cited higher oil production outpacing demand growth for the price drop.
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Other experts have reduced their oil price forecast below $60 a barrel after OPEC+ announced plans last weekend to bring additional supplies back onto the market in June.
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Prices for U.S. benchmark crude, which traded above $80 a barrel in mid-January, closed at $58.07 on Wednesday.
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South of the border, independent shale producer Diamondback Energy chopped its annual spending earlier this week by about US$400 million. In a letter to investors, its CEO said the American industry is at a tipping point with current commodity prices, adding that U.S. onshore oil production has peaked and will begin to drop this quarter.
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In Canada, a report by TD Cowen this month noted the petroleum producers that it covers are “overwhelmingly living within their means” at $60 a barrel, with capital spending and dividend expectations below projected cash flow levels.
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The Canadian industry is “not even close” to shutting in production, although there is an element of trepidation facing the sector, said Menno Hulshof, managing director of equity research at TD Cowen.
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“There’s definitely a hunker-down mentality out there, because there are so many uncertainties,” said Hulshof.
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“The majority of companies have a WTI break-even that is below the current (oil) price . . . We are not in panic mode. We’re sort of in a wait-and-see mode.”
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Oilsands giant Suncor, which produced 853,000 barrels per day during the first quarter, has not changed its forecast to spend about $6.2 billion this year.
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Others, however, have started to revise spending plans or are considering reductions for later in the year.
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On Wednesday, junior producer Obsidian Energy trimmed its capital spending program for the first half of the year by about 13 per cent to $168 million, saying it will defer drilling initially planned for the April-to-June period.
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If prices don’t improve by the time spring breakup ends, the company will “significantly reduce” its second-half capital spending to keep its production flat, Obsidian Energy CEO Stephen Loukas said.
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“We think that it’s important that oil companies maintain discipline,” Loukas said in an interview.
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“We would want to see higher oil prices before we get back to a growth-oriented strategy.”
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On Tuesday, senior oil producer Baytex Energy responded to the lower commodity prices, saying it would spend closer to the lower end of its capital program this year, while directing more money to reducing debt.
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In the near term, it will direct 100 per cent of its free cash flow to debt, after funding its quarterly dividends.
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Baytex, which operates in Western Canada and the United States, is planning to spend $1.2 billion to $1.3 billion this year and produce 148,000 to 152,000 boe per day. It expects to head toward the lower end of both targets.
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“In light of WTI trading in this mid-50s range recently, we have flexed our capital program to low-low, and it’s all very fresh,” Baytex CEO Eric Greager said on a first-quarter call.
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“This oil price war, along with some of the macroeconomic tensions, are all pretty fresh.”
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On Wednesday, Tamarack Valley Energy kept its guidance unchanged for the year, with average production of about 66,000 boe per day and capital expenditures of $430 million to $450 million, targeting the lower end of that spending range.
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The Calgary-based company said it can scale its capital program to respond to near-term market volatility, noting it’s identified projects that could be deferred with minimal effect on production.
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While oil prices will likely hover around $60 a barrel for the rest of the year, CEO Brian Schmidt believes the sector is better able to withstand the downturn than in the past.
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“The businesses are stronger. There’s not near as much debt being carried by operators these days,” Schmidt said in an interview. “We all realize it’s a commodity business and it could come back up just as fast.”
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The industry is expecting stronger natural gas prices in Western Canada this year as LNG exports off the West Coast begin, and a lower discount on Western Canadian Select heavy crude, due to the startup last year of the Trans Mountain expansion project.
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Many companies have been pursuing plans to boost production in 2025, as prices were substantially higher entering the year.
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Oilsands producer MEG Energy announced in November the approval of a $440-million, multi-year facility expansion project to boost its Christina Lake production capacity by 25,000 barrels per day by 2027.
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“We have the ability to adjust spending as needed,” MEG chief executive Darlene Gates said on an analysts’ call on Wednesday.
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“OPEC+ production management decisions, and geopolitical tensions, are driving market volatility, creating uncertainty and (putting) downward pressure on oil prices. We’ve successfully navigated these cycles before.”
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Chris Varcoe is a Calgary Herald columnist.
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