Major companies are struggling to maintain capital expenditures as oil prices continue to slide further. Already in the last six months prices have fallen more than 40% as supply continues to outpace sluggish demand growth.
In the last week, three large Canadian companies announced major cuts to their capital expenditures for 2015. Vermilion Energy (ticker: VET) and Canadian Oil Sands (ticker: COS), both Canadian E&Ps, and Precision Drilling (ticker: PD), a service-side company, released their 2015 guidance with lower CapEx than their 2014 guidance’s. The much lower capital expenditure expectations were due in large part to low oil prices.
In Vermilion’s 2015 guidance, the company announced that it would have a capital program of $525 million for 2015, a decrease of $150 million, or 22%, from its projected 2014 capital program expenditures of approximately $675 million. The company said it had reduced its 2015 capital investment plans “to ensure the continued strength of [its] balance sheet and the sustainability of [its] dividend should weak oil prices prevail over a protracted period.”
Vermilion said that despite the decrease in its 2015 capital budget, the company still expects production to grow by approximately 15% year-over-year, and is maintaining its previous outlook for average 2015 production volumes of 55,000 to 57,000 BOEPD.
In Canada, the company plans to decrease overall spending in its Cardium light oil play and to shift investment to its Mannville condensate-rich natural gas project.
Canadian Oil Sands announced that the company predicted that capital expenditures for 2015 would only amount to $564 million in its 2015 guidance. Compared to 2014, when the company spent $1.1 billion, this represents a 49% decrease in capital expenditures for COS.
The company also announced in its 2015 guidance that the company would be cutting dividends from $0.35 per share to $0.20 per share, a 42% decrease.
COS said that it made this decision in order to protect its balance sheet strength and provide flexibility in the current lower oil price environment. In its 2015 guidance, the company said that maintaining dividends at the current level would cause net debt to quickly exceed $2 billion.
Not just an E&P issue
Precision Drilling also announced that the service company would also be lowering its CapEx for 2015 in the company’s 2015 guidance. The company anticipates that its 2014 capital expenditures will total approximately $885 million, which is down $23 million of its previous guidance. In 2015, the company expects capital expenditures of $493 million, 44% less than the company’s most recent 2014 CapEx predictions, and 46% less than the company’s previous expectations of $908 million.
As low oil prices persist, many companies, domestic and international, E&P and service-side, are shoring up their balance sheets by reducing the amount of capital they plan to spend in 2015. Until oil prices stabilize, not many companies will be looking to expand their operations or spend any more capital than is necessary.
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