Oil and Gas

UPDATE 3-Canadian oil companies see output cuts easing as rail capacity grows

(Updates with Alberta energy minister’s comment)

CALGARY, Alberta, July 9 (Reuters) - Major Canadian oil companies, which publicly disagreed over the Alberta government’s forced curtailments this year, are in lockstep over how to end the production limits and reinvigorate the battered industry.

Senior executives from Suncor Energy, Canadian Natural Resources, Imperial Oil Ltd and Cenovus Energy said at a TD Securities investor conference in Calgary on Tuesday that they are in talks with Premier Jason Kenney’s Alberta government. The discussions center on ending the mandatory cuts just as added rail capacity to move crude comes online.

The previous government of Canada’s major oil-producing province imposed curtailments in January in a rare step to drain a glut of oil in storage and lift prices. Congested pipelines have caused the Canadian industry’s growth to lag that of other countries such as the United States, and soured investors.

“If we could lift production and rail (movement) at the same time, it all kind of makes sense,” said Suncor Chief Executive Mark Little. Suncor, which owns both oil production and refining facilities, had opposed the curtailments.

“We’ve been encouraged by conversations with government,” Little said.

He added that curtailments could end this year if the industry and government factored in expanding rail capacity.

The Kenney government, which took office in April, has modestly eased curtailments. It recently said it would unload by autumn the crude-by-rail leases signed by the former government, amounting to 120,000 barrels of crude per day.

“Companies would be more than willing (to take the rail leases). It’s just right now I could go sign a rail contract, and I can’t produce an incremental barrel - so why would I do it?” Little told reporters on the conference sidelines.

Alberta Energy Minister Sonya Savage said such a change is “a possibility,” but premature.

“It’s too early to see what .. the conditions are going to be by the fall,” she told reporters.

There is already significant idle rail capacity that could move crude, according to industry estimates. Cenovus CEO Alex Pourbaix, who was one of the industry’s strongest voices in favor of curtailment, said the industry had proposed modifying curtailment rules to allow companies to overproduce their monthly allowances, as long as they demonstrate that extra production is moving by incremental rail.

“This proposal largely has the complete support of all the large producers,” Pourbaix added.

But ramping up oil-by-rail volumes also requires securing storage space, locomotives, crews and commitments from crude buyers, Pourbaix said.

Canadian Natural Resources Executive vice Chairman Steve Laut said tying eased curtailments to more rail capacity would provide an “orderly” way to remove the limits.

Imperial Senior Vice President Theresa Redburn said Imperial, which is majority owned by Exxon Mobil Corp, was optimistic about talks with the government. (Reporting by Rod Nickel and Nia Williams in Calgary, Alberta; editing by Jonathan Oatis)