Business

Husky CEO says Alberta's OPEC-style cuts have created 'secondary market' for oil

Husky's CEO Rob Peabody said he has purchased available oil production space from another company in order to get more oil to market. Speaking to analysts on a conference call Tuesday morning, Peabody described it as one of the more "amusing" unintended consequences of the Alberta government's production cuts.

It's one of the more 'amusing' outcomes of the government's policy, says Husky's CEO

Husky has reduced oil production in the Lloydminster area to comply with the government's curtailment policy. (David Bell/CBC)

One of the latest wrinkles to follow the Alberta government's decision to mandate oil production cuts is the creation of "secondary market" for oil, according to Husky Energy.

The company's chief executive Rob Peabody said he has purchased available oil production space from another company in order to get more oil to market. Speaking to analysts on a conference call Tuesday morning, Peabody described it as one of the more "amusing" unintended consequences of the Alberta government's policy.

"It's just funny to note how resilient the markets are in trying to correct actions even after the government has kind of screw it all up," he said.

Husky Energy president and CEO Rob Peabody addresses the company's annual meeting in Calgary in April 2018. (Jeff McIntosh/The Canadian Press)

Some companies may be producing less than the government's mandated limit because of facility maintenance or reducing production because of low oil prices.

"One of the things we're seeing is the emergence of a secondary market in curtailed barrels," said Peabody. "Companies that seem to have extra barrels available for production despite being curtailed — which is odd itself if you think about it— are now selling them to companies that could use those barrels profitably."

The curtailment policy forced the largest 25 companies in the province to limit their oil production to help boost prices.  A lack of export pipeline space has created a backlog of oil in Alberta.

Husky has been critical of the policy since it was first proposed because the company can recoup some of the lost revenue from low oil prices by enjoying higher profit margins at its refineries.

It's just funny to note how resilient the markets are in trying to correct actions even after government's kind of screw it all up.- Rob Peabody, Husky CEO

Peabody again called for the government to end the curtailment program.

The policy has had several unintended impacts, such as boosting prices to a level that companies no longer want to ship oil by rail because it's not economical.

Peabody said this new market for companies to buy space from other companies is yet another outcome the government likely wasn't anticipating.

"Even when governments try to frustrate markets, markets have a habit of continuing to try to come back," he said.

Several companies such as Cenovus and Canadian Natural Resources have endorsed the government's policy after describing the low oil prices in late-2018 as a crisis for the industry.

The Alberta government eased back on its production cuts for February. Officials have said they are monitoring the situation and will make adjustments as necessary.

The Alberta Energy Regulator, which is overseeing the curtailment policy, setup a panel to review the concerns of industry.

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