Alberta lifts curtailment cap for new conventional oil wells

Alberta is opening a loophole for oil well operators to circumvent its oil curtailment policy.

Effective immediately, all producers can drill new conventional oil wells without being restricted by production limits, the province announced in a news release Friday. Existing wells, however, will remain subject to current curtailment limits.

Energy Minister Sonya Savage said easing provincially-imposed quotas on conventional crude output will lead to increased drilling activity, drive investment in the oil sector and keep industry jobs in Alberta. 

“Companies are currently making investment decisions and we want those dollars and jobs to be in Alberta,” Savage said in a statement. 

“We are doing everything we can to help.”

In September 2019, Alberta produced approximately 480,000 barrels per day of conventional oil, the province said. The province estimates an additional 90,000 barrels could have been produced if no production caps were in place. 

Alberta introduced a curtailment policy last year as a supply glut, created by transportation constraints, depressed Canadian oil prices.

The policy was implemented by the previous NDP government as the price gap between western Canadian heavy crude and U.S. light oil ballooned to more than $40 US a barrel in late 2018, ravaging companies’ bottom lines and provincial revenues.

Friday’s announcement follows a series of incremental changes in the curtailment program. Last month, the UCP announced that oil producers will be allowed to exceed their provincially-imposed output caps if they can ship those extra barrels by rail.

The UCP government is also working to cancel the previous NDP government’s $3.7-billion crude-by-rail contract and divesting those contracts to the private sector. The NDP had touted the policy as a way increase export capacity and eventually end curtailment. 

The NDP signed deals to lease 4,400 rail cars that would transport Alberta crude to market, before being ousted in the April election.

Curtailment was supposed to be in place until the end of this year. But the province decided to extend it by a year, in large part because Enbridge’s Line 3 Replacement project to the U.S. Midwest, which would add 370,000 barrels of daily export capacity, is being held up by permitting issues and legal wrangling in Minnesota.

The province has been gradually easing its limits since, imposing an initial 3.56 million barrel a day cap in January. In November, production increased to a total of 3.8 million barrels per day, the province said.

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