Alberta orders 8.7% oil production cut

‘WE MUST ACT IMMEDIATELY,’ NOTLEY SAYS, AS 25 PRODUCERS LIKELY TO FACE RESTRICTIONS

Alberta will cut oil production by 8.7 per cent starting in January in an effort to reduce the punishing price differential plaguing energy producers, says Premier Rachel Notley. “We must act immediately, and we must do it together,” she said in a statement Sunday. About 25 producers are expected to face cuts, but not the smallest firms. Notley said it was a “very difficult decision. “When markets aren’t working … then we have a responsibility to act,” she said. “This is a critically important matter for Canada’s economy, not just Alberta’s economy. “I want to be clear. This is a shortterm measure, and over the course of the year, the … amount will drop,” Notley said. “We will review the amount every month and will adjust as needed, so as not to reduce production more than is necessary. “In Alberta, we believe markets are the best way to set prices. But when markets aren’t working — when companies are forced to sell our resources for pennies on the dollar — then we have a responsibility to act.” The price differential between Western Canadian Select and West Texas Intermediate has fluctuated in recent weeks, peaking at around C$45 a barrel. Western Canadian Select was selling for US$17 per barrel Friday. Notley hinted Friday in a Postmedia op-ed that the province would intervene in the market. She laid out two options — letting the free market correct itself, or curtailing production temporarily. “That restriction would remain in place until stockpiles draw down, the price gap closes and the bleeding stops,” she wrote. UCP Leader Jason Kenney and Alberta Party Leader Stephen Mandel have both pushed for production cuts. Notley thanked both leaders for their support in her statement Sunday. “While a consensus appears to be forming among some political leaders, no such consensus exists within industry,” Notley wrote. “At this point, no industry consensus is expected.”

Cenovus Energy Inc. CEO Alex Pourbaix called for government-mandated cuts, and said last week that there is a “growing chorus of voices” in that camp. Producers are making 190,000 raw crude oil and bitumen barrels per day (bpd) more than can be shipped out of Alberta, said a Sunday government news release. Cuts will initially reduce the oversupply by 325,000 bpd, but eventually that number will drop to 95,000 bpd after excess storage is drawn down, said the province. The plan, which would end Dec. 31, 2019, is expected to reduce the differential by at least US$4 per barrel relative to where it would have been otherwise. The province pegs losses due to the oil discount at around $80 million per day, though estimates vary. Earlier this week, Notley announced Alberta would increase crude-byrail capacity by an additional 120,000 barrels per day, starting in late 2019. The full complement of rail cars would ship out in 2020. Crude-by-rail shipments already increased to a record in September — nearly 270,000 bpd — but the differential continued to grow. Notley, who appointed three envoys tasked with examining short-term solutions, was in Ottawa and Toronto last week where she slammed the federal government for failing to take action. Alberta had asked Prime Minister Justin Trudeau to boost rail capacity to provide relief, but the federal finance minister hinted that Ottawa was leaning away from that option. In Toronto last week, she didn’t give estimates on the cost of the cars but industry experts suggest that one rail car can cost between $120,000 and $150,000 to buy, or about $1,200 per month to rent, putting Alberta’s plan at upwards of $1.05 billion. Trudeau’s most recent visit to Calgary Nov. 22 spurred a pro-oil rally in the city’s downtown. He told a Calgary Chamber of Commerce audience he empathizes with Albertans. “I want you to know that I feel that frustration,” he said.