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Alberta extends oil production curtailment for a year, increases exemption

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Alberta extends oil production curtailment for a year, increases exemption

Alberta's government has extended a cap on crude output by a year amid dismal prospects for the easing of pipeline bottlenecks.

The recently elected United Conservative Party government has decided to extend the production cap through Dec. 31, 2020. The government boosted the exemption for small producers to 20,000 barrels per day from 10,000 bbl/d, according to an Aug. 20 statement. The increase will reduce the number of companies covered by the curtailment to 16 from 29. The province estimated that, without the limits, oil production would exceed export takeaway capacity by 150,000 bbl/d.

"We have listened to industry feedback and these adjustments to the curtailment policy will better position companies to make timely business decisions," Alberta Energy Minister Sonya Savage said in the statement. "We committed to protecting the value of our resources while boosting investor confidence, and these enhancements will do just that."

Large Canadian oil companies, such as Suncor Energy Inc. and Exxon Mobil Corp.'s Canadian subsidiaries, have complained that the curtailments have unfairly targeted their operations and hurt expansion prospects. Canadian Natural Resources Ltd., the nation's biggest energy producer by volume, has come out in support of the caps. The companies have said they favor a negotiated reduction in the limits in exchange for taking over government crude-by-rail shipping contracts.

The province cited delays to proposed export pipeline projects, like Enbridge Inc.'s Line 3 replacement, which has been stalled by Minnesota regulators. The cap was introduced after swamped export pipelines and brimming storage caused the price of heavy crude at the Edmonton, Alberta, hub to tumble in late 2018. Alberta, which owns most of the oil produced in the province, takes crude oil as royalties and resells it to fund government operations.

The production cap was set at 3.65 million bbl/d when it went into effect in January 2019. The curtailment has since been eased and stands at 3.74 million bbl/d for August and will rise to 3.79 million bbl/d by October. Production allowances are calculated by a formula that sets each affected company's baseline production level based on its highest level during their best single month from Nov. 2017 to Oct. 2018. The province's total output neared 4 million bbl/d when the limits were announced.