Energy companies roll out more cuts
Production cutbacks and deferred drilling programs are emerging as a common theme as Calgary-based oil and gas companies elect to leave barrels in the ground rather than sell at current low prices.
In third-quarter results released this week, energy companies large and small say they are avoiding wider-than-usual price discounts compared with U.S. benchmark prices blamed on difficulty in getting barrels to market due to full export pipelines.
At least 110,000 barrels per day of potential oil production is being left behind, including cutbacks announced by major oilsands players Canadian Natural Resources Ltd., Cenovus Energy Inc. and MEG Energy Corp. last week, calculates analyst Phil Skolnick, managing director with Eight Capital.
“Storage is tight in Canada so it will help clear the storage levels or bring then down, which should then help the diffs (price differentials), and that will be 110,000 bpd that won’t be trying to find a home on pipe right now.”
He pointed out bitumen must be blended about three-to-one with diluent to flow in a pipeline so the reductions actually translate into a “meaningful” amount of reduced demand on the system.
In a note on Monday, RBC analyst Greg Pardy estimated between 52,000 and 98,000 barrels per day wasn’t being produced, a small portion of Canada’s overall output of about 4.6 million barrels of oil per day and not enough to make a big difference in pricing.
The cuts represent “a constructive start to reducing Alberta’s elevated storage levels, but still fall well below our estimated supply-demand imbalance (after crude-by-rail exports of 250,000 bpd) of 160,000 to 185,000 bpd in the fourth quarter of 2018,” he said.
On Wednesday after markets closed, Athabasca Oil Corp. said it would dial back production at its two steam-driven oilsands projects by between 16 and 27 per cent to deal with wide discounts that it expects to persist until next spring.
“Athabasca has responded to the widening differentials by strategically slowing production by 5,000 to 8,000 bpd for the balance of the year (November and December) at Hangingstone and Leismer,” it said, noting third-quarter production of about 30,500 bpd, up eight per cent over the same period a year ago.