One of Canada's biggest oil companies has been forced by low oil prices to partially shut down production at its Fort Hills oil sands project, the company said in an update, adding that it would reduce its capital spending plans for the year by 26 percent.
"Fort Hills continues to be disproportionately impacted by mandatory production curtailment with the asset operating at lower than optimal facility utilization," Suncor said. "The Fort Hills partners have agreed to reduce Fort Hills to a one train operation, running at full utilization. This will increase cash flow, particularly when bitumen prices are extremely low, as we are able to significantly reduce variable costs."
Western Canadian Select, the local benchmark for heavy crude, has slumped below $10 a barrel, at one point last week trading as low as $6 a barrel. On Tuesday, the benchmark closed at $7.96 a barrel.
For the full year, Suncor expects to produce 740,000 to 780,000 bpd of oil in total. Oil sands production is seen at 410,000-435,000 bpd, with synthetic oil output at 310,000-325,000 bpd. Suncor expects bitumen production to average between 100,000 and 110,000 bpd.
"The simultaneous supply and demand shocks are having a significant impact on the global oil industry. We are adjusting our spending and operational plans to be prepared in the event the current business environment persists for an extended period of time," Suncor's chief executive said, with the press release referring to the current challenges the industry is facing as "unprecedented".
The country's oil industry is already vulnerable to international price shocks due to pipeline capacity that has, in the past, caused WCS to slump compared to WTI. According to media reports from earlier this month, the federal government was preparing a multibillion-dollar financial aid package to avoid a more profound industry crisis.