How the Alberta Government is stepping in to curb oversupply
Nicholas Lupick, CFA 403-539-8592
On December 2nd, the Government of Alberta announced that it will mandate an aggregate oil production curtailment across the province of 325 mbbls/d beginning on January 1st, 2019. The curtailment aims to address the province’s near term oversupply of crude as having a high probability of far surpassing domestic storage capacity without dramatic near term curtailments in output (which we recently highlighted in "North American Crude by Rail"). The goal of the production curtailment is to reduce the discount at which Canadian crude is being sold. The curtailment is expected to be gradually tempered to 95 mbbls/d later in 2019 and will be reviewed monthly to monitor impacts for unintended consequences.
The structure of the curtailment as we understand it will be as follows:
Beneficiaries and Contributors
As expected, there are clearly going to be those entities that will benefit and those that will carry larger proportions of the burden during a mandated industry production curtailment such as this. Those who will see the largest impacts are:
We believe the primary beneficiaries of the legislated curtailment will be:
The Punch Line
There are going to be a number of producers who will shoulder the brunt of the Alberta Government’s 325 mbbls/d in mandated production curtailments of raw crude and bitumen (namely the oil sands producers), 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.
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