Cenovus CEO: Oil cuts saved Alberta from dangerous spillover
Alberta may have saved itself from a dangerous spillover effect by curtailing oil production within the province, according to one of Canada's most prominent energy executives.
“If the government had not stepped in, not only would Cenovus have massively cut back its winter program, but that would have had knock-on effects to the communities we work in, the contractors that we use,” Cenovus Energy Inc. (CVE.TO) Chief Executive Officer Alex Pourbaix told BNN Bloomberg in an interview on Monday.
“This was going to have a very, very big effect.”
Alberta Premier Rachel Notley announced Sunday that the province will force producers to cut output of raw crude and bitumen by 325,000 barrels per day starting in January until the excess oil in storage is drawn down.
The price of Western Canadian Select oil jumped US$8.02 on Monday, trading at US$29.95 per barrel as of 4:58 p.m. ET. The differential between it and the benchmark West Texas Intermediate fell to US$23.15.
Pourbaix said the province's intervention, coupled with WCS’ big Monday move has had a dramatic impact on Cenovus’ winter plans.
“We had a budget for $40 differentials and we had a budget at $20 differentials and those budgets are worlds apart,” he said.
“Without this, you were going to see an extraordinarily difficult winter drilling program for Alberta.”
Not everyone in the Canadian energy sector was thrilled by the decision, however. Imperial Oil CEO Rich Kruger said the mandatory curtailment sends the wrong message to investors.
“Our view remains that free markets work and intervention carries trade risks and sends a negative message to investors about doing business in Alberta and Canada,” Kruger said in a statement. “Unfortunately, this intervention appears not to recognize the investment decisions companies have made to access higher value markets.”
Pourbaix, however, said the cuts will allow everyone in the oil patch to make money, as long as the discount continues to shrink.
“Just with the announcement we’ve seen a pretty significant move in the differentials,” Pourbaix said. “It is not nearly as good as moving that oil by pipeline to the Gulf Coast, but all of the companies in Alberta at reasonable WTI prices can make decent money with a US$20 differential.”
He added that if the trend continues, the province’s need to assist the market could be over in short order.
“I would hope that’s where that’s going to go,” he said. “Hopefully the province is out of this business of mandating production by the middle of [next] year.”