Canadian province Alberta lifts curtailment on new oil wells to boost economy

WINNIPEG, Manitoba (Reuters) - The Canadian province of Alberta said on Friday that new conventional oil wells could be drilled without being subject to government production limits, in a bid to boost its ailing economy.

FILE PHOTO: An oil pump jack pumps oil in a field near Calgary, Alberta, July 21, 2014. REUTERS/Todd Korol/File Photo

The change takes effect immediately, the provincial government said in a statement. The broader curtailment policy remains in effect to hold oil production to levels that can move through congested export pipelines.

Alberta introduced mandatory production curbs on Jan. 1 this year to reduce a glut of oil in storage and lift prices. Its government said last week that it would allow companies to produce additional oil if they move it by rail.

“Companies are currently making investment decisions and we want those dollars and jobs to be in Alberta,” Alberta Energy Minister Sonya Savage said.

The province, home to most of Canada’s oil production, has been hurt by layoffs from oil producers such as Husky Energy Inc and service companies which drill wells.

The Alberta government, led by right-leaning Premier Jason Kenney, said last month that its deficit in the 2019-20 fiscal year would increase, reaching C$8.7 billion.

Curtailment still applies to existing wells, the government said. The policy affects Alberta’s 16 biggest producers, limiting total output to 3.8 million barrels per day (bpd) this month.

Canada will see a 10% drop in wells drilled in 2020, the Petroleum Services Association of Canada (PSAC) forecast last week.

“It’s definitely going to result in more wells and more jobs,” Tristan Goodman, president of the Explorers and Producers Association of Canada, said of the announcement. But “this is not the start of a boom.”

Lifting curtailments will encourage new production at a time when rigs have steadily moved to the United States, where there are lower costs and year-round work, said Mark Scholz, chief executive of the Canadian Association of Oilwell Drilling Contractors.

Conventional crude accounts for 16% of the province’s oil production, with the vast majority coming from the oil sands, according to the Alberta Energy Regulator.

The change may spur more drilling by Canadian Natural Resources Ltd, the biggest conventional oil producer, as well as Husky and Baytex Energy Corp, said Mark Oberstoetter, director of upstream Canada for consultancy Wood Mackenzie.

But it is unlikely to significantly increase supplies, he said. The move may come too late for some companies to factor into 2020 capital budgets, said April Read, senior analyst at Wood Mackenzie.

Reporting by Rod Nickel; Editing by Chizu Nomiyama and Jonathan Oatis