(Reuters) - Cenovus Energy Inc (CVE.TO) Canada's No. 2 independent oil producer, cut its 2015 capital budget by C$700 million ($562.5 million) on Wednesday, blaming plunging crude oil prices.
The company also said it plans to start reducing the number of contract workers it employs, and will make further budget adjustments if necessary.
Cenovus now targets capital spending of between C$1.8 billion and C$2.0 billion for 2015, down more than a third from 2014 levels. The company had announced a 2015 budget of C$2.5 billion to C$2.7 billion in December.
The savings will come from suspending the bulk of Cenovus's conventional drilling program in southern Alberta and Saskatchewan, and delaying some long-term expansions and new projects in the oil sands of northern Alberta.
Expansions at Christina Lake and Foster Creek, both thermal oil sands operations, will go ahead.
"Our plan is to continue to pursue our long-term growth strategy, but at a pace we believe is more in line with the current pricing environment," Cenovus Chief Executive Officer Brian Ferguson said.
U.S. benchmark crude prices CLc1 have dropped sharply, to around $45 on Wednesday from over $100 per barrel in June. That has forced oil sands majors including Canadian Natural Resources Ltd (CNQ.TO) and Suncor Energy Inc (SU.TO) to slash spending for 2015 and defer new projects.
Despite the cuts, Western Canadian crude output is expected to keep growing over the next two years due to the billions of dollars producers have already sunk into existing projects, the Canadian Association of Petroleum Producers said last week. [ID:nL1N0V01D8]
Cenovus expects its 2015 oil production will be 195,000-212,000 barrels per day (bpd), roughly in line with the 197,000-214,000 bpd it forecast in December.
As well as cutting its contract workforce, the company said it will reassign workers whose projects have been stopped or deferred to other core areas of the business.
Ferguson said Cenovus should be able to improve its cost structure due to reduced demand for labor, services and materials in the energy sector, echoing Suncor and CNRL, which have already shaved $1 per barrel off projected operating costs for 2015.
Bank of Montreal analyst Randy Ollenberger said Cenovus's budget cuts were slightly deeper than the bank had anticipated, but prudent given the weak crude price environment.
Cenovus shares were last down 4.3 percent at C$23.61 on the Toronto Stock Exchange.
Additional reporting by Ashutosh Pandey in Bengaluru; Editing by Kirti Pandey; and Peter Galloway