Morning Memo: Deborah Yedlin
As Petro-Canada and EnCana each reported eye-popping numbers for the third quarter this morning, with Petro-Canada reporting net earnings of $1.25 billion and EnCana posting operating earnings of $1.4 billion, Suncor weighed in with news of its own.
The oil sands producer, which has lost $43 billion in value from its 52 week high of $73.10, announced it is slashing capital expenditures by one-third for 2009, to $6 billion. The impact of the decision means that the company's Voyageur expansion, which was announced shortly after the company renegotiated the terms of its oil sands leases with the Alberta government, will proceed but at a slower pace.
It should come as no surprise that the decision comes as oil prices traded in the range of $67 US per barrel - they rose slightly to $67.94 in overseas trading - and will result in the upgrader associated with the Voyageur project being delayed by about one year.
As Petro-Canada and EnCana each reported eye-popping numbers for the third quarter this morning, with Petro-Canada reporting net earnings of $1.25 billion and EnCana posting operating earnings of $1.4 billion, Suncor weighed in with news of its own.
The oil sands producer, which has lost $43 billion in value from its 52 week high of $73.10, announced it is slashing capital expenditures by one-third for 2009, to $6 billion. The impact of the decision means that the company's Voyageur expansion, which was announced shortly after the company renegotiated the terms of its oil sands leases with the Alberta government, will proceed but at a slower pace.
It should come as no surprise that the decision comes as oil prices traded in the range of $67 US per barrel - they rose slightly to $67.94 in overseas trading - and will result in the upgrader associated with the Voyageur project being delayed by about one year.
Suncor is changing course in order to preserve its financial flexibility and given the state of credit markets and continued uncertainty facing the economy, it is certainly the right move. And it's not the only one in this situation. The next phase of Long Lake, another oil sands project that is a joint venture between Nexen and OPTI, has also been put on hold. Analysts are expecting that more companies will be pulling in their capital expenditure plans for 2009, opting to sit on the sidelines until conditions improve.
This strategy, however prudent, is also one that is going to set the stage for a huge rebound in crude prices when the global economy pulls itself out of the current slump. The chief economist for CIBC World Markets was in Calgary on Wednesday presenting to more than 1000 delegates to a real estate conference. Rubin made the point that business cycles don't end - there will be another one - but more
importantly that the peak for commodity prices in prior cycles often mark the trough in the coming cycle.
The inevitable pull back in investment being caused by current uncertainty, coupled with global decline rates of about five per cent and growing consumption in the Middle East and China all point to the $145 oil price of last summer ultimately looking like a bargain.
Suncor is changing course in order to preserve its financial flexibility and given the state of credit markets and continued uncertainty facing the economy, it is certainly the right move. And it's not the only one in this situation. The next phase of Long Lake, another oil sands project that is a joint venture between Nexen and OPTI, has also been put on hold. Analysts are expecting that more companies will be pulling in their capital expenditure plans for 2009, opting to sit on the sidelines until conditions improve.
This strategy, however prudent, is also one that is going to set the stage for a huge rebound in crude prices when the global economy pulls itself out of the current slump. The chief economist for CIBC World Markets was in Calgary on Wednesday presenting to more than 1000 delegates to a real estate conference. Rubin made the point that business cycles don't end - there will be another one - but more
importantly that the peak for commodity prices in prior cycles often mark the trough in the coming cycle.
The inevitable pull back in investment being caused by current uncertainty, coupled with global decline rates of about five per cent and growing consumption in the Middle East and China all point to the $145 oil price of last summer ultimately looking like a bargain.
—————
