Canada joins oil cut drive as Al­berta seeks to ease glut cri­sis

Gulf Times Business - - BUSINESS -

Canada’s largest oil pro­duc­ing province or­dered an un­prece­dented out­put cut, an ef­fort to ease a cri­sis in the na­tion’s en­ergy in­dus­try and adding to global ac­tions to com­bat a re­cent price crash.

The plan an­nounced on Sun­day will re­duce pro­duc­tion of raw crude and bi­tu­men from Al­berta by 325,000 bpd, or 8.7%, from Jan­uary un­til ex­cess oil in stor­age is drawn down. The re­duc­tion would then drop to 95,000 bar­rels a day un­til the end of next year at the lat­est.

The cut by the world’s fifth-biggest pro­ducer fol­lows a re­newed com­mit­ment over the week­end by Saudi Ara­bia and Rus­sia to ex­tend their deal to man­age the oil mar­ket. West Texas In­ter­me­di­ate fu­tures ex­tended gains af­ter the Al­berta an­nounce­ment, ris­ing as much as 5.7% yes­ter­day in early trade. Global prices crashed last month by the most in more than a decade, a plunge that par­tic­u­larly bat­tered pro­duc­ers in Al­berta amid surg­ing oil-sands out­put, a short­age of pipe­line space and heavy US re­fin­ery main­te­nance. Al­berta Premier Rachel Not­ley is fol­low­ing the ad­vice of pro­duc­ers like Cen­ovus En­ergy Inc and Cana­dian Nat­u­ral Re­sources Ltd, which have been ham­mered by record low prices for heavy Cana­dian crude, which at one point were $50 a bar­rel less than US grades. The cri­sis has caused some pro­duc­ers to re­duce pro­duc­tion on their own, slash div­i­dends and de­lay next year’s drilling plans. “Ev­ery Al­ber­tan owns the en­ergy re­sources in the ground, and we have a duty to de­fend those re­sources,” Not­ley said in a state­ment. “But right now, they’re be­ing sold for pen­nies on the dol­lar. We must act im­me­di­ately, and we must do it to­gether.”

The amount be­ing cut is more than the to­tal pro­duc­tion of each of Opec’s three small­est mem­bers: Equa­to­rial Guinea, Gabon and the Repub­lic of Congo.

The cur­tail­ment plan, which will ap­ply to both oil-sands and con­ven­tional pro­duc­ers, should nar­row the dis­count be­tween West­ern Canada Se­lect and US bench­mark oil by at least $4 a bar­rel and add an es­ti­mated C$1.1bn ($830mn) in gov­ern­ment rev­enue in the fis­cal year start­ing April 2019, Not­ley’s gov­ern­ment said in the state­ment.

The mea­sure could be re­moved ear­lier than the end of 2019, based on mar­ket con­di­tions, the gov­ern­ment said. The province ex­pects the 325,000-bpd re­duc­tion to be in place for the first three months, while stor­age is drawn down to his­tor­i­cal lev­els. Af­ter that, the gov­ern­ment will work to match ca­pac­ity with pro­duc­tion. Fur­ther re­duc­tions in the cur­tail­ment are ex­pected in the fall and win­ter as ad­di­tional rail ca­pac­ity comes on­line.

The ac­tion is de­signed to pre­vent job cuts by let­ting com­pa­nies keep peo­ple on be­cause they can “see a light at the end of the tun­nel,” Not­ley said at a news con­fer­ence. Small pro­ducer White­cap Re­sources Inc now doesn’t plan to cut any jobs as a re­sult of the Al­berta plan, Chief Ex­ec­u­tive Of­fi­cer Grant Fager­heim said in an in­ter­view. “Gov­ern­ment in­ter­ven­tion is never the pre­ferred route, but be­cause of the cri­sis that’s taken place in Al­berta and Canada, we can un­der­stand that this is the route taken,” Fager­heim said. His com­pany will have to cut about 350 bpd from its cur­rent level of 14,000. To pro­tect smaller drillers, the first 10,000 bar­rels of a pro­ducer’s out­put will be ex­empted from the cut. Each com­pany’s level of cur­tail­ment will be based on six months of its high­est level of pro­duc­tion over the past 12 months, ac­cord­ing to the state­ment. The province ex­pects the cur­tail­ment to af­fect about 25 pro­duc­ers.

The plan marks the first time the pro­vin­cial gov­ern­ment has or­dered a pro­duc­tion cut since the 1980s, and that pre­vi­ous move was meant to protest fed­eral en­ergy poli­cies, not solely to boost prices.

A cho­rus of com­pa­nies, in­vestors and in­dus­try lead­ers has ral­lied to the idea in re­cent weeks, say­ing that no other mea­sure could help work down the glut of oil backed up in stor­age as quickly. Even Not­ley’s main po­lit­i­cal ri­val – United Con­ser­va­tive Party Leader Ja­son Ken­ney – has called for a cur­tail­ment.

About the only dis­sent­ing voice has come from Canada’s in­te­grated oil com­pa­nies, whose re­finer­ies have been ben­e­fit­ing from the cheaper feed­stock. Not­ley has al­ready taken some steps to try to help pro­duc­ers ship more oil to mar­ket while the in­dus­try awaits the con­struc­tion of more pipe­lines.

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