Alberta will allow operators to drill new conventional wells unrestricted by production limits as the government tiptoes toward easing oil curtailment.
Existing producing wells will remain under curtailment, but Energy Minister Sonya Savage said Friday the change would help drive investment and job creation in the oil patch, and economic growth in the province.
The move, effective immediately, targets Alberta’s drilling industry, which has seen the province’s rig count drop by 33 per cent year-over-year. Government officials expect the bulk of new wells to crop up in the foothills, east central and southeast regions of Alberta.
New wells drilled under the policy change won’t come online until late 2020 or early 2021, by which time the government expects additional transport capacity thanks to pipeline optimization programs and additional crude-by-rail contracts.
“We’re watching the differential. We wouldn’t be doing this if we weren’t confident” the differential can handle it, Ms. Savage said at a news conference in Edmonton, adding drilling jobs could essentially start right away under Friday’s change.
The drilling sector had been facing its worst winter season in 25 years, said Bob Geddes, president and chief operating officer for Ensign Energy Services Inc.
He said he believes the announcement will help “to save this winter,” which is typically the busiest period for Canadian drilling companies.
Mr. Geddes – who heads one of Canada’s largest energy-sector service firms – said Friday he had worked with the Canadian Association of Oilwell Drilling Contractors, the industry group, and the Alberta government over the past month to push for the policy change.
Ms. Savage didn’t know how many wells would be drilled under the eased curtailment policy, but said producers believe they could bring on hundreds of new wells if curtailment is relaxed.
“We’ll hold them to their word to bring that activity on and create those wells, because we need them,” she said.
Alberta producers have been under curtailment since January, when the former NDP government imposed production limits to drain the glut of oil in storage and help ease a crippling price differential on Canadian crude.
In August, the United Conservative Party government announced curtailment would be extended through 2020, citing swirling uncertainty around when expanded pipelines might come online.
Ms. Savage confessed she’s the “the last person in the world” who wants to see Alberta’s oil patch hamstrung by curtailment and said her government is doing all it can to prepare an “orderly exit” from production limits.
Those first tentative steps include Friday’s change for new wells and the special production allowances announced last month, which will allow producers to increase their output as long as the extra oil is moved by rail.
“Companies are in the process of finalizing their budgets and their investment plans," Ms. Savage said. "What we don’t want is the curtailment policy to impact those decisions. We want that investment and those dollars to stay in Alberta to create jobs here.”
Canadian Natural Resources Ltd., one of Canada’s largest producers, has started drilling in Saskatchewan to increase output, saying it makes economic sense to tap wells untouched by curtailment.
This past September, Alberta produced approximately 480,000 barrels a day of conventional oil, of which 90,000 b/d came from curtailed operators. Eligibility for unrestricted drilling under the new rule will be tracked by the date the main drill bit enters the ground.
With files from Kelly Cryderman
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