CALGARY – Crude oil prices in Western Canada remained elevated on Wednesday, the day after provincially mandated oil production curtailments came into force, but a government spokesman says it’s too early to say how long the program will remain in place.
The difference between Western Canadian Select bitumen-blend heavy oil and New York-traded West Texas Intermediate oil prices was about US$12.50 per barrel on Wednesday afternoon, according to Calgary oil brokerage Net Energy, an improvement over the US$17.52 per barrel average for spot contracts for January delivery signed last month.
The WCS-WTI discount peaked at more than US$52 a barrel in October, a level at which the province estimated it was costing the Canadian economy more than $80 million per day.
But it recovered to traditional norms in the mid-teens or better after Alberta Premier Rachel Notley announced Dec. 2 that the province would impose curtailments of 325,000 barrels per day as of Jan. 1 to relieve a glut of oil in Western Canada and free up export pipeline space.
The program, designed to remove about 8.7 per cent of total Alberta production from the market, was to remain in place for about three months and then be lowered to about 95,000 bpd through the rest of 2019.
A total of 25 companies that each produce more than 10,000 barrels of oil per day in Alberta have been asked to cut production, confirmed government spokesman Matt Dykstra in an email on Wednesday.
“Government will be watching the way the industry responds, including the amount of storage being drawn down and the amount of oil nominated and apportioned on Enbridge (export pipelines) to help understand when and if the curtailment levels should be adjusted,” Dykstra said.
The province said last month it would make “temporary adjustments” to January curtailment orders following criticism from some companies – including major producers Suncor Energy Inc. and Husky Energy Inc. – that said their levels had been set unfairly high or that they had concerns about employee safety and the long-term stability of their resources due to curtailing.
Dykstra said those reductions have not significantly impacted the overall reduction target.
Oilsands producer Pengrowth Energy Corp. used unspecified “options” provided by the government to reduce the cuts it was ordered to make, said spokesman Tom McMillan on Wednesday.
“We feel the ministry has been fairly responsive in addressing some of those unintended consequences,” he said.
“This all happened very quickly and so we’re still in the process of working through what it means for the industry. There are still a lot of unanswered questions.”
He says better prices are helping Pengrowth’s bottom line but he still hopes the cutbacks end as soon as possible.
PrairieSky Royalty Ltd. is also benefiting from higher prices, said CEO Andrew Phillips, noting it hasn’t had to make curtailments because it produces less than 10,000 bpd of oil.
“Four Fridays ago, at the bottom, we had bitumen effectively trading at US$6 a barrel – we had WCS in the low teens,” he said.
“And WCS two Fridays later, after the announcement of the curtailments, was at US$40.”
The company holds petroleum mineral rights on millions of hectares in the four western provinces and earns a percentage of production from any wells drilled on those lands.News from © Canadian Press Enterprises Inc. 2019