Suncor Energy Inc. says it’s assessing the impact of the Alberta government’s move to curtail oil production by 8.7 per cent next year. The company says the specific impact of the production cut will be provided when it issues its 2019 capital and production guidance.
The Alberta government announced a plan Sunday to impose across-the-board oil production cuts to reduce a glut of oil that has helped increase the discount that the province’s Western Canadian Select oil fetches compared with the North American benchmark.
The anticipated regulations will require oil producers to reduce their production effective Jan. 1, 2019. Output of raw crude oil and bitumen will be reduced by 325,000 barrels per day.
Cenuvus applauds cuts
Cenovus Energy Inc. proposed the idea of a production cut last month, however several large players in the oilpatch have been opposed to involuntary cuts.
Cenovus issued a statement on Sunday evening, saying it advocated for the cut because it believes it is the only short-term solution to the “extraordinary situation Alberta finds itself in.”
“While curtailments have been used before by previous governments, we believe they should only be used for a short period of time, and only in extreme cases,” said a statement by Cenovus CEO Alex Pourbaix.
“This is an extreme case. It makes no sense for Alberta to stand by while its valuable oil resources sell for next to nothing, the provincial treasury loses up to 100 million dollars a day, job losses continue to mount and our industry suffers billions of dollars in long-term value destruction.”
Opposition from other oil producers
Suncor, Imperial Oil Ltd. and Husky Energy Inc. — whose refining assets and firm pipeline contracts allow it to avoid most local price discounts — have opposed the idea of mandatory production curtailments.
Suncor says it believes the market is the most effective means to balance supply and demand and normalize differentials.
“Suncor believes the market is the most effective means to balance supply and demand and normalize differentials,” the company said. “Less economic production was being curtailed and differentials were narrowing as a result of market forces.”
The mandated cut ends on Dec. 31, 2019, and will be spread among all producers in an effort to stave off massive job losses.
WATCH: UCP leader Jason Kenney called the oil production cut announcement a great demonstration of working across party lines.
Alberta 1980 production cut
The move is not unprecedented — in 1980, then-premier Peter Lougheed cut provincial oil production in response to the Liberal government’s National Energy Program.
The Alberta government said the aim of the NEP was to “guarantee the supply and price of Canadian natural gas and oil, to increase Canadian ownership and control of the petroleum industry, and to gain a greater share of energy revenues.”
The program was extremely unpopular in Western Canada, where the NEP was seen as a strategy to keep energy prices depressed and redistribute Alberta’s oil wealth to provinces in the east. Bankruptcies in Alberta increased by 150 per cent after the NEP took effect and many families lost nearly half the values of their homes.
— With files from The Canadian Press