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