January 29, 2019 6:37 pm
Updated: January 29, 2019 9:23 pm

Eastern Alberta communities fear NDP’s oil production cap change will mean job losses

A company that was at first in support of Alberta's oil curtailment plans is now expressing concern. Workers and community leaders in Bonnyville are warning of impacts on jobs. Vinesh Pratap reports.

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Workers in communities like Bonnyville, Lakeland County, Elk Point and Lloydminster are worried changes to Alberta’s oil curtailment formula will cost as many as 1,000 people their jobs.

“Everyone’s in kind of a state of panic,” said Kurt Muller, who runs Jacknife Oilfield Services, a transportation and mechanical repair company in Bonnyville.

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“It’s challenging. Since we got that letter, I’ve had calls from employees and subcontractors saying, ‘What’s going on with the business? Are we going to be here next month?’

“For us as a business, it’s extremely challenging because we have many people reliant on working for CNRL. They do a lot of good in the community. They do a lot of good in the area. They provide jobs to us all. So it’s extremely worrying,” Muller said.

The letter he’s referring to was sent to suppliers by Canadian Natural resources Ltd. — a large crude oil and natural gas producer — on Jan. 22.

READ MORE: Alberta oil production cap remains unchanged despite price recovery

The Alberta government decided to temporarily cap oil production by 325,000 barrels per day as of Jan. 1 to help address the oil price differential.

The letter stated that the NDP government changed the formula by which it determines how much oil production must be curtailed for February, and the change means possible layoffs.

READ MORE: Alberta orders 8.7 per cent oil production cut to help deal with low prices

The company said while it supports the province’s decision to curtail production, it must work with industry to make sure it’s done in a way that protects resources and jobs.

“Canadian Natural supported the government’s actions to curtail production based on using the average of the six highest months from Nov. 2017 to Oct. 2018 to calculate the January 2019 allowable volume,” the letter states. “We are extremely concerned, however, with the government of Alberta’s decision to amend the curtailment rules as per IL 2018-46 issued on Dec. 30, 2018.”

The letter, which you can read in full below, says the new methodology determines the baseline by using the single highest month of production between Nov. 2017 and Oct. 2018.

WATCH BELOW (Dec. 3, 2018): For the first time in a generation, the Alberta government will impose a cap on the amount of oil that industry is allowed to produce. As Tom Vernon explains, the move is not without its critics.

“Many companies will currently be producing less volume than the single, 12-month high… Canadian Natural’s revised curtailment volume is clearly unreasonable and discriminatory as a disproportionate share of the province-wide volume.”

CNRL said it now bears 35 per cent of the curtailment total target volume, while its production accounts for 23.9 per cent of all production volumes.

“This is not sustainable operationally as the ECHO pipeline will need to be shut-in along with the production association with it.”

That will hurt jobs, the letter continues — specifically in the Bonnyville/Elk Point/Lloydminster area.

“Canadian Natural will be required to curtail a third more production in February compared to January,” the letter reads, “and the reduced production will unnecessarily impact jobs significantly in the heavy oil region.”

CNRL wants to see the province revert back to the January 2019 curtailment levels.

READ MORE: Federal government needs to ‘step up’ and support Alberta’s oil and gas industry: Notley

“CNRL fought hard for this policy and we ultimately agreed it was in best interest of Albertans,” said Mike McKinnon, spokesperson for the minister of energy. “Premier Rachel Notley took action to protect the value of the resources owned by all Albertans, and her leadership is instrumental in saving thousands of jobs across the sector.

“CNRL has benefited substantially from this temporary policy. We disagree with their characterization and it’s disappointing to see them threatening suppliers with job losses when they’re being treated the same as other producers.

“CNRL is being treated fairly and equitably under this policy, which they support, and the company will need to be accountable for their own regional business decisions,” McKinnon said in an email to Global News.

The NDP government said it made the change after hearing concerns related to unintended consequences that may have resulted from limiting production and advice from a panel at the Alberta Energy Regulator.

“We know that some companies will not agree with this approach,” McKinnon said. “We will never achieve full support for this policy but that doesn’t change what we need to accomplish, which is to match production levels to our target of 3.56 million barrels a day.”

READ MORE: Production exceeding Canada’s pipeline capacity is ‘primary factor’ in oil price differential: NEB report

Muller said he’s certainly not opposed to the production curtailment; he just feels it’s not fair to CNRL.

“Looking at the bigger picture, the curtailment is not a bad thing if it’s going to fix the differential. Last year was extremely difficult because of the differential.

“West Texas was a lot higher than Canadian Select and it was causing a lot of issues out here in the field,” Muller said.

“The curtailment is OK, but what the government’s done now is impose additional curtailments and the way they’ve calculated that formula for CNRL is rather unfair.”

Jacknife has been in business for about 25 years. At its peak, it employed about 100 full-time workers. Now, it has about 80 staff, including employees and subcontractors. The majority of Jacknife’s contracts are with CNRL, Muller said.

“The effect here is a lot more widespread than [you] can probably see from Edmonton,” Muller said.

His company is encouraging anyone who’s concerned about the new curtailment formula to contact the Alberta legislature and their premier or MLA.

“It did catch us off-guard. You work four years since this downturn, you think you’re right at the end, and just before we think we’re out of it, something like this happens,” Muller said. “The effect, even if they were to close the pipeline for a month, would be massive.”

WATCH BELOW (Dec. 2, 2018) Premier Rachel Notley announced that her government will be putting a cap on crude oil production starting in January. Political commentator Janet Brown weighs in on the news.

The Opposition United Conservative Party issued a news release saying it’s concerned to hear that between 500 and 1,000 Albertans might lose their jobs due to the oil curtailment formula changes.

“During the holiday break, the government made a change to its original curtailment calculations. To date, we have received no explanation from the government,” area UCP MLAs Dave Hanson and Scott Cyr said in a joint news release Monday.

READ MORE: Western Canada oil prices remain strong as Alberta production cap kicks in

While the UCP supported a temporary curtailment to address the massive price differential, the party said that support doesn’t extend to giving the NDP government “a bank cheque.”

“The NDP energy minister needs to come to our community and explain their change,” Hanson and Cyr said.

“It is simply not acceptable for the government to hide from a decision that stands to cost hundreds of Albertans in our community their jobs.

“Continually changing rules from the provincial and federal governments are only adding more uncertainty for families who depend on our energy sector.”

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