Oil production cuts shouldn’t be a fight between companies, says Athabasca CEO

Rajeshni Naidu-Ghelani, BNN Bloomberg

The Albian Sands Energy Inc. Jackpine mine is seen in this aerial photograph taken above the Athabasca oil sands near Fort McMurray, Alberta, Canada, on Monday, Sept. 10, 2018. While the upfront spending on a mine tends to be costlier than developing more common oil-sands wells, their decades-long lifespans can make them lucrative in the future for companies willing to wait. , Bloomberg

The chief executive of Athabasca Oil Corp. is joining the chorus of Canadian energy leaders that want the Alberta government to step in and mandate production cuts, but says there shouldn’t be a fight between producers over the necessary action.

Rob Broen, president and CEO of the oil sands producer, told BNN Bloomberg that while the industry typically doesn’t favour government intervention, there is no agreement right now among energy companies on production cuts.

“If there was going to be consensus, we would have seen it by now. So, there are companies that have cut production like ours, and there are companies that need to cut production,” Broen said in an interview Wednesday.

“I don’t think this should be a fight between industry [players].”

Athabasca Oil has cut 20 per cent of its total production of 40,000 barrels of oil per day for November and December, according to Broen.

He thinks some integrated energy companies have not cut production because they are refiners and have the advantage of accessing pipeline capacity.

“They’re able to buy distressed barrels, they’re able to maximize the refining revenue, and I actually don’t blame them,” Broen said. “I think there is a role for the government to step in. It’s probably not for a long period of time, and it’s not a big production cut, but we need to remove the glut of oil that’s in the system.”

“We need to get inventories down to a normalized level, and I think that’s going to take more severe cutbacks than what we’ve seen,” he added.

Broen warned that if production keeps increasing as forecast and the price differential between the North American benchmark West Texas Intermediate and Canadian oil remains, then companies will cut their capital spending.

“You’re going to see less spending, you’re going to see that growth tempered into 2019,” Broen said. “Companies have to do that to protect their balance sheets.”

Reports this week that the Alberta government was looking into royalty breaks or incentives to encourage companies to cut production is one way to bring producers “closer to consensus” on cuts, said Broen.

“The simple answer is … that its [oil is] worth more in the ground than it is to produce it right now, and these [price] differentials are extreme,” Broen said. “We’ve made our bets on pipelines in the future, but that’s a few years out and we need some short-term relief.”

“This is an industry problem, and I think the solutions should be shared by industry.”