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Oilsands producers pile on credit card debt to survive the crash but eye tentative recovery


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Oilsands producers pile on credit card debt to survive the crash but eye tentative recovery

Cenovus and Suncor have taken on billions of dollars of debt but believe the outlook is beginning to improveAuthor of the article:Geoffrey MorganPublishing date:Jul 23, 2020  •   •  5 minute readWhile Cenovus was able to add production over the course of the quarter, it also increased its debt load. Brent Lewin/BloombergArticle contentCALGARY — Suncor Energy…

Oilsands producers pile on credit card debt to survive the crash but eye tentative recovery

Cenovus and Suncor have taken on billions of bucks of financial debt but consider the outlook is beginning to increase

Author of the posting:

Geoffrey Morgan

Publishing day:

Jul 23, 2020  •   •  5 moment study

While Cenovus was able to add production over the course of the quarter, it also increased its debt load.
While Cenovus was equipped to insert production more than the program of the quarter, it also enhanced its debt load. Brent Lewin/Bloomberg

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CALGARY — Suncor Vitality Inc. and Cenovus Strength Inc., two of Canada’s biggest oilsands producers, have taken on billions of dollars of personal debt to weather the historic oil price tag collapse and COVID-19 pandemic this calendar year but believe the outlook is starting to improve.

“I’m cautious to say the worst is behind us,” Cenovus president and CEO Alex Pourbaix claimed in an job interview with the Economical Post on Thursday immediately after his business posted a $235-million web decline in the second quarter, which is down from web earnings of $1.8 billion a year earlier. “(But) we got via this a large amount better than lots of folks believed at the starting.”

Nevertheless, Pourbaix explained Cenovus and the wider oilsands industry responded to the collapse in crude oil price ranges with cuts in the next quarter and are now expecting a much better outlook for the sector for the rest of the 12 months.

We received through this a whole lot better than many people today considered at the beginning

Alex Pourbaix, Cenovus president and CEO

Pourbaix claimed the total domestic oil market confirmed its flexibility and shut in over 1 million barrels of day-to-day oil generation as crude prices crashed. There is continue to 500,000 bpd shut in throughout Western Canada, the CEO estimates.

For its part, Cenovus shut in 60,000 bpd in April and had considered shutting in up to 100,000 bpd. As Canadian heavy oil rates began to rise in May possibly, Pourbaix stated the firm started ramping its production back up. By June, the company achieved comprehensive production and even bought output credits to pump oil past its mandated quota imposed by the Alberta governing administration. The provincehas remaining production limits unchanged at 3.81 million bpdfrom December via to August.

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The company’s effects Thursday display it created an ordinary of 400,000 bpd in the next quarter, an 8 for each cent enhance more than the 371,000 bpd it pumped during the exact same quarter in 2019.

Even though Cenovus was in a position to increase output over the training course of the quarter, it also improved its personal debt load, which the corporation has been working to pare back again due to the fact its $17.7-billion acquisition of ConocoPhillips oilsands and Canadian organic fuel belongings in 2017.

Both equally Cenovus and Suncor extra to their limited- and very long-phrase personal debt in the first 6 months of the yr as the combination of the coronavirus pandemic and the Saudi-Russian oil price standoff led to crude oil rates crashing in March.

In the second quarter, the two West Texas Intermediate and Western Canada Decide on oil rate benchmarks tumbled into damaging territory. Specifically distressing for large oil producers, the WCS selling price languished below US$five per barrel for an extended period as commuters stayed residence from function and refineries scaled back the amount of oil they were processing. The WCS benchmark traded down one.five for each cent to US$31.89 for each barrel on Thursday, while U.S. West Texas Intermediate (WTI) crude fell two for each cent to settle at US$41.07.

Cenovus, which had no brief-time period borrowings at the finish of 2019, now lists $299 million in brief-phrase credit card debt. The company’s long-expression financial debt has risen to $eight billion at the finish of the second quarter, in contrast with around $6.7 billion at the close of 2019.

On an earnings get in touch with Thursday, analysts grilled Pourbaix and other Cenovus executives about the company’s program with its predicted hard cash now that oil rates are mounting yet again.

“From our perspective, absolute priority is the stability sheet right up until we get that credit card debt back down to a level that we’re a whole lot a lot more relaxed with,” Pourbaix stated, noting the company’s goal is to generate its internet personal debt underneath $5 billionbefore it re-instated its dividend, which it suspended in April.

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Citibank’s Prashant Rao famous that the sequential improvement in the quarter leaves Cenovus in superior situation for a second 50 % recovery on the back of soaring oil selling prices.

“These outcomes confirm our sights heading into the print. Shares proceed to trade significantly underneath very long-time period truthful benefit our DCF-centered methodology factors to C$nine as the starting up position for an appropriate valuation. We reiterate our Invest in,” the analyst explained in a observe on Thursday.

The Cenovus stock was investing down just beneath a fifty percent for each cent to $6.65 for each share in a broadly adverse current market.

A Suncor Energy facility in Alberta.
A Suncor Strength facility in Alberta. Candace Elliott/Reuters information

Suncor, Canada’s greatest oil business by current market capitalization, also noticed the two its limited-time period and lengthy-expression personal debt rise. The Calgary-centered integrated oil producer’s quick phrase credit card debt rose to $three billion at the close of June,  up from $two.one billion at the end of 2019. Its long-time period personal debt jumped to nearly $16 billion at the close of the 2nd quarter from around $12.9 billion at the conclusion of past 12 months.

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“We knew that the next quarter would be complicated. Undoubtedly the most difficult in our modern history,” Suncor president and CEO Mark Very little claimed on the company’s 2nd quarter earnings get in touch with Thursday.

Tiny and other Suncor executives claimed the corporation is not anticipating to get on additional debt in the 2nd fifty percent of the calendar year but stopped small of detailing what the organization would do with mounting cashflows as oil prices improve. Little claimed it was too early to commit to a technique amid volatility in crude markets and uncertainty about the coronavirus pandemic as economies re-open.

“Let’s see it in advance of we come to a decision what to do with that more dollars,” Tiny stated.

We understood that the second quarter would be difficult. Definitely the most challenging in our modern day heritage

Mark Little, Suncor president and CEO

Suncor described a internet reduction of $614 million in the 2nd quarter, in contrast with $two.7 billion in net earnings a year earlier.

During the pandemic, Suncor and its associates Teck Means Ltd. and Whole SA determined to shut down one of the two units at its 190,000-bpd Fort Hills oilsands mining venture. Minimal reported there is at the moment a discussion between the companions about scaling creation back up at the facility.

“There’s a substantial prospect it’ll be back again on-line by the finish of the 12 months,” Tiny claimed.

Phil Skolnick, analyst at Eight Funds, expects some producers“to ramp up manufacturing andeven more travel down the higher fixed operating value burden.

General, Suncor fiscal and operating effects were being improved than envisioned, National Lender Money analyst Travis Wooden wrote in a research be aware, boosting its focus on value for the inventory to $28 for every share from $27. The stock was buying and selling at $23.1, down practically 3.4 per cent for the day.

“Through the remainder of the calendar year, Suncor will continue on to concentrate on costs, with incremental support from what need to be a absolutely functioning (Fort Hills mine) by yr-stop,” Skolnick explained, adding that a new pipeline connecting its Syncrude undertaking and its most important oilsands mind would shortly be comprehensive and even more raise productivity.

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• Email: gmorgan@nationalpost.com | Twitter: geoffreymorgan

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