Canadian Natural Resources Ltd.’s earnings jumped 65 per cent in the first quarter, driven by higher oil prices due largely to the previous Alberta government’s contentious mandatory production cuts.
Canadian Natural, the country’s second-largest largest oil company, has been a big proponent of the curtailments that former premier Rachel Notley imposed at the start of the year. The policy allowed the company to improve financial results despite lower production during the period, it said on Thursday.
Steve Laut, Canadian Natural’s executive vice-chairman, stressed that the debate over curtailment, which has divided his industry, would be put to rest by adding pipeline access to the West Coast. Ottawa is due to make a decision next month on approving the $7.4-billion expansion of the Trans Mountain pipeline, a project aimed at almost tripling the volume of Alberta crude shipments to the Pacific. The expansion still faces opposition among many coastal Indigenous communities as well as environmental groups.
“There’s lots of discussion out there about the government of Alberta’s curtailment program – some for and some against. To be clear, Canadian Natural strongly supports curtailment, as it has normalized markets and saved thousands of jobs for Albertans,” Mr. Laut told analysts. “Regardless of whether you are for or against curtailment, let’s be very clear that the root cause of curtailment is lack of market access. This is the issue that needs to be addressed and we should not become distracted with curtailment issues.”
In the first quarter, Canadian Natural, which operates two major oil sands mining operations as well as steam-driven projects, earned $961-million, or 80 cents a share, up from a year-earlier $583-million, or 47 cents a share. Production slipped about 8 per cent to 1.04 million barrels of oil equivalent a day. It posted a $776-million net loss in the fourth quarter of 2018, a period it said was marked by a “dysfunctional crude oil market."
Late last year, Western Canada Select, the benchmark heavy oil blend, sold at times at US$40 a barrel less than U.S. light crude. The decline in price came amid a glut due to chronically tight pipeline capacity to the industry’s main U.S. markets and extensive maintenance outages at refineries.
To deal with the problem, Ms. Notley imposed a provincewide reduction of 325,000 barrels a day, beginning in January, a move that quickly shrunk oil-price differential to less than US$10 a barrel but also created opposing camps within the industry.
Hard-hit independent oil sands producers, a list that also includes Cenovus Energy Inc. and MEG Energy Corp., backed the policy enthusiastically. Refiners including Suncor Energy Inc., Husky Energy Inc. and Imperial Oil Ltd. opposed the cuts, arguing that the market should be allowed to set prices rather than government intervention.
The unusually narrow price discount has had some unintended consequences. It has made it uneconomic for some shippers to transport Canadian oil to the U.S. Gulf Coast by rail, they argue, and supplies within Alberta have backed up again. It has also squeezed profit margins at refineries.
In Husky Energy’s first-quarter results, released last month, chief executive officer Rob Peabody urged Alberta’s newly elected United Conservative Party government to “return to competitive free market principles by ending quotas and allowing the market to manage itself in a more natural and efficient manner.”
UCP Premier Jason Kenney has yet to say how long he will maintain the curtailments, which have been reduced in recent months. Mr. Kenney was initially supportive of the policy.
Alberta Energy Minister Sonya Savage said in an interview on Thursday that her new government is reviewing the issue but had no immediate plans to make any changes.
With a file from James Keller