Canada oil companies hopeful on deal with Alberta government to boost production

CALGARY: Two of Canada's biggest energy producers on Thursday said they were looking to the Alberta government to agree to a deal that would allow companies to boost their oil output in the face of curtailments in Canada's main crude-producing province.

Crude production in Alberta has been limited since Jan. 1 2019 when the provincial government imposed curtailments to ease congestion on export pipelines that pushed the discount on Canadian crude to record lows.

Canada is the world's fourth-largest oil producer but delays in getting new export pipelines built has left crude stranded in Alberta storage tanks and deterred investment in the oil sands industry.

This month, some of Canada's biggest producers said they were trying to get the government to allow them to produce more than their current curtailment quotas, as long as the extra production was shipped to market by rail.

Suncor Energy and Cenovus Energy reiterated their support for such a deal on second-quarter earnings calls on Thursday.

Suncor Chief Executive Officer Mark Little said he was hopeful the Alberta government will agree to a deal "in the next month or so", adding it would significantly boost takeaway capacity out of Alberta and help end curtailment.

"I'm expecting that between now and year-end, if we can get that agreement in place, we could bring on somewhere in the neighbourhood of 250,000-300,000 barrels a day of incremental rail," Little said.

Cenovus CEO Alex Pourbaix said he could not give any time frame on when a deal might come but he saw it bringing significant benefits to the industry and higher royalties to the province.

Husky Energy Inc told investors on its quarterly earnings call it has been involved in some of the work to put proposals forth to the provincial government on loosening curtailments.

The Alberta government, which won an election in April, is also in talks with industry for the private sector to take over C$4-billion-worth of crude-by-rail transportation contracts that were signed by the previous provincial government.

Both Suncor and Cenovus said easing curtailments would make those rail contracts more attractive to producers.

"The government has been very clear on its desire to move rail contracts back to the private sector and this is a win-win there too," said Keith Chiasson, Cenovus's executive vice-president downstream. "If people are allowed to rail (crude volumes produced) above curtailments there's a huge incentive to take out the long-term contracts."

Husky and Cenovus reported lower second-quarter production from a year earlier following the Alberta government curtailments but Suncor's output rose year-on-year due to the ramp up of its Fort Hills oil sands mine and offshore Hebron project.