This is good for all of Canada. The new Alberta government is undoing the job killing damage of the previous NDP regime.
Province loosens oil production limits
New rules to prompt companies to drill more wells
New rules on Alberta oil production limits designed to prompt companies to drill more wells are a “very, very positive signal to the market,” according to an association of drillers.
“This is a good short-term announcement," said Mark Scholz, president and CEO of the Canadian Association of Oilwell Drilling Contractors, on Friday. "It’s certainly not going to be a long-term fix.”
The companies that support conventional oil wells — pump jacks drawing liquid out of the ground — have “taken a beating” since the former NDP government put limits on Alberta’s oil production in January 2019, Scholz said. He called oil curtailment a “necessary evil.”
On Friday, Energy Minister Sonya Savage said that starting immediately, any oil produced from a new well will not be subject to those limits.
Although they wouldn’t provide estimates, the province expects the change will spur producers to drill hundreds of new wells and that each new well will create about 145 jobs.
“While we want an orderly exit out of curtailment altogether, our communities and drilling sector cannot wait,” Savage told a legislature news conference Friday.
“That is why we’re taking this action today to encourage investment and bring back jobs.”
In September, Alberta produced 480,000 barrels a day of conventional oil. About onefifth of that was from operators working under the curtailment rules.
There are exemptions in place so that small producers are not affected by the limits.
The move is the latest action by the government to try to increase investment and employment in Alberta’s oil and gas industry and reverse years of declines in drilling.
Due to pipeline bottlenecks, the former NDP government limited the amount companies could produce to prevent a surplus, such as the one last year that sharply reduced prices for Alberta oil.
The United Conservative government has since extended the limit by one year to the end of 2020.
Savage said Friday by the time extra oil from the new wells is ready for shipping, there should be more pipeline capacity, such as Enbridge’s retrofitted Line 3 to the U.S. Midwest, and more rail cars. That should avoid another surplus that would hurt prices for Alberta oil, she said.
“We wouldn’t be doing this if we were not confident that this (change) could handle it,” said Savage.
Last week, the province announced it was easing production limits for companies shipping any extra crude by rail.
Premier Jason Kenney’s government is trying to offload $3.7 billion in contracts signed with rail companies by the previous NDP government to buy and ship more oil by rail to ease the bottleneck.
The province has said that deal was a money-loser for taxpayers.
Asked about when the rail contracts may be offloaded, Savage said: "We’re getting very close. We’re anxious to get those contracts finalized, but at this point we’re still in some complex negotiations (and) very competitive bids.
The drilling contractors’ association said this year’s revised well drill count is 4,896, well short of the original forecast of 6,962.
Scholz said the group will have to retool its forecast for 2020, saying Friday’s announcement will make a material difference to what was a bleak outlook.
It was good timing for the new rule, as more than half of drilling happens in the winter months, he said. What drillers want in the longer term is more ways to move oil to market, he said.
Lower operating costs, the exchange rate and year-round drilling have made the United States a more attractive option for Canadian drillers.
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