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Two of Canada’s largest oil producers are incrementally increasing their expenditure for 2020 in spite of issues such as production limits set by the government and congested pipelines. The companies are betting on leveraging a weak market more optimally than smaller players which are reducing their capital.
Calgary based Suncor Energy Inc., and Canadian Natural Resources Ltd., announced the increase to their capital budgets for 2020 this week. The announcements have come on the heels of a rough year for the industry, as pipelines have become full, forcing the province of Alberta to limit production, while share prices slumped.
The problems have pushed one of Canada’s largest and oldest power companies, Encana Corp. to shift headquarter operations from Calgary to the United States, while also changing its name to Ovintiv Inc.
Matt Murphy, an upstream analyst stated: “Those with better balance sheets and more robust asset bases have certainly started to dip their toe into ramping spending modestly on projects driving margin enhancement, not necessarily pure volume growth.”
Smaller Companies Reduce Spending
Canadian Natural Resources Ltd. acquired the Canadian assets of Devon Energy Corp. for a price of USD 2.8 billion. The company has announced that it anticipates expenditures to reach USD 4.05 billion next year, which is an increase of USD 250 million in comparison to that of 2019. The change has come about as Alberta removed restrictions on new oil wells in November.
Similarly Suncor is expecting capital expenditure to extend between USD 5.4 to 6 billion, with a large part of the funds being given to cutting greenhouse gas emissions and incorporating digital technologies.
Smaller companies such as Imperial Oil Ltd., and Husky Energy Inc. have pushed to cut down their expenditure plans for the coming year, blaming distorted market conditions in Alberta. Curtis Schirrmacher, an investment advisor stated: “Canadian companies will have to start expanding elsewhere or consolidate inside Canada. But it’s not a great place to invest at the moment. The long-term impact will be detrimental to Alberta and eventually to Canada.”