De­spite ris­ing oil prices, junior pro­duc­ers re­veal cuts to out­put, div­i­dends

Edmonton Journal - - CITY - DAN HEAL­ING

Prices for west­ern Cana­dian oil con­tin­ued to strengthen on Fri­day as mar­kets ad­justed to a plan by the Al­berta gov­ern­ment to elim­i­nate a glut of oil that has plagued pro­duc­ers for months.

Af­ter hit­ting highs of more than US$52 per bar­rel in Oc­to­ber, the dis­count on West­ern Cana­dian Select bi­tu­men-blend crude ver­sus New York-traded West Texas In­ter­me­di­ate set­tled at about US$15 per bar­rel on Fri­day, ac­cord­ing to Net En­ergy.

That’s a level that an­a­lysts con­sider to be nor­mal or typ­i­cal based on higher trans­porta­tion costs and lower qual­ity when com­pared with WTI.

A week ear­lier, just be­fore Al­berta Premier Rachel Notley an­nounced the prov­ince would cur­tail pro­duc­tion from large com­pa­nies to re­move 325,000 bar­rels per day of oil from its over­taxed pipe­lines start­ing Jan. 1, the WCS-WTI dif­fer­en­tial was twice as much, at US$29 per bar­rel.

“What changed with the premier’s an­nounce­ment is now there’s con­fi­dence that the mar­ket will be bal­anced with the cuts that are be­ing made in the first quar­ter and the in­crease in crude-by-rail,” said Jackie For­rest, re­search di­rec­tor for the ARC En­ergy Re­search In­sti­tute in Cal­gary.

“I ex­pected it would hap­pen fairly quickly be­cause the fu­tures mar­ket is re­ally set by ex­pec­ta­tions about how things will evolve over the year and, with the premier’s an­nounce­ment, that view changed dras­ti­cally.”

The prov­ince also an­nounced it would buy rail cars and lo­co­mo­tives to move more oil start­ing in late 2019.

For­rest said in­creas­ing prices for WTI linked to pro­duc­tion cuts an­nounced Fri­day by OPEC and its al­lies are also good news for the Cana­dian oil­patch.

The oil price improvements came as a pair of junior Cal­gary oil com­pa­nies an­nounced they would cut pay­outs to share­hold­ers and re­duce pro­duc­tion be­cause of the cur­rent quar­ter’s low oil prices to date.

Both Car­di­nal En­ergy Ltd. and Gran­ite Oil Corp. said they can’t af­ford to wait and see if Al­berta’s pro­duc­tion cuts will re­sult in a sus­tained re­cov­ery in oil prices.

Car­di­nal shares closed down 8.1 per cent on the Toronto Stock Ex­change on Fri­day af­ter it an­nounced late Thurs­day it would

I ex­pected it would hap­pen fairly quickly be­cause the fu­tures mar­ket is re­ally set by ex­pec­ta­tions.

cut its monthly div­i­dend from 3.5 cents to a penny per share and had trimmed 15 per cent from what had been record pro­duc­tion of 22,000 bar­rels of oil equiv­a­lent per day.

Gran­ite stock closed 3.5 per cent lower af­ter it an­nounced it would sus­pend its monthly div­i­dend of 2.3 cents per share and had stopped pro­duc­tion of about 200 bar­rels of oil equiv­a­lent per day af­ter post­ing third-quar­ter out­put of just un­der 2,000 bar­rels of oil equiv­a­lent per day.

“Al­though we don’t think that the cur­rent pric­ing dif­fer­en­tials be­tween Cana­dian bar­rels and U.S. bar­rels will be per­ma­nent, we are ob­li­gated to our share­hold­ers to pro­tect our busi­ness and our bal­ance sheet un­til Cana­dian prices im­prove,” said Car­di­nal in a news re­lease.

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