Output cuts by 28 firms no long-term fix: experts
Without market access, price discount expected to continue after curtailment
EDMONTON Mandatory production cuts have narrowed the oil differential, but without a long-term solution the price discount could once again spiral out of control, say industry experts.
“Without market access, I can’t see how we wouldn’t get back into a similar situation six months after curtailment,” said Tristan Goodman, president of the Explorers and Producers Association of Canada.
He said producers have passed the point of frustration.
“The mood unfortunately is still one of anger,” he said in an interview Tuesday. “I can appreciate why. We have a very positive contribution to make here, not only to the Canadian national economy but I would argue globally.”
PROVINCE RELEASES LIST OF 28 COMPANIES
Premier Rachel Notley announced in December that Alberta would cut production by 8.7 per cent until 35 million barrels in storage were cleared out.
Notley ’s curtailment plan aimed to address the price gap between Western Canadian Select and West Texas Intermediate. The discount peaked at around US$40 in mid-November.
The province released a list to Postmedia of the 28 companies that were directed to slash production by a combined total of 325,000 barrels per day ( bpd). While most of the companies are known to industry insiders, it’s the first time the province has released a comprehensive list to media.
“Due to the commercial sensitivity of the information, we cannot provide the figures broken down by each company,” said ministry of energy spokesman Mike McKinnon in a statement.
Since the curtailment order came into effect Jan. 1, the differential shrunk to less than US$10 per barrel, though analysts suggest the gap will widen again in the coming months.
“While we’ve seen the improvement in the differential, it’s not necessarily reflective of the fundamentals in the market,” said Ben Brunnen, vice-president of oilsands operations and fiscal policy for the Canadian Association of Petroleum Producers (CAPP). "It’s still going to be an uncertain environment for the next month or so.
“What we’ve seen is a reaction from the market to the announcement more than anything,” he added.
‘IT IS VOLATILE’
Notley has repeatedly said that production cuts aren’t a long-term solution and Alberta needs market access for its resources.
“In the short-term I think it’s good that we’ve been able to drive the price up a little bit, but we also know we can’t count on that,” she told reporters in Calgary Tuesday. “It is volatile.”
In December, the province estimated producers were making 190,000 raw crude oil and bitumen bpd more than could be shipped out of Alberta. After dealing with excess storage, the province planned to reduce curtailment to 95,000 bpd from the current 325,000 bpd.
Notley said the government still hopes to “take the foot off the gas” after winter production months.
“We’re still getting assessment of storage levels,” she said. “We know that this is not a long-term solution.”
‘WHEN DO WE EXIT?’
Goodman said some producers also have outstanding questions about the curtailment process.
“There have been anomalies that haven’t really made a lot of sense ... to be fair, the department of energy has been very responsive,” he said. “This is a tough thing to implement.
“This has worked ... but when do we get out of this and what happens when we do exit?”
Brunnen said the industry still hasn’t reached consensus about the approach to curtailment, which he described as a last resort.
He said the provincial and federal governments risk damage to the investment climate in Alberta without a long-term solution.
“The industry is in one of the most challenging environments it has ever been in,” he said.