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Alberta sets August oil production limit at 3.74 million b/d, up from July

Highlights

August will be fifth month this year with a limit increase

WCS at a $13/b discount to WTI

Alberta hires bank to oversee divestment of crude-by-rail contracts

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Alberta will increase its crude and bitumen production limit to 3.74 million b/d in August, up 25,000 b/d from the July limit, the province's government announced Thursday.

"The province is easing the production limit for August due to the private-sector growing its crude-by-rail capacity, declining inventory levels and improved efficiencies in export pipelines," the government said in a statement.

Alberta initially capped production at 3.56 million b/d in January, a 325,000 b/d cut, in order to tighten wide crude price discounts.

Western Canadian Select crude was assessed by S&P Global Platts Wednesday at a $13/b discount to WTI. That discount was as wide as $51.50/b on October 11.

August will be the fifth month this year in which the production limit was increased.

The first 10,000 b/d a company produces are exempt from the limits. Alberta's government estimates that 29 of Alberta's more than 300 producers are subject to the limits.

Total western Canadian oil output, including diluent, is forecast to climb to 6.34 million b/d in 2035, up from 4.66 million b/d in 2018, according to the Canadian Association of Petroleum Producers.

CRUDE-BY-RAIL

Sonya Savage, Alberta's energy minister, said Thursday that the Alberta Petroleum Marketing Commission has engaged CIBC Capital Markets, an investment bank, to help oversee the divestment of the province's crude-by-rail program and transition it to the private sector.

"This process involves highly confidential commercial negotiations and we anticipate divestment from the previous government's program will be completed this fall," Savage said. "As a government, we are accountable to the taxpayer. We will leave crude-by-rail in the hands of the private sector while making decisions that ensure the best outcomes for Albertans and our energy sector."

Earlier this year, then-Alberta Premier Rachel Notley signed crude-by-rail contracts valued at C$3.7 billion to boost shipments of Alberta crude to the US. Canada's two largest railroads landed the majority of the contracts, under which crude shipments of 20,000 b/d were to start in July and increase to 120,000 b/d in 2020.

Alberta Premier Jason Kenney, who defeated Notley in a May election, had pledged to unwind the contracts.

Canadian crude-by-rail exports averaged 236,152 b/d in April, up about 68,000 b/d from March, according to the latest data from Canada's National Energy Board. Canadian crude-by-rail exports climbed as high as 337,260 b/d in October, according to the NEB.

S&P Global Platts Analytics sees crude-by-rail exports out of Canada rising to around 400,000 b/d by the end of year, barring an unforeseen increase in government production curtailments.

-- Brian Scheid, brian.scheid@spglobal.com

-- Kristian Tialios, Kristian.Tialios@spglobal.com

-- Edited by Jeff Mower, newsdesk@spglobal.com