Oil cut won’t affect city’s plays

By Collin Gallant on December 5, 2018.

cgallant@medicinehatnews.com @CollinGallant

A plan by the province to temporarily limit oil output starting Jan. 1 likely won’t affect City of Medicine Hat operations, officials tell the News, adding that firmer prices could boost the bottom line.

On Sunday, Premier Rachel Notley said her government will mandate an 8.7 per cent scale-back to battle a gaping price discount that Alberta crude earns compared to U.S. and world prices.

City petroleum administrators say however, that their production levels — about 1,350 barrels per day from wells in Alberta and Saskatchewan — are too small to be captured in the regulation.

“We’ll be exempt under a 10,0000 barrel-per-day limit that will protect some of the smaller producers — we fall under that,” said Brad Maynes, adding that the measure will be focused on “the intermediates and large integrated companies and oilsands companies.”

There is some question about whether the city’s joint venture with Enerplus in the city’s Northeast field, known as the Glauc C, could qualify. However, that company divested most of its assets in Western Canada except for its interest in the Medicine hat waterflood area.

“At this point we don’t see any impact in terms of production,” said Maynes. “But positively, if we do see a rebound, which we saw Monday in terms of the differential … we’ll see better pricing.”

Maynes spoke following Monday night’s city council meeting where the division’s four-year budget plan was presented. It shows that record low prices for natural gas were compounded by the expiration in 2015 of a long-term fixed-price contract for gas sales.

The city is in the midst of a drilling program to add oil production and therefore diversify revenue sources. Even with the current price discount, the price over the entire year so far has beat city forecasts. The 2018 budget assumed a price in the C$45 range, while the average though 11 months is about C$50.

This fall the price earned on Western Canadian Select grade oil fell as low as $4 per barrel, said Maynes, while it cost about $25 to produce.

During the presentation, energy and utility commissioner Cal Lenz said the division is guarding against overreacting to market conditions that he characterized as short-term.

Prices for heavy oil typically drop in the late autumn, when road building activity slows and U.S. refineries usually schedule maintenance because gasoline demand is lower.

Notley said Alberta is moving ahead with programs to boost refining and upgrading in the province as well as buying rail cars to boost export volumes while new pipeline projects are pursued.

Stock markets also reacted positively to the announcement.

Shares in Cenovus and Canadian Natural Resources — two major Alberta-focused oil producers — rose steeply on Monday.

As well, shares in IPC Alberta, which purchased the drilling rights to the Suffield Block last year and since has moved to take over heavy oil producer Black Pearl, rose about 11 per cent in Monday trading compared to last week’s close.

The city plans to complete eight wells targeting oil production over the winter drilling season, mostly in the Alderson area, Hayes and other areas west of Medicine Hat.

“It will be a pivotal moment for the growth strategy,” said Maynes. “These eight wells will give us an idea of where we’re going and, if not successful, then we need to have a conversation about what’s next.”

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