Cenovus is selling its royalty lands division to Ontario Teachers’ Pension Plan for $3.3 billion.
Cash-starved oil sands companies are eyeing fresh cuts to research and development budgets – a sign that today's depressed crude prices could hamper the innovation that analysts say is needed to lower production costs in the notoriously expensive sector.
Some of the industry's biggest producers, including Cenovus Energy Inc. and Canadian Natural Resources Ltd., are putting spending on technology development under the microscope even as they seek cheaper ways to wring crude from Alberta.
It's the latest indication that executives don't expect prices to return to triple-digit levels any time soon. A Cenovus executive said Tuesday the company was now stress-testing its balance sheet against $50 (U.S.) crude to the end of 2017, hinting at more pain to come.
Companies have so far scrapped billions of dollars' worth of expansion projects, frozen salaries, and eliminated thousands of jobs to shore up finances amid the year-long rout.
Now, some executives are coming under pressure to pare R&D budgets – just as low oil prices make developing new technologies that much more imperative.
"The only way that you reduce your cost structure longer term is by spending R&D dollars today," said Chris Cox, an analyst at Raymond James Ltd. in Calgary.
Oil sands producers have long touted technology as key to solving a range of issues that plague the industry, from its environmental footprint to the high-cost of extracting tar-like bitumen from underneath Alberta's northern forests.
But the deep slump in energy markets is making it difficult to find the money for innovation, raising the likelihood of cuts as companies start to map out spending plans for next year. West Texas intermediate crude settled on Tuesday at $44.59 a barrel – up 1.3 per cent but still less than half the levels of mid-2014.
"It's tough when you've got limited capital resources and you're trying to allocate them to a good return," Drew Zieglgansberger, Cenovus's executive vice-president of oil sands manufacturing, said at an investor conference in Toronto on Tuesday.
"Some things you can turn around really quickly that get you a great benefit within the first year or two. Some of the stuff, particularly in oil sands, is a longer-term game that you have to keep investing in."
Cenovus's spending on R&D plunged 42 per cent in 2014 from a year earlier, to $124-million – a decrease the company attributes to overall budget cuts. In 2013, the company's R&D spending reached $213-million (Canadian), down 19 per cent from the previous year, according to Research Infosource Inc., a market intelligence firm that tracks corporate expenditures in the area.
Canadian Natural, among the industry's largest producers, spent about $450-million on R&D in 2014, according to Doug Proll, an executive vice-president with the firm.
"I think expenditures such as that get modified when you are looking at commodity prices where they are, when we're setting our 2016 capital budget and spending plans going forward," he said at the conference, which was hosted by investment bank Peters & Co. Ltd.
Other companies are keeping such expenditures off the chopping block in hopes of dramatically altering the industry's cost structure.
Suncor Energy Inc., for example, has so far lopped $1.4-billion from its capital budget and slashed its work force by about 8 per cent, or 1,300 people.
But its annual R&D budget of about $150-million remains largely intact, chief financial officer Alister Cowan told investors. The company is piloting new technologies with the potential to curb use of water and natural gas at extraction sites, although such efforts remain years from commercial development.
To lower costs, Mr. Cox said companies may turn increasingly to universities to bolster research or lean on industry-led initiatives, such as Canada's Oil Sands Innovation Alliance.
"You can still get that work done, you can still advance it," he said. "Maybe not quite as fast, but at a much, much lower cost."