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'We will get through this': Oilpatch hunkers down amid price plunge, virus fears


On Monday morning, as oil prices melted down around the world, Grant Fagerheim met with employees at Whitecap Resources to discuss their health and safety amid fears of the spread of the novel coronavirus.

“We pulled the entire staff together and had these conversations,” Fagerheim, the chief executive of the mid-sized producer, told the Calgary Eyeopener on Thursday.

“We’re hopeful that we can calm the waters here. Again, as I say, we will get through this. We just have to make decisions in a very organized manner versus being too reactive.”

Like its peers around the sector, Whitecap is being challenged on two fronts: the crude price war that’s broken out between Russia and Saudi Arabia, and the spread of the virus, which is rattling markets to the core.

But companies must also manage the practical health concerns of staff — a situation highlighted by news a daycare in Suncor Energy’s downtown headquarters has been closed after a child tested positive for COVID-19, the respiratory illness caused by the virus.

“There’s two priorities we have to look at,” Fagerheim said. 

And, firstly, we have to ensure the health and safety of our employees.

Still, on the business side of the ledger, companies are busy adjusting plans and preparing for a long financial storm.

A pair of traders work in their booth on the floor of the New York Stock Exchange. The deepening coronavirus crisis hit both stocks and oil prices again on Thursday. (The Associated Press)

Husky Energy announced Thursday it would cut its capital program by $900 million — representing a one-third reduction in upstream spending — and taking steps to save an additional $100 million.

“Given current market conditions, Husky will commence the safe and orderly reduction, or shut-in, of production where it is cash negative on a variable cost basis at current prices,” the company said.

Stock markets and oil prices both fell on Thursday, with the benchmark price for North American crude closing at $31.50 US per barrel, down $1.48 US. And there’s no clear signal yet as to how long oil prices will stay low. 

Saudi Arabia is poised to open the taps from April 1, releasing 12 million barrels of oil per day into markets. 

“These are extraordinary times,” said Frances Donald, chief economist at Manulife Investment Management. “There’s also an element of it that feels like you are really experiencing something new for the first time.”

In the days since crude prices began tumbling, companies have started to announce cuts to their capital spending plans. Analysts expect companies to throttle back, or even shut-in, some production. 

This week, oilsands giant Cenovus Energy announced it was cutting its capital spending by 32 per cent to between $900 million and $1 billion, down from between $1.3 billion and $1.5 billion.

As companies pull back, there are worries about job losses, with Alberta’s premier saying he expects layoff announcements from the oil and gas sector in the next two to three weeks.

Balance sheets are under close scrutiny and market watchers have already warned the most vulnerable companies will be those carrying too much debt, have high operating costs and limited access to funding.

April Read, a senior analyst with Wood Mackenzie, said in an interview Wednesday she doesn’t expect capital spending to be the only thing companies put under the microscope. 

“I also think that companies will choose to spend less money on things like [share] buy-backs, we might see dividends cut,” she said. I think you’ll see companies hunker down.”

Alberta Premier Jason Kenney speaks to reporters on Wednesday before heading to Ottawa for the first ministers meeting, which was later cancelled. (Mike Symington/CBC)

Alberta’s oilpatch has had to do it before, most recently following the price slide that began in 2014. In the past five years, analysts say, the industry has become leaner, more efficient and more innovative.

Fagerheim said Whitecap is setting priorities and working through them. One of those, he said, is to make decisions that protect value and do “not destroy what is there for the longer term.”

Fortuitously, he said, Canada’s oilpatch is entering the spring breakup period, a shoulder season for drilling activity, when generally a limited amount of capital is spent between mid-March and mid-June.

“It’s a natural break in the capital spending profile, which is a good thing,” he said. “It gives us a little bit of time to think more, in a more relaxed manner, if you can call it relaxed, in a more organized fashion.

The market shakeup has spurred speculation the oilpatch could see more consolidation within the sector, but Fagerheim said that’s way down the list of things to worry about right now.

Sayer Energy Advisors president Tom Pavic, an expert on merger and acquisition activity, said in an interview earlier this week that he expects CEOs will still be assessing what’s happening in the market and how long it will last.

“I don’t see anyone calling, ‘OK, let’s do a deal right now,’ because it’s so chaotic,” he said.



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