CALGARY C United states energy producers are ready for a global cost-cutting battle, the head of Encana Corp. said Wednesday, even while his company posted a US$612 million reduction in your fourth quarter.
“The world dealing with The united states have to be ready as this place in the world understands how to get efficient, and you’re seeing it everyday,” Encana president and CEO Doug Suttles said during his company’s quarterly earnings call.
Suttles didn’t specifically mention OPEC, but established that companies such as Encana were cutting costs to contend with foreign oil producing countries.
On Tuesday, Saudi Arabian oil minister Ali Al-Naimi told North American oil producers at a global energy conference in Houston to lower their costs or “get out.”
“It sounds harsh, and unfortunately it’s, but it is the best way to rebalance the markets. Cutting low-cost production to subsidize more expensive supplies only delays an unavoidable reckoning,” Al-Naimi said, while denying Saudi Arabia is trying to take part in a price war with shale oil producers.
Calgary-based Encana, which produces oil and gas from shale plays in Texas, Alberta and British Columbia, confirmed that production from its main gas and oil plays is placed to say no by about 10 per cent this season, because it reduces its drilling and spending plans.
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Suttles said the company was cutting costs so that you can compete in a “lower for longer oil price environment.” The North American benchmark West Texas Intermediate for April delivery rose US28 cents, or 0.9 percent, to settle at US$32.15 a barrel around the New York Mercantile Exchange.
Encana posted a US$612 million net loss in the fourth quarter, compared with earnings of US$198 million within the same quarter a year earlier. Much of that loss was in the company’s US$514 million in impairment charges in the fourth quarter.
Among its cost-cutting measures, Encana announced it had been reducing another 20 per cent of its staff, while also asking employees to take sabbaticals or contract positions or asking them to depart office jobs for field-based positions. It didn’t say how many jobs that was.
The job reductions, not just at Encana, but across the industry are as severe when i have seen in over 33 years.
When the newly announced layoffs are included, Encana has cut over fifty percent of its staff since 2013 C roughly 2,300 people according to its headcount at the outset of that year.
“It’s a tough time to become someone who works within the oil and gas industry. The task reductions, not only at Encana but over the industry, are as severe as I have experienced in over 33 years,” Suttles said.
Despite all the cuts, analysts continue to be worried about the company’s capability to cover its expenses.
“They’ve definitely been able to grind down costs quite aggressively. I’d say that the likes of Encana and Cenovus had more to chop than others, therefore the magnitude of the cuts are most likely bigger than others,” National Bank Financial analyst Kyle Preston said.
“Their income is going to be, on our numbers, somewhere between US$700 and US$800 million but their spending is likely to be US$950 million on capital expenditures, so there’s still a cash shortfall there,” Preston said.
Morningstar analyst David Meats said Encana’s cost cutting measures happen to be more productive than many analysts were expecting: The organization reduced its capital and operating expenses by US$400 million in 2015.
The company intends to cut one more US$200 million to US$250 million in costs during the period of 2016.
It is also reduced its planned spending in the year by roughly US$700 million. The company had initially planned to spend between US$1.5 billion and US$1.7 billion in 2016 but announced Wednesday it would spend between US$900 million and US$1 billion.
gmorgan@nationalpost.com
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