"With the rapid drop in commodity prices we would not be surprised to see some producers start to reconsider capital plans," wrote CIBC's Andrew Potter.
Nexen Inc. (TSX:NXY), which is on the hunt for a new CEO after Marvin Romanow's exit earlier this year, is the first to report on Thursday.
Potter said Nexen will be one of the few to post stronger production, as its offshore Usan project in West Africa ramps up and volumes at its Long Lake oilsands project and North Sea platforms improve.
The most likely to reduce capital spending is Canadian Natural Resources Ltd. (TSX:CNQ), which reports on Aug. 9. Its latest budget of $7.4 billion was based on West Texas Intermediate oil prices of US$104. With prices looking like they're heading closer to US$90, it could mean a spending reduction of $500 million to $1 billion.
"We believe CNQ would most likely cut capex out if its oilsands budget, implying there should be little impact to short-term production forecasts," Potter wrote.
Canadian Oil Sands Ltd. (TSX:COS) raised its dividend from 30 cents to 35 cents last quarter — a level Potter called "unsustainable" in the current oil price environment.
"We believe the company will most likely wait another quarter before making any decisions on dividend cuts," he said.
Generally, Potter doesn't see much to get excited about this earnings season.
"Overall, second-quarter results will likely be quite weak as producers grapple with low natural gas prices, declining benchmark oil prices and widening North American oil differentials vs. benchmarks."
Canadian producers will continue to be whacked by the double-discount they get for their crude.
Pipeline bottlenecks have eroded the value of landlocked U.S. West Texas Intermediate crude compared to international varieties that can be transported by tanker to several markets.
And oilsands crude, because it's heavy and more difficult to refine, already trades lower than WTI.
"We believe that Q2/12 will continue to illustrate the magnitude of the opportunity cost to Canadian producers as pricing worsened from the levels seen in Q1," wrote Potter.
Oil companies that have refinery interests, such as Suncor Energy Inc. (TSX:SU) and Cenovus Energy Inc. (TSX:CVE) are expected to do better than peers that don't. Having a downstream business cushions them against the lower crude prices because it means the cost of the oil they buy to run through their refineries goes down.
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