Alberta to reduce oil production in 2019 to increase prices

The price of a barrel of heavy crude from Alberta touched a near record low of US$10 in recent weeks, while pricing for synthetic crude and light oil from Alberta also sold at a discount to WTI. The surplus is filling storage up quickly.

The amount being cut is more than the total production of each of OPEC's three smallest members: Equatorial Guinea, Gabon and the Republic of Congo.

Cenovus Energy proposed the idea of a production cut last month.

The province also expects a deal in the works to purchase its own railcars to transport oil will help with the backlog next year.

The provincial government went to lengths to describe the measure as temporary, and one that will be a benefit to government finances.

The reduction will drop to an average of 95,000 barrels a day until curtailment ends at the end of 2019, when Enbridge's new Line 3 starts operating.

"We're facing, I think, something that qualifies as a crisis, or very almost that, and there are no other tools available to the provincial government so given that the market or even coalition of players in the market can't do this on their own without running afoul of price fixing laws, this is something that makes a lot of sense for all of the parties but I give full credit, not just to the fact that they are agreeing on this, but that they're saying that they don't want this to be about partisan politics and they want it to be about the interests of Alberta and I have no question that Albertans want to see more of that kind of collaboration", she said.

So, Notley's short news conference Sunday evening was a bravura performance.

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"But right now, they're being sold for pennies on the dollar". Further reductions in the curtailment are expected in the fall and winter as additional rail capacity comes online.

"If we are going to solve this problem once and for all, the low price era must end". As such, some oil executives argued that only government action could provide an orderly way to reduce output to narrow price differentials.

"My company will have a capital program that looks pretty similar to the program we had a year ago", Alex Pourbaix said in an interview. "This is an extreme case".

Notley has already taken some steps to try to help producers ship more oil to market while the industry awaits the construction of more pipelines.

The largest impact could come in the first quarter of 2019. More rail capacity could ease the midstream burden as well.

The Calgary-based company noted the exact impact of the mandatory cuts, to be applied by producer rather than per project, will be specified when it issues its 2019 capital and production guidance.

A number of proposed pipelines have been delayed or rejected.

Mandel too called out the federal government's inaction on getting a pipeline built saying, "Albertans interests have been harmed by the close relationships of the NDP with their federal counterparts and overreliance on goodwill with the Federal Government". "That's one of the reasons why in the past week we've been giving away our oil".

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