Crude plunged after Saudi Arabia - the globe's top exporter - said it would up output next month, flooding the market, in response to Russia's refusal to cut supplies as per an OPEC plan.
US benchmark crude (West Texas Intermediate) is up 10% at US$34.24 a barrel today, but prices fell 20% on Monday. Western Canadian Select is down over 39% at C$15.73.
Cenovus has now said it will cut its 2020 capital spending by around 32% for 2020 (to between C$0.9 to C$1 billion from C$1.3 to C$1.5 billion previously) to maintain the strength of its balance sheet.
The oiler will also temporarily suspend its crude-by-rail program and deferring final investment decisions on major growth projects, it said.
It will work towards funding this revised capital program and current dividend within its own cash flow, it added.
Its liquidity currently is around C$4.4 billion, including undrawn credit facility capacity and cash on hand.
Under its credit facility, Cenovus needs its debt-to-capitalization ratio not to exceed above 65%. The company was well below this limit at the end of 2019, and has no near-term debt maturities, it said.
"We have top-tier assets, one of the lowest cost structures in our industry and we’ve made significant progress in deleveraging over the past few years,” Alex Pourbaix, Cenovus president and CEO, told investors.
"Consistent with our commitment to balance sheet strength, we’re exercising our flexibility to reduce discretionary capital while maintaining our base business and delivering safe and reliable operations."
By suspending the crude-by-rail program, the company will no longer be making use of credits under Alberta’s Special Production Allowance (SPA) program.
Therefore, oil sands production this year is expected to average between 350,000 barrels per day (bbls/d) and 400,000 bbls/d, which is around 6% lower than the company’s guidance for the year (issued in December).
Cenovus has oil sands projects in northern Alberta, which use special methods to pump oil to surface, and also owns established natural gas and oil production in Alberta and British Columbia. The company also has 50% ownership in two refineries in the US.
Capital originally budgeted to progress potential expansions at both Christina Lake and Foster Creek oil sands operations in Alberta to sanction-ready status this year has been put on hold, and the majority of the remaining planned capital spend at the company’s Deep Basin and Marten Hills operations has been suspended.
In the current environment, Cenovus does not intend to sanction any new projects, it added.
Shares zipped up 8.7% in Toronto to stand at C$4.16 each.
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