CALGARY – The largest oil and gas producer in Canada is reacting to deep discounts for domestic heavy oil and volatility in natural gas prices by slowing drilling plans, even as its financial results improve.
Calgary-based Canadian Natural Resources Ltd., which produces over 1 million barrels of oil and gas per day, announced during an earnings call Thursday that it could substitute heavy oil drilling with light oil drilling, accelerate planned maintenance in the oilsands and drill just 17 natural gas wells this year amid challenges specific to the local energy industry.
“We expect them to return to normal in the next few months,” the company’s executive vice-chairman Steve Laut said in an interview of his company’s plans to manage through the Canadian heavy oil discount.
Domestic oil prices have tumbled since TransCanada Corp.’s Keystone pipeline spilled oil in South Dakota and the line has been operating below full capacity since the incident at the end of 2017. The discount for Canadian heavy oil relative to U.S. light oil sat at $32 per barrel on Feb. 28.
Canadian Natural’s move immediately drew praise from financial analysts. “I think that makes a ton of sense,” said Edward Jones senior analyst Jennifer Rowland. “Why sell into that price environment?”
The company, which is also the largest natural gas producer in the country, also announced it would drill just 17 new natural gas wells over the course of 2018 due to the lack of pipelines for local natural gas, which fell into negative territory at times last year.
Pipeline operators TransCanada, Enbridge Inc. and Pembina Pipeline Corp. have all proposed expansions to their gas pipeline systems to send more Canadian gas out of Alberta, where Alberta benchmark AECO prices are severely discounted relative to U.S. prices.
Laut said the company was looking at all the pipeline options available, and the company had reduced its exposure to the AECO market.
Canadian Natural said it consumes approximately 32 per cent of the 1.6 billion cubic feet of gas it produces each day, sells 29 per cent of its gas outside of Alberta, while around 39 per cent is exposed to prices in Alberta and B.C.