Some Canadian energy companies are better placed to weather the precipitous drop in the price of oil, according to an analysis by Scotiabank Global Equity Research.
West Texas Intermediate (WTI), the U.S. oil benchmark, was trading Friday at US$70.01 a barrel, down from a year-to-date high of US$86.91 in April, compelling the bank’s analysts to revisit break-even points for Canadian oilpatch players.
To sustain capital spending and dividends in 2025, analysts are estimating an average break-even price of US$50 per barrel, giving oilpatch companies a cushion of US$15 per barrel based on WTI at US$65 per barrel. The benchmark closed near US$65 per barrel on Sept. 10, according to Bloomberg.
“Although falling commodity prices are not good, break-evens continue to be robust with many companies able to fund their sustaining capital requirements with WTI at US$40-US$45/bbl and dividends at $45-$50/bbl,” the analysts said in a note on Friday.
They also identified which energy companies are best placed to withstand oil price volatility and those that might feel the heat.
They expect major oilpatch players, notably Suncor Energy Inc., Cenovus Energy Inc. and Imperial Oil Ltd., to be at the top of the pack, “primarily driven by cost-structure wins.”
Suncor is expected to “lead the way” in efficiency gains, the analysts said, as the company works to drive down costs through the use of autonomous trucks and in other areas such as maintenance and logistics.
Cenovus is expected to benefit from an increase in production, “downstream reliability” and a lowering of general and administrative expenses, while Imperial could reap gains from “thermal production growth” and digitalization, they said.
The Scotiabank analysts estimate that large-cap/major oilsands companies will be able to reduce their “sustaining” capital expenditures and dividend median break-even points by approximately five per cent between 2025 and 2026 with the trio of Suncor, Cenovus and Imperial leading the pack.
The analysts said oil at US$65 a barrel could impact some activity in the oilpatch, though they think it will be “minor” as “capital programs are largely centred on projects that still earn good returns at US$65 WTI and are funded with internally generated cash flow even at lower oil price levels.”
But while activity is expected to withstand lower oil prices, dividends, at least special ones, could take a hit, they said.
“Base dividends are generally well supported, so we don’t see much of a shift coming there, but the biggest move will likely come from a lower level of SBBs (share buybacks) and much lower special/variable dividends — although many companies were not paying these,” they said.
The analysts also identified companies that are “vulnerable” to falling oil prices, with small- and mid-cap companies “generally being more sensitive.”
They singled out International Petroleum Corp., Meg Energy Corp. and Baytex Energy Corp. as the most “sensitive” to lower WTI prices, adding that companies of this size have higher break-even points “due to higher cost structures and sustaining capex (capital expenditure) requirements relative to larger oilsands players.”
• Email: gmvsuhanic@postmedia.com
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