Shares in Cenovus, Canadian Natural soar on crude production cuts

A processing unit at Suncor Fort Hills facility in Fort Mc Murray Alta on Monday

The winners from the curtailments will include the provincial government (which estimates it will earn $1.1 billion more from royalties in the 2019-20 fiscal year); energy producers in B.C. and Saskatchewan, who will benefit from better prices without having to cut production; condensate producers, as that light oil isn't included in the curtailment; and junior energy producers who are exempt from the program, AltaCorp said in its report.

Western Canada Select crude's discount to USA benchmark West Texas Intermediate oil narrowed on Monday to the tightest since July.

Above: Western Canadian Select oil price.

About 25 Alberta producers are expected to be impacted by the cuts until the 35 million barrels of oil now in storage are shipped out of the province.

Moe said that while he agrees there is an unacceptably high differential for Alberta oil, "a government-mandated production cut in Saskatchewan could result in a loss of jobs and economic activity in our province, but would have little impact on the price of oil because it would disproportionately impact conventional oil production, which is not the problem".

"It should always be kept in mind that oil is a global industry, and moves in the benchmark WTI price can outweigh changes in the spread, leaving Canadian producers in the lurch", said Brian DePratto, a senior economist at TD Bank Group.

Alberta is also planning on buying as many as 80 locomotives and 7,000 rail tankers - expected to cost hundreds of millions of dollars - to move the province's excess oil to markets and address the pipeline bottleneck.

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In early trading Monday, Cenovus Energy Inc. rose as much as 13 per cent over its Friday close to $11.11, while Canadian Natural Resources Ltd. rose as much as 16 per cent to $38.74. The reduction amounts to 325,000 barrels a day of raw crude and bitumen, or about 8.7 per cent of daily production. Afterwards, the cut will be reduced to 95,000 bpd, to remain in place until the end of next year.

For example, OECD inventories are showing continued buildups, while current expectations are calling for US shale companies to help boost total production above 12 million barrels a day next year. Alberta's oil is now fetching bargain basement prices thanks to a growing glut and lack of pipeline capacity to get oil to market.

"That said, we understand the actions being taken in Alberta and will be working with our industry partners to ensure Saskatchewan is not undermining these efforts".

It also hasn't been much affected by the price differential. "This is a short term measure", Notley said. "We interpret the phrasing of the announced cut as keeping production down 50 kb/d [year-on-year] in 2019 and 200 kb/d below our prior assessment with the greatest impact on 1Q19 (down 225 kb/d quarter-on-quarter) before new rail capacity gradually comes online from April onward", Goldman Sachs wrote in a note. Husky Energy Inc., which owns refineries in Canada and the US, said in an emailed statement that a government-ordered curtailment or other interventions can possibly have negative investment, economic and trade consequences.

Alberta and oil producers prefer to add more pipelines, but projects face fierce opposition from environmentalists and some Aboriginal groups.

While producers said they would comply with the mandatory cuts, executives from Canada's Suncor Energy Inc., Husky Energy Inc. and Imperial Oil, integrated producers with domestic refinery and upgrading capacity, expressed disappointment.

The losers include integrated producers who will likely pay more for their refining feedstock and companies that had meant to grow their production in the first half of 2019, it said.

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