Edmonton, Regina – The Government of Saskatchewan will not be following Alberta’s lead in cutting oil production to help improve heavy oil pricing.
On Dec. 2, Alberta Premier Rachel Notley announced a temporary mandatory oil cut of 325,000 bbls/d to address the province’s current storage glut, a result of insufficient pipeline takeaway capacity.
The result has been oil prices for Western Canadian Select so low the province’s energy resources are “being sold for pennies on the dollar,” she said.
Four days earlier, Notley announced the province would be buying up to 80 locomotives and 7,000 rail cars as the first measure to address the glut.
While Notley did not refer to Saskatchewan in her remarks on Sunday, opposition leader Jason Kenney did. In supporting the curtailment move, Kenny called on the Alberta government to “ask that (Saskatchewan) follow suit. Saskatchewan produces a significant share of Canadian oil.”
He noted that southeast Saskatchewan oil, in particular the Bakken, is not affected by the same price differentials as in Alberta. “But we would hope that producers outside of Alberta would understand they need to be part of the solution in saving jobs.”
To that end, Saskatchewan Premier Scott Moe responded on Dec. 3, saying in an emailed statement, “The action taken by the Government of Alberta to cut oil production in the face of an unacceptably high differential for Western Canada Select oil reflects the crisis that Western Canada's energy sector has faced for far too long. The clear failure of the federal government to build pipelines and ensure market access for our energy products has had a great cost on the economy and the people of Saskatchewan.
“While Saskatchewan understands the action taken by our neighbours in Alberta to reduce the oil glut that is depressing the Western Canada Select oil price, the impact of the differential and how it is spread across our energy sector represents a different challenge to our province.
“Our oil production and market for our product is significantly different than Alberta’s. Saskatchewan has no oilsands in active production and we are more diverse in what we produce. Further, roughly 60 per cent of the oil produced in Saskatchewan is a range of light and medium oil. For these reasons, 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.
“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.
“This crisis has cost Western Canada's energy industry billions in lost growth, and far too many families their livelihoods. Saskatchewan will continue to work with our provincial counterparts and advocate for the federal government to create a long-term solution to this crisis by getting pipelines built so we can sell our oil for what it is worth,” Moe said.
If Saskatchewan did cut production
This table shows the top 20 oil producers in Saskatchewan in green. In orange, it shows how much production would be curtailed if Saskatchewan followed Alberta's model. The blue shows how much would be curtailed if it followed UCP Leader Jason Kenney's model. Data courtesy Saskatchewan Ministry of Energy and Resources.
How much production would be affected if Saskatchewan did implement cuts in a similar manner to Alberta? Pipeline News obtained recent data from the Ministry of Energy and Resources listing the top 20 oil producers in Saskatchewan, based on January to October production.
The top 20 producers account for the vast majority of Saskatchewan’s oil production, totalling 441,717 bbls/d in aggregate.
Only nine producers were over the 10,000-bbl/d production level which Alberta is exempting from production curtailment. If Saskatchewan followed the Alberta model, and all producers over 10,000 bbls/d were curtailed by 8.7 per cent, the curtailment would total 25,484 bbls/d.
Most of that would come from producers that don’t even produce the heavy oil affected by the differentials in question. For instance, Crescent Point Energy Corp., which produces 106,068 bbls/d, would be forced to curtail 8,358 bbls/d, and it does not produce heavy oil.
Where Kenney proposed that areas like the Bakken in southeast Saskatchewan be excluded, that would mean that only Husky Energy, Baytex Energy, Canadian Natural Resources Limited and Cona Resource Ltd. would be over the 10,000-bbl/d threshold. If those four were curtailed 8.7 per cent, the cut would amount to of 10,696 bbls/d. Husky’s cut would be 7,677 bbls/d, Baytex would see 1,467, Canadian Natural would see 1,027 bbls/d and Cona would see 526 bbls/d in production cuts.
As of Dec. 3, Husky Energy, Saskatchewan’s largest heavy oil producer, had the most drilling rigs working in the country, at 16. Ten of those were in Saskatchewan, principally working on the company’s thermal SAGD operations which are each designed to produce 10,000 bbls/d.