Oil producers see price slump outlasting recent rally

May 10 23:59 2015

Oil prices have rallied lately, but not enough to persuade producers that a nearly year-old slump will end any time soon. Take Doug Suttles, the president and CEO of Alberta, Canada-based Encana Corp., who was in the midst of transforming his company from primarily natural gas production to oil production when oil prices began to plunge last June. http://www.dreamstime.com/royalty-free-stock-photos-oil-pump-image17680658

Suttles visited Washington, D.C., the other day to make a pitch at the U.S. Chamber of Commerce for an end to U.S. restrictions on oil exports, a major campaign of the industry this year and one that producers say could provide them with some relief from low prices. As he spoke, the price of West Texas Intermediate, the U.S. benchmark for oil, was on its way to closing at its highest level of the year, just under $61 a barrel, a marked improvement from its 2015 low of $43.39 in March, though still far below its 2014 peak of $107.95.

“If it stays at that level, there’ll be some more (drilling) activity eventually,” Suttles, who took over as Encana’s top executive in 2013, told the chamber audience. “But right now, that’s very volatile. Because it’s $60 today doesn’t mean it’s going to be $60 tomorrow or next month.” No sooner had he spoken than prices began to fall again, partly in response to a stronger dollar. On Friday, WTI settled at $59.39.

That unpredictability is challenging for oil producers large and small as they cope with one of the biggest upsets ever in oil markets. How to weather the storm, including cutting capital expenses and personnel without jeopardizing future opportunities, is testing companies like Encana, which had seen its stock fall nearly 40% in the past year as he spoke. “When we set our budget for this year, we were using a WTI oil price of $50 and a natural gas price of $3 (per million British Thermal Units),” Suttles said. “And depending what day of the year you look at, oil’s traded at better than that or worse than that, and, unfortunately, natural gas is almost always traded lower than that.” In a year of surprises for the industry, the biggest one for Suttles is the quick pace at which companies cut back on investments in exploration and production in the U.S. and Canada.