Conoco cuts considered as an aperitif for large cuts in the production of oil sands

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The ConocoPhillips chief executive says he has no plans to permanently cut Canadian production as the oil giant is set to cut production at its oil sands development in Surmont, Alberta.

In an interview with Bloomberg TV, Conoco CEO Ryan Lance identified Canadian assets, however, as likely the only ones not generating positive cash flow in the current pricing environment.

And for the production of Conoco as a whole, Lance sees more cuts soon. “We expect us to further reduce our production when we reach June given the first indications that we are seeing prices for this trading month,” he said after declaring “we are simply refusing to sell our gross at this type of price. “

Citing Western Canada Select’s low prices, Conoco announced yesterday its plan to reduce production from the oil sands from 100,000 barrels per day to 35,000 barrels.

WCS, the oil sands benchmark price, hit a record low of less than US $ 3 per barrel this week. It traded just below US $ 6 on Friday, down almost 90% in the past year.

Losing production at Surmont is the biggest reduction in the oil sands to date in the current downturn, but analysts warn that this is just a taste of the massive production cuts looming in the oil sector besieged from Alberta.

In the past two weeks, weekly demand for oil in the United States has declined by about 30% year-over-year, said Michael Dunn, an analyst at Stifel FirstEnergy, in an email. [it’s] it’s hard to see how production in Western Canada doesn’t drop like that. “

“Don’t be surprised if more than a million barrels per day of western Canadian crude oil is reduced in May given the price position,” he said in a report released Friday.

TD analyst Menno Hulshof sees even more damage. “We now estimate that the total number of oil closures in Western Canada will reach more than 1.5 million barrels a day in the coming weeks or months. “

TD analyst said this week that dividends from solid integrated oil sands companies such as Suncor Energy Inc., Canadian Natural Resources Ltd. and Imperial Oil Ltd. could be questioned – and Stifel agrees.

“We cannot rule out dividend cuts on one or more of the three stocks, with an otherwise excellent history of long-term dividend growth if recent prices persist,” said Dunn of Stifel in his report.

He added that Canadian Natural “appears to be most at risk here compared to Suncor and Imperial Oil, due to its higher debt, lower credit rating and seemingly more pressing liquidity needs”.

Suncor traded at a 9% dividend yield on Friday, Canadian Natural was close to 10% and Imperial was 5.5%.



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