Providing coverage of Alaska and northern Canada's oil and gas industry
February 2019

Vol. 24, No.7 Week of February 17, 2019

Notley alienates producers

Imperial, Suncor criticize strategy curtailing output in hopes of price increase

Gary Park

for Petroleum News

Alberta Premier Rachel Notley is coming under intense fire from two of her province’s leading oil producers as she wrestles with a problem of her own making.

Now in the second month of her strategy to curtail production in hopes of drawing down storage levels to protect the value of Canada’s resources, Notley has revised the targeted cutback to 250,000 barrels per day from the 325,000 bpd she imposed in January.

“We’re not out of the woods yet, but this temporary measure is working,” she said in a statement. “We will adjust these production levels as necessary going forward.”

Bolstering her case was a significantly drop in the price differential between Alberta’s heavy crude and benchmark U.S. prices over the past two months to US$10 a barrel from US$50.

Imperial, Suncor in opposition

Industry association spokesmen found some comfort in this softening approach, but the chief executive officers of Imperial Oil and Suncor Energy were less swayed.

Imperial’s Rich Kruger reiterated his company’s opposition to the output restrictions, bluntly warning that the policy might force a re-evaluation of plans to proceed with a C$2.6 billion Aspen oil sands project.

Compounding that for Imperial is the flip-side of the disappearing price discount that means the cost of shipping crude by rail to U.S. Gulf Coast refineries has nearly doubled.

Kruger said the use of rail is “uneconomic ... because the drastic, dramatic manipulation and the impact on differentials (means) takeaway capacity is being idled.”

“That is a sad state, a very tangible example of what we believe is ill-advised, ill-informed, negative consequences of this curtailing order,” he said in delivering a rare public attack on the government.

Imperial’s crude-by-rail shipments averaged 168,000 bpd (about half of all industry volumes) in December and were targeted at 175,000 bpd in the first quarter. Instead of that the rail shipments were cut in half in January and Kruger estimated it could drop to almost zero in February.

He said that shift should be proof that “intervening in free markets is not as easy and as definite as we thought,” adding to his concern that there could be backlash from the Trump administration.

Overall CBR down

Genscape, a research firm, estimated CBR loadings in Western Canada were 365,000 bpd for the week end Jan. 11, but fell to 156,000 bpd in the first week of February, raising the prospect of more crude ending up in storage, thus “slowing down the impact of any government-mandated production cuts.”

Although taking a slightly softer approach, Suncor’s Steve Williams agreed with Kruger that CBR economics have been “seriously damaged” by the production cutback.

“I am disappointed by the fact that the Alberta government has got us into this situation, but we are working with the government to make sure the unintended consequences are minimized,” he told analysts.

“Our advice to government has been that ... it’s time to start planning for what we call a soft landing or a soft exit,” Williams said.

Jobs could be lost

Canadian Natural Resources, Canada’s largest combined producer of oil and natural gas, has warned that jobs could be lost in Alberta’s east-central heavy oil region, estimating it could be forced to shut-in more than 100,000 bpd this month, or 35 percent of its total volumes, even though its output accounts for 24 percent of all oil volumes.

It said that curtailment is “unreasonable and discriminatory ... (and) will unnecessarily impact jobs significantly” in its heavy oil plays.

A spokesman for Alberta Energy Minister Marg McCuaig-Boyd said it was “disappointing to see (CNR) threatening suppliers with jobs losses when they are being treated the same as other producers.”

Gary Mar, chief executive officer of the Petroleum Services Association of Canada, said that if the overall curtailment has achieved the government’s objective it should take a “reasonable” approach and roll back production cuts.

Ben Brunnen, a vice president of the Canadian Association of Petroleum Producers, said supply information provides “some confidence that the curtailment program is ... drawing down excess supply which is a critical component of driving the value of our resources.”

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