Canadian energy companies Cenovus and Husky posted huge quarterly losses on Wednesday, hit by the double whammy of a significant drop in demand for crude oil caused by the coronavirus outbreak and a price war between Saudi Arabia and Russia.
Cenovus Energy said it lost $1.8 billion in the three months between January and March, as an increase in the amount of oil the company produced was offset by a huge plunge in the price of a barrel of oil.
In the same period a year ago, Cenovus posted a slight profit of $110 million.
It was a similar story at Husky Energy, which also posted earnings on Wednesday that showed a quarterly loss of $1.7 billion for the quarter ended March 31, compared with a profit of $328 million a year earlier.
Cenovus previously announced a temporary suspension of its dividend to deal with the slowdown. Husky made a similar move on Wednesday, slashing its quarterly payout to shareholders by 90 per cent from 12.5 cents per share, per quarter, to 1.25 cents from now on.
Below zero last week
Oil prices have plummeted in recent months, as COVID-19 caused a huge drop-off in demand for energy, and the pandemic has hit North America just as Saudi Arabia and Russia started a price war to gain world market share.
Those two factors have combined to push the price of oil lower than it has ever been. At one point early last week, the price of oil went below $0 US per barrel.
Husky chief executive Rob Peabody said the company was hit hard by that dramatic plunge in the price of oil.
But he said the company acted quickly to cut its planned capital spending by half, cut production and reduce refinery throughput.
“It was clear from what we were seeing on the product demand side in North America that we were going to see supply and demand collide in a very messy way this quarter,” Peabody said in a conference call with analysts and media.
“Our strategy is to keep as many barrels away from the train wreck as possible to minimize negative cash margins.”
Peabody said Husky has shut in 80,000 barrels per day of Canadian upstream oil production. He said the company has reduced its number of contract staff, who were either associated with certain capital programs or doing seasonal work.
Cenovus CEO Alex Pourbaix said the oil industry is experiencing an unprecedented situation because of the pandemic and the international oil price war.
“Inevitably, we know this pandemic will pass — the markets will recover,” he said in a conference call. “What’s not clear is exactly how long that’s going to take.“
Pourbaix said the company has reduced planned production volumes, cut its capital spending plans by $600 million and lowered general expenses for the year by about $50 million, including executive salaries.
“I believe we are in a relatively strong position to navigate the current commodity price environment,” he said.
Both companies produced more oil in the quarter, but the massive sell-off in prices more than offset those gains. Cenovus said it produced the equivalent of 482,594 barrels of oil per day during the quarter. Husky, meanwhile, pumped about 299,000 barrels per day.
Cenovus said on average, it took in $22.74 for every barrel of oil it produced during the quarter, a plunge of 54 per cent from the same period last year.
And prices have fallen even more since the end of March, with the price of West Texas Intermediate at just over $15 US a barrel on Wednesday. Oil from Canada’s oilsands, meanwhile, is going for just $7.57 US a barrel.
Shares in both companies gained on the TSX on Wednesday, with Cenovus up about five per cent and Husky up seven per cent. But both companies have lost more than two-thirds of their value in the past year.