A pedestrian is reflected in a Suncor Energy sign in Calgary, Monday, Feb. 1, 2010. THE CANADIAN PRESS/Jeff McIntosh

Suncor cites crude-by-rail woes as it calls for early end to Alberta oil cuts

CALGARY — Suncor Energy Inc. is calling on the Alberta government to make an earlier-than-planned exit from the oil curtailment program it enacted on Jan. 1 because of its “unintended consequences.”

The program designed to draw down crude storage levels and free up space on export pipelines has worked too well, reducing local price discounts to the point that shipping crude by rail into the United States is no longer financially sustainable, said CEO Steve Williams on a conference call Wednesday morning.

“If you look at what’s happened, the differential corrected — and over-corrected — very quickly and the unintended consequence of that is … rail economics are severely damaged and a lot of the rail movements are stopping or have stopped,” Williams said.

“That’s going to have the opposite impact to what the government wants.”

The same charge was levelled last week by Imperial Oil Ltd. CEO Rich Kruger, who said his firm would cut crude-by-rail shipments from its Edmonton-area terminal to near zero this month.

The move is seen as a major setback for oil egress as Imperial shipped 168,000 barrels per day in December, an amount it said accounted for about half of Canada’s total rail exports.

On a conference call to discuss Suncor’s fourth-quarter results, Williams said the production cuts are also having a longer-term negative affect on investor confidence in Canada.

The criticism came as Suncor reported a $280-million net loss in the fourth quarter of 2018, in part due to the very price discounts the curtailments are designed to reduce. It added, however, that lower-priced feedstock resulted in better profit margins at its refineries.

The Calgary-based company said its average realized price in Canadian dollars for raw bitumen in the quarter was just $7.96 per barrel, versus $42.80 in the fourth quarter of 2017. Its average realized price for upgraded synthetic crude was $46.07, compared with $70.55.

Alberta Premier Rachel Notley said last week the province would reduce the initial 325,000-bpd production curtailment by 75,000 bpd, citing levels of storage that have fallen faster than expected.

“Our goal is and always has been to match production levels to what can be shipped using existing pipeline and rail capacity, while encouraging a reduction in storage levels,” said Mike McKinnon, spokesman for Energy Minister Marg McCuaig-Boyd, in an email.

“Last week we eased oil production limits ahead of schedule and we will continue to monitor this closely and adjust as necessary. We expect the differential to settle at a more sustainable level and we continue moving forward with long-term solutions like our investment in rail and our continued fight for pipelines.”

The province plans to bring in further reductions to take the curtailments to 95,000 bpd through the end of 2019 once storage levels have fallen enough.

The difference in price between Western Canadian Select bitumen-blend oil and New York benchmark West Texas Intermediate widened to as much as US$52 per barrel in October, but shrunk to single digits in December and January.

In order to support the higher cost of rail over pipelines, the differentials need to be higher than US$15-$20 per barrel, Imperial says.

Suncor shares opened lower on the Toronto Stock Exchange on Wednesday but posted a small gain by mid-afternoon as investors digested lower-than-expected earnings, offset by a 17 per cent increase in its quarterly dividend and a commitment to buy back another $2-billion worth of shares when the current $3-billion program is completed this month.

In a report, analyst Phil Skolnick of Eight Capital said the impact of price discounts on Suncor would likely surprise some investors who believed that the company’s contracted pipeline space and refining assets provided protection not available to other Alberta producers.

Just Posted

Red Deer’s fireworks bylaw gets initial approval

The city has been without pyrotechnic rules since April

Tourism-boosting strategy approved for Red Deer

City to partner with Tourism Red Deer and surrounding regions to increase visitors

Two women rescue abandoned tarantula in Airdrie

The tarantula has a new home and Facebook followers

Red Deer woman wins Edmonton marathon

A Red Deer runner just wanted to do her best Sunday in… Continue reading

WATCH: ‘Lots to see and do’ at Pioneer Days in Red Deer

Sunnybrook Farm Museum is celebrating its 24th annual Pioneer Days this weekend.… Continue reading

Your community calendar

Thursday The Red Deer and District Garden Club hosts its annual Flower… Continue reading

Family: Summer days are drawing to a close

Summer is running away on sure-footed feet and it seems to be… Continue reading

Bombers quarterback Nichols on 6-game injured list with upper body injury

WINNIPEG — Matt Nichols was at Blue Bombers practice on Monday, but… Continue reading

Bombers’ Nichols latest CFL opening-day starter to go down with injury

Matt Nichols is the latest CFL opening-day starter to go down. The… Continue reading

Ontario cannabis retailer returns $2.9M in CannTrust products to company

The Ontario government’s cannabis wholesaler and online retailer is returning all products… Continue reading

Bell says it will cut back on rural broadband program after CRTC rate cut

Bell Canada says it will cut roughly 200,000 households from a rural… Continue reading

Catalyst Capital Group buys nearly 18.5M HBC shares in tender offer

The Hudson’s Bay Co. insiders who want to take Canada’s oldest retailer… Continue reading

Entrepreneurs turning beer byproduct into bread, cookies and profits

VANCOUVER — When Jeff Dornan opened a brewery six years ago, he… Continue reading

Most Read