Alberta orders its oil producers to reduce output
After initially dismissing the idea as being "too complicated" to implement, Alberta's NDP government has ordered the province's oil producers to reduce output by 325,000 bbl/day, or roughly 8.7%, starting in the new year. The cuts will be administered by the Alberta Energy Regulator, affecting both oil sands and crude oil producers, with the first 10,000 bbl/day to be exempted. The move is expected to add $1.1 billion in additional royalties for the 2019-2020 fiscal year. According to Genscape, some 35 million barrels of crude currently sit in the province's storage tanks.
The news was welcomed by non-integrated producers, such as Cenovus, CNRL, Nexen and MEG Energy, who credit Premier Notley with saving jobs in the energy patch. Producers in Saskatchewan and North Dakota are also happy for the extra breathing space in export pipelines. Smaller producers have already cut about 150,000 bbl/day of crude due to low oil prices, which will count towards the province’s total reductions.
Reaction was not so positive from the country's Big Three integrated names, who largely benefit from low oil prices through their downstream operations.
Imperial Oil CEO Rich Kruger says the cuts send yet another negative message to investors, accusing the province of failing to recognize "the investment decisions companies have made to access higher value markets." Kruger warned of "unintended consequences" to competitiveness, trade and future capital spending.
Suncor Energy also disagreed with the province's decision to meddle with oil markets, calling free-market capitalism "the most effective means to balance supply and demand and normalize differentials." Husky Energy also warned that government intervention will have "serious negative investment, economic and trade consequences." Imperial, Suncor and Husky already have customers for their heavy crude and are not directly exposed to daily spot prices.