Imperial Oil among refiners not happy with Notley's production cuts
Some of Canada’s largest integrated energy giants are pushing back against Alberta Premier Rachel Notley’s decision to force output cuts on the province’s oil sector.
“We regularly manage a wide range of risks associated with technical, operational and market considerations,” said Imperial Oil Ltd. (IMO.TO) CEO Rich Kruger in a statement. “Now, government has introduced a new risk which will unfortunately need to be considered as it relates to future investments.”
Kruger said his company “respectfully disagrees” with Notley’s decision late Sunday to mandate production cuts that will curb provincial oil output by 8.7 per cent in a bid to narrow the discount on Canadian oil prices, and will comply with the decision after reviewing the details.
“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,” he added. “Unfortunately, this intervention appears not to recognize the investment decisions companies have made to access higher value markets.”
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Meanwhile, Suncor Energy Inc.(SU.TO) said that it also would have preferred to avoid government intervention.
“Suncor believes the market is the most effective means to balance supply and demand and normalize differentials. Less economic production was being curtailed and differentials were narrowing as a result of market forces,” the company said in a release early Monday.
The steep Western Canada Select-West Texas Intermediate differential, which reached US$52.40 per barrel in October, has driven a wedge between companies in the industry as integrated producers that benefited from cheap feedstock for their refining units pushed back against calls for mandatory cuts. WSC jumped more than 50 per cent to US$32.91 per barrel on Monday morning.
Indeed, when Suncor reported third-quarter results on Oct. 31, it said the discount on heavy Canadian oil prices was having a “minimal” impact on its operations.
Suncor said in its release on Monday that it is assessing the government’s decision and will map out details of the impact when it releases 2019 capital and production forecasts.
While Imperial and Suncor panned the government’s decision, the intervention was applauded by Cenovus Energy Inc. CEO Alex Pourbaix, another prominent voice inside the industry.
“At Cenovus, we advocated for this mandatory production cut because we continue to believe it is the only short-term solution to the extraordinary situation Alberta finds itself in,” he said in a release.
“The Alberta government has listened and responded quickly. The measures Premier Notley announced [Sunday] will help balance the market in the short term until new rail and pipeline capacity comes on stream late next year and into 2020.”