- Crude at $30 leads to low-drilling or no-drilling budgets
- Penn West managing its business on 'week to week' basis
Among things that cost C$50 million ($35.6 million): an estate in the Hamptons, a 15th-century tea cup from China, and one Canadian oil company’s capital budget for all of 2016.
Penn West Petroleum Ltd. plans a 90 percent drop in capital spending from last year, a testament to the fact that there’s not much profit to be made drilling with crude just above $30 a barrel.
“Our 2016 capital budget reflects the reality of living within our means at current price levels and managing the business on a week to week basis,” Dave Roberts, Penn West’s chief executive officer, said in a statement Thursday.
Penn West follows Canadian producers including Pengrowth Energy Corp. in cutting spending to the bone as an oil-market slump exceeds 19 months. Pengrowth last week adopted a budget that was 65 percent less than last year’s, which includes no money for drilling. Capital spending by the top 50 Canadian producers is poised to fall at least another 24 percent in 2016, after last year’s 32 percent drop, according to analysts’ estimates compiled by Bloomberg.
The company’s shares have tumbled 58 percent since the end of 2014 as oil prices slumped amid a global oversupply.
Even with the “drastic reductions” in spending and Penn West’s previous elimination of its dividend, the company’s debt remains “uncomfortably high” with production falling and it risks breaching debt covenants with lenders imminently, Kyle Preston, an analyst at National Bank Financial, wrote in a research note on Thursday.
There are arguably more enjoyable ways to spend C$50 million than drilling for oil in the middle of the worst industry downturn in decades. Collecting rare art from the Ming dynasty or buying a beachfront mansion might be among them.