Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

The Alberta government’s decision to spend $3.7 billion to move more crude by rail is an unintended consequence of its poorly considered production cut order, executives with Husky Energy Inc. charged on Tuesday.

The Calgary-based company, which has opposed provincial curtailments as an unwelcome interference in the market, raised its level of criticism on a conference call to discuss its fourth-quarter results.

The province imposed production quotas as of Jan. 1 designed to keep 325,000 barrels per day of crude off the market, supporting prices by opening space on full export pipelines and drawing down overflowing storage.

Story continues below advertisement

Husky maintains that its integrated upstream and downstream operations and pipeline contracts had allowed it to continue to be profitable even when discounts on western Canadian crude reached record levels last November.

“We are now seeing some of the unintended consequences starting to arise, like the rapid fall-off of rail shipments out of the province,” said CEO Rob Peabody on the call.

“This curtailment punishes companies like Husky that have made investments in refineries and pipeline capacity while rewarding those companies that have not.... The Alberta government is now shutting in perfectly economic production.”

He said an informal secondary crude market has been created in Alberta which has allowed Husky to buy small amounts of oil from other producers to send to market.

Integrated companies like Suncor Energy Inc. and Imperial Oil Ltd. – who had opposed the production cuts – charge that lower discounts mean crude-by-rail is no longer profitable, although curtailment supporter Cenovus Energy Inc has said it would increase its crude-by-rail shipments this year.

The province announced last month it would allow production quotas in February and March to rise by 75,000 bpd due to declining storage levels.

But chief operating officer Rob Symonds said on the call Husky is actually being hit harder now than it was in January.

Story continues below advertisement

“In February and March … the province has said the curtailment is being reduced, but our quota went down,” he said. “So our curtailment went up when the provincial number went down. That’s why I’m a little confused as to how the math works.”

He wouldn’t give Husky’s actual curtailment number, which he said is about 20 per cent of potential Alberta oil production.

He said the company has shut in some conventional heavy oil wells that will likely be too badly damaged to be started up again when curtailment ends.

Mike McKinnon, spokesman for Alberta Energy Minister Marg McCaig-Boyd, defended the curtailment plan in an e-mail, noting that it is working to improve oil prices and save jobs.

“The decision to temporarily limit production was applied fairly and equitably,” he said. “We know that limiting production is not ideal or sustainable. That’s exactly why we have a plan to move more oil by rail until new pipelines are built.”

The province announced last week its plan to add 120,000 bpd in crude-by-rail capacity by next year. Opposition leader Jason Kenney has said he will cancel the deals with Canada’s two major railways if he is elected premier in the spring election.

Story continues below advertisement

Husky’s fourth-quarter results were hit by suspended production following an oil spill at its White Rose oil field off the coast of St. John’s, N.L., a longer-than-expected maintenance shutdown at its refinery in Lima, Ohio, and lower oil prices.

Husky reported $216 million in net earnings in the last three months of 2018, versus analyst expectations of $257 million, according to Thomson Reuters Eikon.

That compared with a profit of $672 million in the same quarter a year earlier.

Production averaged 304,000 barrels of oil equivalent per day, off from 320,000 boe/d a year earlier.

Husky says output this year is expected to average 290,000 to 305,000 boe/d, including oil curtailments and the loss of production from White Rose through at least the first quarter.

The company’s stock closed down by about 7.5 per cent on the Toronto Stock Exchange at $14.77.

Follow related topics

Report an error
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies