Of Note:

EnCana is cutting cash-flow expectations and announcing a 2009 capital budget of about
$6.1-billion (U.S.), down from $7-billion this year.

Petro-Canada said it plans to lower capital spending in 2009 to about $4-billion (Canadian)
down from the 2008 capital budget of $6.1-billion

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EnCana, Petro-Canada cut 2009 spending plans

The Canadian Press
December 11, 2008 at 9:56 AM EST

CALGARY — Lower commodity prices and the global financial crisis have prompted two of Canada's major oil patch players - EnCana Corp. and Petro-Canada - to slash spending next year.

EnCana said Thursday it is cutting cash-flow expectations and announcing a “conservative, prudent and flexible” 2009 capital budget of about $6.1-billion (U.S.), down from $7-billion this year.

EnCana said that in the current quarter, dramatically lower oil prices and refinery profits have “reduced realized margins and inventory values in downstream operations by about $300-million.”

It now projects full-year 2008 cash of between $9.4-billion and $9.6-billion, or $12.50 to $12.80 per share.

For 2009, cash flow is forecast to drop to between $7.1-billion and $8.3-billion, or $10.25 per share at the midpoint, as the company targets natural gas and oil production “at approximately 2008 levels.”

EnCana added that “given the economic uncertainty,” the capital program can be adjusted by $500-million up or down from the $6.1-billion figure.

“In these challenging economic times, we are highly focused on key business objectives: Maintaining financial strength, generating significant free cash flow, further optimizing our capital investments and continuing to pay a stable dividend to shareholders — currently $1.60 per share annualized, which at the current share price results in a yield of about 3.4 per cent,” said chief executive officer Randy Eresman.

Next year's cash flow might be enhanced by up to $1-billion in divestitures, “depending on market conditions,” Eresman added.

“Regardless, EnCana expects that 2009 cash flow and divestiture proceeds will significantly exceed capital expenditures, resulting in free cash flow of between $2-billion and $2.7-billion, well in excess of the company's $1.2-billion current annualized dividend.”

Petro-Canada said it plans to lower capital spending in 2009 to about $4-billion (Canadian) in response to current market conditions.

The company's board of directors says the figure is “down significantly” from the 2008 capital budget of $6.1-billion.

The 2009 capital program includes $2.1-billion for growth projects, exploration and new ventures and $1.3-billion to replace reserves in core areas.

In addition, Petro-Canada says it expects to invest $360-million to enhance existing assets and to improve profitability in the base business, and $130-million to comply with new regulations.

The company says the 2009 capital budget will be adjusted on an ongoing basis so that it can be funded from cash flow and, if necessary, from available credit facilities.

“Petro-Canada is in an excellent position because we are financially conservative, we have diverse operations to generate cash and we can pace our growth projects,” said Petro-Canada president and CEO Ron Brenneman in a statement early Thursday.

“We believe we've set a prudent level of capital spending for next year, given current market conditions,” said Mr. Brenneman. “But we'll evaluate the business environment and financial markets as the year progresses and adjust our plans accordingly.”

Petro-Canada said its financial capacity and flexibility “remain strong despite the recent turmoil in the financial markets.

“We have always managed our financing conservatively, and it's paying off in these markets,” said chief financial officer Harry Roberts.

We have a very strong cash and liquidity position. Together with our capital flexibility, we're in very good shape to weather the downturn and come out strong on the other side.”

Mr. Roberts said he still sees share buybacks as “questionable” because it is difficult to see how much long-term value they would add. Some investors have criticized the company for not aggressively buying back its stock while share prices are low.

UTS Energy Corp., a Calgary-based oilsands company that has a stake in the Fort Hills oilsands project, also said Thursday the Fort Hills Partnership has set aside $540-million for capital spending in 2009.

Of that total, UTS's share is $24.5-million. For the first quarter, the partnership has approved spending of $215-million, of which $8.6-million is UTS's share.

UTS said that during the 2009 first quarter, Petro-Canada as operator, will reassess the size of the Fort Hills project as it negotiates a lease extension agreement with the Alberta government.

The Fort Hills budget is designed to provide the Fort Hills Partnership sufficient time to work together, and with the Alberta government, to come to agreement on the best size and schedule for the Fort Hills project,” said William Roach, president and chief executive of UTS.

“This will also allow more time for the capital markets to normalize prior to UTS needing the requisite Fort Hills financing.”

UTS owns a 20 per cent stake in the Fort Hills project, located 90 kilometres north of Fort McMurray, Alta. The other partners are Petro-Canada, with 60 per cent, and mining giant Teck-Cominco Ltd., also with 20 per cent.

In early trading on the TSX, UTS shares fell two cents to 81 cents.