'Devil will be in the details': Oil production cuts met with mixed reviews from industry players

Premier Rachel Notley's plan to slash crude oil and bitumen production in the province received vocal support from all of Alberta's political parties, but garnered a decidedly mixed reaction from the larger players in the oil industry.

Premier Rachel Notley announced short-term cuts to production starting Jan. 1

Alberta Premier Rachel Notley speaks in Edmonton on Sunday during an announcement of a mandatory cut in oil production to deal with a price crisis that is costing Canada an estimated $80 million a day. (Jason Franson/Canadian Press)

Alberta will be ringing in the new year by slashing crude oil and bitumen production in the province.

The cuts, announced Sunday by Premier Rachel Notley in Edmonton, have received vocal support from all of Alberta's political parties, but garnered a decidedly mixed reaction from the larger players in the oil industry.

"I would say the very large ones with established supply chains during these sorts of constraints are probably not going to be all that happy," said Peter Tertzakian, an economist with ARC Energy Research Institute.

Two of the biggest players in Alberta — oilsands and refining firms Suncor Energy Inc. and Husky Energy — issued statements Sunday saying they plan to comply with the province's production regulation, but expressed concerns over the potential consequences that could come from government intervention.

Watch Notley's oil production cut announcement:

Alberta Premier Rachel Notley has announced a temporary 8.7 per cent oil production cut, or decrease of 325,000 barrels a day, starting Jan. 1, 2019. 1:37

Imperial Oil's chief executive Rich Kruger said in a statement they "respectfully disagree" with the decision taken by the Alberta government.

"Our view remains that free markets work and intervention carries trade risks and sends a negative message to investors about doing business in Alberta and Canada. Unfortunately, this intervention appears not to recognize the investment decisions companies have made to access higher value markets," he said.

In a statement, Husky Energy said also expressed support of the free-market system, saying they believe the market is working and they worry government-ordered curtailment or other interventions could have serious investment, economic and trade consequences.

"The devil will be in the details, and we'll work with the government on implementation with a view to minimizing negative consequences," the statement read.

'Difficult, but necessary'

Notley had been under pressure to intervene in the industry that's faced with pipeline challenges and a historically high price differential she says is costing the national economy $80 million per day.

"Albertans are unable to transport much of the oil that we produce to market through modern, well-regulated pipelines. As a result we must sell our oil at a discounted price. In the last few weeks this price gap has reached historic highs because we are producing considerably more product than there is transport capacity," Notley said Sunday.

Watch Notley explain why she believes production cuts are necessary:

Alberta Premier Rachel Notley answers questions from reporters following announcement of a temporary oil production cut in the province. 1:11

The cuts, which she called a short-term solution, will see capacity cut by 8.7 per cent, or about bout 325,000 barrels per day. She said daily cuts will remain in place until the 35 million barrels of processed oil currently in storage is shipped to market.

Cenovus Energy called the decision "difficult, but necessary" in a statement issued after Notley's announcement Sunday.

"Under normal circumstances, oil and gas producers would never advocate for government intervention in the market but these are not ordinary circumstances," president and CEO Alex Pourbaix said.

"While support for temporary mandatory production cuts was not unanimous among Alberta oil and gas companies, acknowledgement of the severity of the crisis facing our industry was."

Alex Pourbaix is the president and CEO of Cenovus Energy. (Jeff McIntosh/Canadian Press)

Derek Evans, the CEO of MEG Energy, said he was pleased to hear small producers would be protected under the plan.

"Very positive, impressive leadership by the premier," he said. "Well thought-out, quick implementation, temporary measure with a clear and well-defined endpoint."

Only 25 of the larger bitumen and conventional oil producers will be affected by the cuts. The larger players will see their first 10,000 barrels exempted each day. Companies that produce less will not be affected.