Imperial Oil blasts ‘dramatic, drastic’ order to curtail output in Alberta
Imperial Oil Ltd. blasted the Alberta government Friday for forcing companies to curtail oil production in the province, calling the move a “drastic, dramatic manipulation in the market” that has made crude-by-rail shipments uneconomic.
“We think investor confidence in Canada is damaged at a time when we already had confidence issues in Canada,” CEO Rich Kruger said, adding the curtailment order has caused Imperial to reconsider the timing of the $2.6-billion Aspen oilsands project it OK’d last year.
Alberta Premier Rachel Notley announced in December that large oil producers would need to scale back production by a total of 325,000 barrels of oil per day in a bid to lift Western Canada Select heavy oil prices, which at the time were subject to crippling US$40per-barrel discounts relative to U.S. benchmarks.
Imperial, which has invested in refineries that can profit from the spread between heavy blends and gasoline or diesel prices, opposed the order, alongside integrated companies such as Suncor Energy Inc. and Husky Energy Inc.
“With the stroke of a pen, the government began picking winners and losers,” Kruger said, adding curtailment affects 28 out of 421 producers in the province.
Most significantly, he said the curtailment order would have the unintended consequence of keeping more oil in storage because companies such as Imperial would ship less on railway cars.
Canadian oil firms need a discount of between US$15 per barrel and US$20 per barrel to justify the cost of shipping oil by rail but the discount has been below that range since the order came into effect.
On Thursday, AltaCorp Capital data shows the discount between WCS and West Texas Intermediate is an average of US$9.44 per barrel.
Before the curtailment order came into effect, Imperial was shipping about half of the total volume of crude on railway cars out of Canada. It shipped 168,000 bpd on rails in December but has since “unwound” its crude-by-rail volumes.
The company shipped an average of 90,000 bpd on rails in January and expects to ship “at or near” zero barrels on railways cars in February. “Crude by rail should be helping to alleviate this situation in the province but because of the drastic, dramatic manipulation in the market, takeaway capacity is now being idled,” Kruger said.
Many Calgary-based oil companies without downstream refineries supported the decision to curtail oil production in a bid to lift WCS prices, and therefore provincial government royalty revenues.