Business

Oilpatch giant sours on Alberta crude cuts, warns changes put jobs at risk

Oilpatch giant Canadian Natural Resources, a high-profile supporter of mandatory oil production cuts in the province, is now concerned revisions to the strategy for February will hurt jobs in northeast Alberta.

Province argues Canadian Natural Resources has benefited 'substantially' from curtailment policy

Murray Edwards, left, executive chairman, and Steve Laut, centre, president of Canadian Natural Resources, prepare to address the company's annual meeting in Calgary last May. (The Canadian Press)

Oilsands giant Canadian Natural Resources, once a high-profile supporter of Alberta's mandatory production cuts, says it is "extremely concerned" by revisions to the strategy set for next month, warning the changes "will hurt jobs" if the government carries through.

In a letter to suppliers last week, Canadian Natural Resources said while it had supported the government's actions to cut back oil output in the province, it feels amendments to the formula will see the company burdened with a "unreasonable and discriminatory" share of the curtailment.

"The revised methodology is flawed and clearly discriminatory to Canadian Natural and as a result directly impacts the heavy oil regions of Alberta," reads the letter dated Jan. 22, a copy of which was obtained by CBC News.

The Calgary-based company would not comment Monday on the contents of the letter.

But in its missive, Canadian Natural warns it will be required to cut back a third more production in February than in January if the changes are enacted, "and the reduced production will unnecessarily impact jobs significantly in the heavy oil region," including in Bonnyville, Elk Point and Lloydminster area.

A government spokesman said Canadian Natural is being treated fairly, adding that the company "fought hard" for the policy that the government agreed was in best interest of Albertans. 
Alberta Premier Rachel Notley announced the province's curtailment strategy in December. (Jason Franson/Canadian Press )

"CNRL has benefited substantially from this temporary policy," spokesman Michael McKinnon said in a email. 

"We disagree with their characterization and it's disappointing to see them threatening suppliers with job losses when they're being treated the same as other producers.

"CNRL is being treated fairly and equitably under this policy, which they support, and the company will need to be accountable for their own regional business decisions."

Last fall, Canadian Natural Resources was one of the most high-profile oil producers to call on the province to impose mandatory output cuts as a temporary measure aimed at tackling a costly crude backlog.

Premier Rachel Notley responded in December by announcing the government would cut oil production 8.7 per cent, or roughly 325,000 barrels per day. The cuts affect about 25 larger bitumen and conventional producers. The curtailment will end at the end of 2019.

Notley said the effect of the cuts would be measured each month to ensure production is not reduced any more than necessary. Government officials also said producers had been provided the latitude to manage the cuts by assigning them on a per-operator basis, rather than on individual wells or projects.

Since the curtailment came into effect, the price gap between Canadian and U.S. benchmark oil has narrowed to under $10 US a barrel. Last fall, it was over $50 US.

But in its letter, Canadian Natural said it backed the government's actions to curtail production based on using the average of the six highest months from November, 2017 to October, 2018 to calculate the allowable volume for the first month of the curtailment beginning Jan. 1.

The company says the amended methodology for calculating the baseline uses the single-highest month of production over that same period, "which has resulted in a number of serious concerns."
Canadian Natural Resources logo is shown at the company's annual meeting in Calgary in May. (THE CANADIAN PRESS)

"Canadian Natural is being burdened with 35 [per cent] of the curtailment total target volume, whereas Canadian Natural's production accounts for 23.9 [per cent] of all production volumes subject to curtailment," the company wrote. "As a result, Canadian Natural is taking 46 [per cent] more curtailment than its share of production."

The company said such a significant curtailment is not sustainable operationally, adding that the ECHO pipeline would need to be shut in, along with the production associated with it. Although Canadian Natural said this would impact jobs, it did not estimate how many.

In a statement, two MLAs for the region, both members of the United Conservative Party, said they want an explanation for the changes to the curtailment policy. Dave Hanson and Scott Cyr quoted a news report that estimated 500 to 1,000 jobs were at risk.

While the UCP urged the government to impose mandatory cuts last fall, the MLAs said it wasn't meant as a "blank cheque." 

"The NDP Energy Minister needs to come to our community and explain their change," they said in a release.

McKinnon said the province is reviewing how much has been drawn down from all storage levels across Alberta.  More details, including the next steps, will be available soon, he said. 

"We've listened carefully to industry in applying this decision fairly, and ultimately this is a temporary measure as we fight for short, medium and long-term solutions to get top dollar for Alberta's oil," he said.

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