Oil company in Sask. happy with no production cuts

Natural Resources Minister Amarjeet Sohi

Natural Resources Minister Amarjeet Sohi

In its report, AltaCorp said winners from the curtailments will include the provincial government (which estimates it will earn $1.1 billion more from royalties in the 2019-20 fiscal year); energy producers in B.C. and Saskatchewan, that will benefit from better prices without having to cut production; condensate producers, as that light oil isn't included in the curtailment; and junior energy producers who are exempt from the program.

Western Canadian Select for January traded as much as $19.75 (U.S.) a barrel below US crude futures early Monday, a $9.25 leap from Friday, before slipping back to a $23 discount.

Oil prices have been sagging, with US crude recently dipping to near $50 a barrel on renewed oversupply fears.

Under current conditions, Alberta is producing 190,000 barrels of crude oil and bitumen per day over what can be now shipped out using pipeline, rail and other means.

A wider-spread collapse in oil prices could wash away much of the gains from Alberta's production cuts, several analysts said Monday.

"At Cenovus, we advocated for this mandatory production cut because we continue to believe it is the only short-term solution to the extraordinary situation Alberta finds itself in", he said in a release.

Price differential: Canada's heavy crude usually trades at a discount because of refining and transportation costs, so a price gap or differential is typical between WTI and WCS.

Notley said the 8.7 per cent reduction begins in January, with the expectation that figure will gradually decrease until the cuts are scheduled to end on December 31, 2019.

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Companies that produce less than 10,000 barrels a day will not be affected by the daily cuts.

To be sure, the Canadian government has had its hand in the energy industry before.

Suncor said in a statement Monday that price differentials were already narrowing.

Crude production in Alberta's oil sands is expanding faster than pipeline capacity, creating a bottleneck and a buildup of product in storage.

An improvement in Canadian oil prices would also help smaller producers like Baytex Energy and Crescent Point Energy, which need higher oil prices to support their operations.

The glut in reserves driving down prices needs to be addressed before producers begin taking more drastic steps such as slashing capital projects or laying off workers, Notley said. The monthly curtailment levels will be provided through an order that will expire at the end of 2019, and the Alberta Energy Regulator will be tasked with implementing the system.

Federal Natural Resources Minister Amarjeet Sohi said Monday he is asking the National Energy Board to make sure Canada's oil pipelines are being used as efficiently as possible. "We interpret the phrasing of the announced cut as keeping production down 50 kb/d [year-on-year] in 2019 and 200 kb/d below our prior assessment with the greatest impact on 1Q19 (down 225 kb/d quarter-on-quarter) before new rail capacity gradually comes online from April onward", Goldman Sachs wrote in a note. The government says the reduction will be in force until excess storage is drawn down, after which it will drop to an estimated average of 95,000 barrels a day.

More broadly, the slide in USA oil followed a tumble in global stock markets on Tuesday, with investors anxious about the threat of a widespread economic slowdown. Saskatchewan has no oilsands in active production and we are more diverse in what we produce.

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