Oil cuts will mean winner and losers
CALGARY — Oil production cuts announced by the Alberta government will have the desired outcome of reducing steep discounts on its oil, but it will also create winners and losers, financial analysts say.
Shares in the companies most likely to benefit from the move to curtail crude production from larger producers starting Jan. 1 soared Monday as the price differential for heavy oilsands bitumen-blend fell.
Meanwhile, shares in oil producers who had been either benefiting or insulated from the discount prices stayed put or subsided.
“There are going to be a number of producers who will shoulder the brunt of the Alberta government’s 325,000 barrels per day in mandated production curtailments of raw crude and bitumen (namely the oilsands producers), but the broader health of the province is likely to benefit over the medium term from the decision as a result of narrowing differentials and stronger royalty revenue,” said a report from Calgary-based AltaCorp Capital.
Alberta Premier Rachel Notley announced Sunday the province will require producers with more than 10,000 barrels per day of output to cut production by about 8.7 per cent until there is enough shipping space on pipelines to improve prices.
After that, the reduction will be lowered to 95,000 barrels per day through the rest of 2019.
In early trading Monday, Cenovus Energy Inc. rose as much as 13 per cent over its Friday close to $11.11, while Canadian Natural Resources Ltd. rose as much as 16 per cent to $38.74.
Cenovus CEO Alex Pourbaix was the first oilsands CEO to call for the province to curtail production. On Sunday both Cenovus and Canadian Natural issued statements of support for the Alberta move, as did Chineseowned oilsands producer CNOOC-Nexen.
Canada’s largest oil and gas company, Suncor Energy Inc., said Monday its estimate of the impact of the provincial cuts will be provided when it issues its
2019 capital and production guidance. Suncor has said it is insulated from price discounts because of its Canadian refineries and pipeline contracts.
In midday trading, Suncor was down 1.5 per cent while fellow Calgary-based companies that both produce and refine oil, Imperial Oil Ltd. and Husky Energy Inc., were off 4.1 per cent and 0.8 per cent, respectively.
The winners from the curtailments will include the provincial government (which estimates it will earn $1.1 billion more from royalties in the 2019-20 fiscal year); energy producers in B.C. and Saskatchewan, who will benefit from better prices without having to cut production; condensate producers, as that light oil isn’t included in the curtailment; and junior energy producers who are exempt from the program, AltaCorp said in its report.
The losers include integrated producers who will likely pay more for their refining feedstock and companies that had intended to grow their production in the first half of 2019, it said.
Of the 378 operators with active oil production in Alberta in October, only 25 produce more than 10,000 barrels per day, AltaCorp noted.
Companies that previously reduced output voluntarily will receive credit under the Alberta plan.