Canada’s Oil Cuts Offer Lifeline To Producers But Create New Problems | 7/21/2014 | Staff
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WINNIPEG, Manitoba (Reuters) – The Canadian province of Alberta’s OPEC-style decision to force production cuts is benefiting oil companies with higher prices, but it is also pushing capital elsewhere and threatens to undermine booming crude-by-rail shipments.

After Alberta cut 325,000 barrels per day (bpd) starting this month, the discount on Canadian heavy oil compared to benchmark U.S. crude oil shrank to less than $7 per barrel from more than $40 in October, providing relief for producers.

Activity - Year - Service - Providers - Shrinking

But drilling activity has dropped sharply in the last year, hurting service providers, and the shrinking discount reduces incentive for shippers to move crude by rail, which is costlier than pipelines. Some producers have already decided to spend more in other provinces.

“As soon as we heard this curtailment was taking place, we shifted our capital to Saskatchewan from Alberta,” said Grant Fagerheim, chief executive of light-oil producer Whitecap Resources Inc .

Whitecap - Percent - C - Capex - Saskatchewan

Whitecap intends to spend about 80 percent of its C$450 million ($340 million) capex in Saskatchewan, up from its usual spending there of around 60 percent, Fagerheim said.

Canada is the world’s fourth-largest crude producer, but larger producers like the United States, Saudi Arabia and Russia do not face Canada’s obstacles in getting oil to market.

Full - Pipelines - Opposition - Industry - Canada

Full pipelines and aggressive opposition to expanding the industry meant that even as Canada’s production hit record levels last year, benefits of that boom were elusive. Alberta, which produces most of Canada’s oil, last month ordered curtailments to drain bloated storage tanks and boost prices.

Government intervention has provided a lifeline to producers that were selling barrels at a loss late last year and avoided an economic catastrophe for Canada.

Bonterra - Energy - Corp - Bpd - Requirements

Bonterra Energy Corp produces less than 9,000 bpd, making it exempt from requirements to curb output, but it still benefits from higher prices, Chief Executive George Fink said.

Cenovus Energy Inc , which announced plans...
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