Alberta to cut oil production

Notley announces plan to lower output by 8.7% in bid to reduce surplus and stop ‘essentially giving our oil away for free,’

EDMONTON—Premier Rachel Notley said Alberta will reduce oil production in the province by 8.7 per cent as a way to address the oil differential crisis plaguing the government.

“We will never back down in our fight to protect our jobs, our resources and our province,” said Notley in a live broadcast address Sunday night.

The temporary move is allowed under the Responsible Energy Development Act and the government will have the Alberta Energy Regulator introduce the curtailments in January.

The move is being put to cabinet through an order in council on Monday and then will be implemented through a ministerial order.

Raw crude and bitumen will be curtailed by about 325,000 barrels per day and the government hopes the move will help shore up the storage backlog of about 35 million barrels. Currently, Alberta produces 190,000 barrels per day more than it can export.

Furthermore, the government hopes the production cut will bring the differential down by about $4 (U.S.) per barrel and add about $1.1 billion to Alberta’s revenue in 2019-20. Every month, the reductions will be reviewed to ensure production is balanced with storage and transportation.

Notley said the price gap is costing Albertans “millions” that should be rightly invested in schools and hospitals as the province is “essentially giving our oil away for free.”

“This is fiscal and economic insanity,” Notley said.

The government expects the number of barrels per day under curtailment will drop throughout 2019, but the first quarter of the year will see the full brunt of the initial 8.7 per cent curtailments.

A 10,000-barrel per day exemption is in place for smaller producers and the level of cuts every company will be required to take on is based on its highest six months of production in the last year.

The production reduction has the government expecting a drop to an average cut of 95,000 barrels per day by Dec. 31, 2019, when the rules behind this action end. Notley’s announcement comes on the back of weeks of political debate. Oil companies in Alberta have been divided over whether curtailment will help or hinder the market.

Alex Pourbaix, CEO of Cenovus Energy Inc., commended Notley for what he described as a difficult but necessary decision for Alberta.

His company is among several major oil producers who’ve called for curtailment. In a statement issued shortly after Notley’s announcement, he acknowledged the oddity of a major oil producer advocating for government intervention in the market, but described it as necessary.

“While curtailments have been used before by previous governments, we believe they should only be used for a short period of time, and only in extreme cases,” Pourbaix said in the statement. “This is an extreme case.” Meanwhile, Husky Energy Inc. — which has opposed curtailment — said in a statement that it will comply with the forthcoming production regulation, but believes that intervention could have “serious negative investment, economic and trade consequences.”