CALGARY — Oil production cuts announced by the Alberta government will have the desired outcome of reducing steep price discounts on western Canadian crude but will also create winners and losers, financial analysts say.
Shares in the companies most likely to benefit from the move to curtail crude production starting Jan. 1 soared Monday as oil price differentials plunged.
Meanwhile, shares in oil producers that had been either benefiting or were insulated from the discount prices were little changed.
“There are going to be a number of producers who will shoulder the brunt of the Alberta government’s 325,000 barrels per day in mandated production curtailments of raw crude and bitumen (namely the oilsands producers),” Calgary-based AltaCorp Capital said in a report.
“But the broader health of the province is likely to benefit over the medium term from the decision as a result of narrowing differentials and stronger royalty revenue.”
Alberta Premier Rachel Notley announced Sunday the province will require companies producing more than 10,000 barrels per day of oil to cut back by about 8.7 per cent (a total of 325,000 bpd) until there is enough shipping space on pipelines to improve prices, expected to take about three months.
After that, the reduction will be lowered to 95,000 bpd through the rest of 2019.
Of the 378 operators with active oil production in Alberta in October, only 25 produce more than 10,000 bpd, AltaCorp noted.
At the end of trading on Monday, Cenovus Energy Inc. shares were trading at $10.99, almost 12 per cent higher than their Friday close, while Canadian Natural Resources Ltd. closed at $36.58, up 9.55 per cent.
In its report, AltaCorp said 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, that 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.
The losers include integrated producers who will likely pay more for their refining feedstock and companies that had intended to grow their production in the first half of 2019, it said.
Oilfield service companies are also on the losing side of the equation, GMP FirstEnergy said in a note, because drilling budgets will likely shrink in early 2019.
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