By Nia Williams
CALGARY, Alberta, Nov 12 (Reuters) - Canadian energy
companies, especially those at higher cost oil sands producers,
are signalling they will cut capital spending for a second
straight year in 2016 as they adjust to a painful new reality of
oil near $40 a barrel.
Energy executives, coming off a bleak third-quarter earnings
season and due to roll out capital budgets in coming weeks, were
in a grim mood even before the United States last week rejected
TransCanada Corp 's TRP.TO proposed Keystone XL pipeline that
would have been key in boosting exports of heavy oil from the
landlocked oil sands.
"The initial forecast would be for a reduction (in capital
spending) of 10 to 20 percent for next year," said Eric Nuttall,
portfolio manager at Sprott Asset Management, which hold about
C$55 million ($41.37 million) in energy stocks.
"More companies will be spending within cash flow, that's
the discipline being forced onto them by credit markets, equity
markets and their banks."
The seven biggest Canadian producers cut 2015 capital
spending by 39 percent, or a combined C$12 billion, from last
year according to a Conference Board of Canada report.
Of those seven, so far only Cenovus Energy Inc CVE.TO and
Canadian Natural Resources Ltd CNQ.TO have outlined 2016
budgets.
Cenovus estimates capital spending between C$1.5-C$2.0
billion versus C$1.8-$1.9 billion in 2015. Chief Executive Brian
Ferguson said if oil prices hold around $45 a barrel, the
company will spend roughly C$1.5 billion in 2016, less in 2017
and keep some oil sands project expansions on hold.
Canadian Natural expects to spend between C$4.5-C$5.0
billion next year, down from 2015's C$5.44 billion.
On Husky Energy Inc 's HSE.TO earnings call, CEO Asim Ghosh
warned the company is basing planning on U.S. crude CLc1 at
$40 a barrel for the next two years, adding that capital
spending will stay "in a similar neighbourhood" to this year.
Suncor Energy Inc SU.TO CEO Steve Williams said he wants
to bring oil sands operating costs below C$20 a barrel from an
eight-year low of C$27.
With Canadian energy stocks .SPTTEN down nearly 50 percent
since oil started sliding in June 2014, investors are keen for
cautious budgets.
"Canadian companies really need to be focused on living
within their cash flow," said Jennifer Stevenson, vice president
at 1832 Asset Management, which manages C$2 billion in energy
assets.
Encana Corp ECA.TO on Thursday bucked the trend slightly
by speeding up investment in the U.S. Permian shale basin this
year, but is using capital originally earmarked for 2016.
Executives suggested 2016 spending will be carefully controlled.
($1 = 1.3295 Canadian dollars)
(Editing by Jeffrey Hodgson and Marguerita Choy)