Alberta Throws Canadian Drillers A Lifeline

Oil producers in Alberta can drill new wells without being restricted by the current industry-wide production limits, the government of Alberta said on Friday as it aims to spur investment into Canada’s embattled energy industry.

The lifting of the restrictions for new wells takes effect immediately, while production from existing wells will continue to be under curtailment, as per Alberta’s government schedule.

By allowing operators to drill new wells outside the production limits, the provincial government hopes to “drive positive investment, lead to increased drilling activity, and support economic growth in communities across Alberta.”

The new policy applies to all conventional oil producers, while existing wells remain subject to the production cuts across Alberta’s oil industry.

“Companies are currently making investment decisions and we want those dollars and jobs to be in Alberta. We are doing everything we can to help,” Sonya Savage, Alberta’s Minister of Energy, said in a statement.

Canadian producers have had a tough couple of years with constrained market access that drove the price of Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands—to a discount of US$50 to WTI Crude in the fall of 2018. This blow-out in the differential between the Canadian benchmark and the U.S. benchmark prompted Alberta’s government to impose at the beginning of 2019 a mandatory production cut to help ease congested takeaway routes and lift the abnormally low price of Canadian oil.

Last week, Alberta allowed, as of December, energy firms to produce more oil despite production cuts, if those firms move the additional barrels by rail, as continued pipeline capacity shortage dampens the prospects of Alberta’s oil and gas sector.

Canadian energy companies continue to believe that the long-term solution to Canada’s oil industry’s woes is the construction of major new pipelines to increase market access, and potentially, to tap new export markets outside the buyer of nearly all Canadian oil exports, the United States.

By Tsvetana Paraskova for Oilprice.com