Fuel prices shot higher on Thursday in Medicine Hat as world oil prices soared in the wake of the Russian invasion of the Ukraine.--News Photo Collin Gallant
cgallant@medicinehatnews.com@CollinGallant
The City of Medicine Hat’s energy division will miss out on millions of dollars in revenue as oil prices spike this month after selling off its main oil interests last year, but likely would have had to have spent more than it made to keep the field, administrators said Thursday.
Prices for Alberta crude rocketed over US$100 per barrel this week following Russia’s invasion of Ukraine and unrest on world commodity markets.
That comes one year after the city sold its stake in the Glauc C field north of the city as part of a program to grapple with long-term abandonment costs.
That sale erased about three-quarters of the city’s oil production, or about 900 barrels per day, which administrators said was profitable in the US$60 per barrel range, but came with liabilities, a need for expensive enhanced recovery methods to maintain production and little prospect of sustained higher pricing.
“It was the best decision at the time, and we knew that oil and gas would run up or down in the months or years to come,” said Brad Maynes, the current head of the utility division and a former general manager of the city’s petroleum resources. “I don’t think anyone was predicting an invasion of Ukraine.”
Maynes reiterated to the city’s utility and infrastructure committee that the general consensus is oil prices will trend flat or downward in the long term.
The sale of the oilfield came as the city was already embarking on a major gas-well abandonment program and was evaluating all assets after several years of low prices.
The Glauc C package attracted “very few bidders” according to Maynes, and at the time in Feb. 2021, was recorded as a $20-million gain for the city, “mostly in cash” but also in avoided costs. It was sold to privately held company, Cache Island Corp.
The remaining three-quarter interest in the field was retained by EnerPlus, which last month forecast WTI price to average US$72.83 in 2022. It is also in the process of offering the Glauc C assets for sale to bidders as it seeks to divest the field.
The current situation is nearly all of the city’s remaining 300 barrel per day oil production is almost exclusively centred at the Manyberries oil field, which is also the target of an abandonment program this year.
The city has received about $18 million through a federal-provincial program to decommission wells and pipelines at the field in environmentally sensitive sage-grouse breeding habitat.
That should cover about 60 per cent of the total abandonment cost at the field, and was put to tender last fall.
Maynes said Thursday the work would first focus on inactive wells and those closest to breeding sites. A positive is that highest production and most economic wells are located on the edges of the range, and would therefore be in production this spring and summer.
“We’re fortunate that the bulk of most economical wells … the producing assets will likely remain on production for the next six to nine to 12 months, or potentially longer,” said Maynes.
Fuel prices
The city’s cost to fuel up hundreds of its fleet vehicles won’t rise with the price at the pump, a city committee heard Thursday, because it has a contract price that runs through they year.
The question arose at council’s utility and infrastructure meeting as some stations in Medicine Hat showed prices approaching $1.60 per litre for both gasoline and diesel on Thursday, about 25 per cent higher than earlier this year.
