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Alberta orders 8.7% oil production cut to help deal with low prices

06 Décembre 2018

How much production would be affected if Saskatchewan did implement cuts in a similar manner to Alberta?

Alberta will force oil producers to cut production by just shy of nine per cent staring next year to try to create scarcity by clearing the current stockpile and raise the price of Alberta crude.

The steep discount has stripped billions of dollars from the Canadian economy by some estimates, and at one point Canadian oil was selling for more than $50 less than USA oil traded on futures markets.

Grant Fagerheim is the president and CEO of Whitecap Resources Inc. which does work in Alberta but has 60 per cent of its production in Saskatchewan.

Cenovus Energy proposed a reduction last month and the idea has been supported by opposition politicians in Alberta, including United Conservative Party leader Jason Kenney. The technology used to extract Alberta's oil sands was developed largely through government-backed programs that started around the 1920s and continued for decades.

Suncor said in its release on Monday that it is assessing the government's decision and will map out details of the impact when it releases 2019 capital and production forecasts.

He said the status quo on Canadian oil shipping can not continue, but defended his government's record on pipelines and the oil industry, noting the recent $4.5-billion purchase of the Trans Mountain pipeline in a bid to get it expanded despite political controversy. Whitecap Resources Inc. wasn't part of these consultations, but Fagerheim said he admires how much the provincial government does consult with the industry.

Petrone says he's hopeful curtailment will lessen the gap between Western Canadian Select oil and the benchmark West Texas Intermediate, which stood around $40 a barrel Friday. "But right now they're being sold for pennies on the dollar".

Canada's oil trades at a steep discount to the USA benchmark in part due to differences in thickness and quality of the raw product produced north of the border, but also because of a "dearth" of pipeline capacity to facilitate the transfer of oil to refiners in offshore markets. "It would be great if they joined with us".

"A crisis of this magnitude must be reflected in any discussion on "economic competitiveness.' We trust that the agenda for our upcoming first ministers" meeting can be revised to better reflect the need for a substantive discussion on issues of critical importance to the Canadian economy".

A widening pool of export opportunities would support investment and jobs in the sector and to an increase in the price of Western Canadian Select.

Husky Energy does a lot of business in Saskatchewan's oil industry as well as Alberta's.

"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.

Not all companies are affected by the cuts.

Alberta now produces 190,000 barrels a day more than can be shipped and has twice the normal levels of oil in storage - a total of 35 million barrels. We may see that they're successful in decreasing the differential more significantly as we adjust to what the impact actually is.

The Saskatchewan government will not be following Alberta's lead when it comes to cutting oil production in the face of plummeting prices.

Alberta orders 8.7% oil production cut to help deal with low prices