Canada's Suncor cuts production outlook and spending

London — Suncor Energy will slash its capital spending by more than a quarter and lower its total production outlook by about 7% in response to the collapse in oil prices.

Canada's second-largest producer, which has a focus on heavier crudes, revised its 2020 production outlook late Monday to a range of 740,000-780,000 boe/d, down from its previous forecast of 800,000-840,000 boe/d, for a loss of about 60,000 boe/d. More than 420,000 of those daily barrels will come from heavy oil sands production.

Suncor said its capital spending for 2020 will fall 26% and is now expected to be between C$3.9 billion and C$4.5 billion, a decrease of C$1.5 billion compared to the midpoint of its previous prediction. That equates to a midpoint guidance of $2.9 billion in US dollars.

Suncor said a key strategy for weathering the unprecedented market challenges is remaining focused on creating maximum value from production, rather than being volume focused. Producers have been slashing spending and trimming output as prices fall well below breakevens.

"The simultaneous supply and demand shocks are having a significant impact on the global oil industry," said Suncor CEO Mark Little in a statement. "We are adjusting our spending and operational plans to be prepared in the event the current business environment persists for an extended period of time."

Suncor last month halted plans to add processing capacity for oil sands-derived bitumen at its 137,000 b/d refinery in Montreal. The company said it will instead look at other ways to process more of its oil sands output, which could include streamlining efforts at its 142,000 b/d refinery in Edmonton.

Suncor will delay a lot of drilling and some offshore projects, including the West White Rose project offshore of Newfoundland and Labrador where Suncor owns a minority stake.

With NYMEX WTI down to about $23/b and the Western Canadian Select benchmark trading near $10/b, Suncor called crude-by-rail shipments uneconomic and said it would suspend most rail transportation where possible.

CANADIAN CUTBACKS

About 25 publicly traded Canadian oil producers have announced major capex cuts in March since the coronavirus pandemic crushed global oil demand and Saudi Arabia and Russia launched an oil pricing war to flood the market starting in April.

The Canadian producers have announced more than $4 billion in planned capital spending cuts in 2020 for an average reduction of about 30%. Gear Energy went as high as slicing its spending by almost 75%. Some other firms are suspending all of their planned drilling and completions for the remainder of the year as they hunker down and try to survive the bust.

On the production side, S&P Global Platts Analytics' preliminary estimate reduces average 2020 Canadian crude production by 330,000 b/d compared to the previous February projection.

With the biggest production losses likely in North America, Platts Analytics estimates that as much as 5 million b/d of higher-cost crude production volumes are in jeopardy of of being shut in if current low oil prices continue for a prolonged period of time.

The Canadian oil sands volumes, along with North American shale, are considered among the most at risk. The result is conventional heavy production could decline by 10%, while shale could fall by 25% by year-end, according to Platts Analytics.

Canadian producers cutting capex: