CEO backs calls for production cuts

A rift in the western Canadian oilpatch over how to best deal with a glut of oil blamed for wide discounts in local spot prices continues to widen despite the province’s vow this week to buy locomotives and railcars to help drain the surplus.

Alberta Premier Rachel Notley said in speeches in Ottawa and Toronto this week that the province has decided to buy as many as 80 locomotives and 7,000 rail tankers — expected to cost hundreds of millions of dollars — to move the province’s excess oil to markets, with the first shipments expected in late 2019.

But that will take too long and doesn’t help with Canada’s inability to build new pipelines, which is the root of the problem, Jim Riddell, chairman and CEO of Paramount Resources Ltd., said Friday.

“It’s (a government) problem that they created and they have to fix it,” the normally media-shy CEO said in an interview.

“They need to, in the short term, curtail production for both gas and oil. They have to do it thoughtfully so that it influences producers to shut in the lowest value production and not shut in the highest value.”

The intermediate-sized company was looking at raising its drilling budget next year to increase production, but has changed its outlook in the last six to eight weeks to instead favour spending “a small fraction” of its 2018 budget of $600 million because of poor prices, Riddell said.

The curtailment plan, first put forward by oilsands giant Cenovus Energy Inc., was supported this week by Jason Kenney, leader of Alberta’s opposition United Conservative Party, who suggested all companies in Alberta be forced to temporarily halt 10 per cent of their production.

Western Canada had total production of about 4.3 million barrels per day of oil in September.

Curtailment is opposed by Calgary-based companies such as Suncor Energy Inc., Imperial Oil Ltd. and Husky Energy Inc. whose refining assets and firm pipeline contracts allow them to avoid most local price discounts.