Alberta production cutbacks

[SharperDingaan]

"The left-leaning New Democratic Party government will force producers to cut output by 8.7 percent, or 325,000 barrels per day (bpd), until the excess crude in storage is drawn down. The cuts will then drop to 95,000 bpd until Dec. 31, 2019. There are some 35 million barrels of oil in storage in Alberta, which is twice the normal level, the province said."

https://ca.reuters.com/article/domesticNews/idCAKBN1O203A-OCADN

 

Good on them.

Thousands of families across Alberta will thank you, as it means that there will not be a pink-slip along with their pay next week.

 

Our own thoughts are that this is also just the begining.

 

The 35M storage figure is very understated; tarsand reservoirs are also storing a great deal in-situ as pumps cut back to slower cycles, and these in-situ amounts are growing rapidly. Speculation, but the collective current number is probably a lot closer to 50M.

 

It now makes a great deal of sense to build a special-purpose oil refinery in Alberta to process WCS. If and when rail-cars are released from the Line-3 expansion, they can transport gasoline east, and allow eastern petro-dollar spending to flow west - versus to the rest of the world. And unemployment resulting from the current shut-in can be partially mitigated by refinery construction.

 

Alberta's conservative 'monopoly' isn't going to be tolerated much longer. What is good for Suncor, Husky, and the major pipeline companies isn't what's good for Alberta anymore; and we're done with the threats. Change is not just limited to Europe, or the US, it is coming to Alberta to - and it is long overdue

 

We don't need the rail cars because it'll lower the demand for our pipeline, & therefore the fees we can charge; and if we can piss off the environmentalists enough, they'll block new pipelines and ensure that Alberta producers have no-where else to go - but us. Charming 

 

We don't need to cut back because we had the sense to vertically integrate, others didn't - so let the market solution prevail; so that we can pick up their assets at bankruptcy prices, consolidate them with our own, and strengthen our monopoly over the region. Charming.

 

And then there is the reality.

That oil sand you're mining is at the pleasure of her majesty, it crosses the province to its borders at the pleasure of her majesty, and the province holds her majesties mineral rights. That infrastructure investment cannot be moved, and it is not difficult to change the terms of trade enough to strand the assets - enough to force write-offs in the billions. You'll be the one accepting the bankruptcy offer from the 'people's oil-sands company', and business will essentially return to normal - but under new ownership. Or - you can stop with the obstruction, evidence your corporate social responsibilty, and play nice. NEP 2.0, or co-operate, your choice.

The clock is ticking.

 

Politicians come and go, but occassionally you get one that actually does the right thing.

Good on her.

 

SD

 

 

 

 

[Cardboard]

She certainly did make a really smart move although, I don't understand why the mention in her op-ed about this decision being so difficult.

 

When you have the other 2 parties telling you to do the obvious or cut and knowing that this could only help your workers and build political capital?

 

Regarding Suncor (Petro-Canada), Husky and Imperial Oil (Esso, ExxonMobil) or the only 3 firms opposing such move, I cannot encourage Canadians enough to boycott these people as much as you can. This may help send a message to their executives who are nothing short of traitors.

 

Look at their share prices, look at their profits in Q4 when they get published and you will realize that this is a group losing money overall on killing WCS. It is true that they make more money on the refining spread but, there is no way that these profits fully offset money lost on terrible pricing for both their synthetic oil and WCS spot.

 

These 3 were gouging the province, workers and entire country. Their goal was to absorb short term pain to then cherry pick assets in bankruptcy or at fire sale prices.

 

Already, Husky was in the process of attempting to buy a rival or MEG Energy.

 

Considering the length of time required to get more rail cars, Line 3 up and running or 9 - 12 months, the policy of not intervening and leaving this to these 3 predators would have obliterated the Albertan economy, caused 10's of thousands of jobs to be lost and forced the bankruptcy of multiple firms.

 

While market forces would have forced non-integrated producers to cut further than they are already and eventually return pricing to more normal level, you have to think further than simply oil production as machine shops, small suppliers, rental companies, etc. would have been gone upon resumption of normal conditions.

 

This wasn't a normal free market when you have all kinds of attempts to block oil shipments which prevents any kind of long term production planning.

 

She has also defined a good long term plan of upgrading/refining more at home. If they can ship it and it makes economic sense then go for it.

 

Cardboard

[Spekulatius]

Looks very positive to me. Left or right government, the move makes sense, and it seems that most companies in the industry agree with it. It really does not make sense to give away resources at a lost, resources that the CEO of CVE rightly stated in the end belong to the people of Alberta, not a private company.

https://www.bnnbloomberg.ca/alberta-prevented-very-big-knock-on-effect-with-cuts-cenovus-ceo-1.1177575

[bizaro86]

I'm an AB taxpayer and no fan of the NDP, but I don't see any reason for us as a province to allow anyone to produce and sell our heavy oil for less than $15. Based on the current formula, it is very likely that would result in negative royalties (a future royalty deduction).