Page 4 - NorthAmOil Week 27

NorthAmOil COMMENTARY NorthAmOil
Alberta’s producers push for further easing of output cuts
Alberta’s leading producers are uniting in their calls to ease provincial production cuts, with the issue closely tied to crude-by-rail movements, writes Anna Kachkova
ALBERTA
WHAT:
Major producers are in talks with Alberta’s government about how to end production curtailments.
WHY:
The cuts are a disincentive to new investment in both production and takeaway capacity.
WHAT NEXT:
The government’s move to sell its crude-by-rail contracts could be a major step towards ending the cuts.
OIL producers in Alberta are uniting in push- ing for a further easing of the output cuts that were imposed in January by the province’s for- mer New Democratic Party (NDP) government. is comes a er oil companies with a presence in Alberta initially disagreed on the mandatory cuts, with some welcoming them as a necessary means of propping up oil prices while others were highly critical of the move.
Much has changed in Alberta since the intro- duction of the curtailment, though, including the provincial government. The NDP, led by Rachel Notley, was ousted in April and replaced with the United Conservative Party (UCP). e production cuts are thought to have contributed to the NDP’s loss. Meanwhile, UCP leader Jason Kenney promised to take a far more aggressive approach to reinvigorating Alberta’s oil industry. Now he faces pressure to deliver on this promise.
Negotiations
On July 9, several leading Canadian oil compa- nies said at a TD Securities investor conference in Calgary that they were in talks with the UCP government on ending the production cuts. e comments, made by senior executives from Suncor Energy, Canadian Natural Resources Ltd (CNRL), Imperial Oil and Cenovus Energy, come as additional capacity for moving crude by rail out of the province is brought online. Indeed, while the production curtailment has succeeded in pushing up Western Canadian oil prices, it has simultaneously acted as a short-term disin- centive for new investment into crude-by-rail capacity. With this being addressed, there will be more impetus to ease – or end – the output restrictions.
“If we could li production and rail [move- ment] at the same time, it all kind of makes sense,” said Suncor’s CEO, Mark Little. “We’ve been encouraged by conversations with govern- ment,” he added.
Cenovus’ CEO, Alex Pourbaix, said the prov- ince’s oil industry had proposed modifying the rules in place for the production cuts. Such a modi cation would allow producers to exceed
their monthly output allowances as long as they could demonstrate that the extra production was being moved via additional rail capacity.
“ is proposal largely has the complete sup- port of all the large producers,” added Pourbaix, who was among those strongly in favour of man- datory output cuts to begin with.
CNRL’s executive vice chairman, Steve Laut, described linking the easing of production restrictions to more rail capacity as a plan that would provide an “orderly” way ultimately to remove the curtailments.
And according to industry estimates, there is already signi cant idle crude-by-rail capacity available, making such a proposal more work- able. Little said that if the oil industry and pro- vincial government factored in growing rail capacity, the production cuts could end later this year.
Crude-by-rail contracts
e push to ease crude production curtailments while boosting shipments of oil by rail could lead to some of Alberta’s major producers taking over crude-by-rail contracts held by the government. e contracts were agreed by the previous NDP government with Canadian Pacific (CP) and Canadian National (CN) railways, and cover shipments of up to 120,000 barrels per day (bpd) out of the province. Kenney has been critical of the contracts, worth CAD3.7bn ($2.8bn), and
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w w w . N E W S B A S E . c o m Week 27 11•July•2019