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Government of Alberta takes steps to encourage investment in new conventional oil wells

The Government of Alberta, Canada, is now allowing curtailed operators to drill new conventional oil wells without being restricted by production limits. Existing producing wells will remain under curtailment. The government said that this measure will drive positive investment, lead to increased drilling activity, and support economic growth in communities across Alberta.

Companies are currently making investment decisions and we want those dollars and jobs to be in Alberta. We are doing everything we can to help.

—Sonya Savage, Minister of Energy

Oil production in Alberta in September 2019 was 16.75 million cubic meters, up 2.1% compared to September 2018. Non-conventional (or oil sands) production, which constituted 83.8% of all oil production in Alberta in September 2019, increased by 3.9% year-over-year, while production of conventional oil was down 6.2% over the same time frame.

The adjustments provide flexibility for industry while aligning with the objective of curtailment—i.e., protecting the value of Alberta’s oil by maintaining a balance between production and takeaway capacity.

This update to the existing curtailment policy is in-line with other recent enhancements made by government, including the addition of special production allowances, which give operators curtailment relief for production shipped by new rail capacity.

According to the Canadian Association of Oilwell Drilling Contractors, each working drilling rig supports an additional 145 direct and indirect jobs.

In response to the government’s announcement, Tim McMillan, president and CEO, Canadian Association of Petroleum Producers, said:

The Canadian oil and natural gas industry has faced a number of challenges in recent years, particularly in relation to market access and attracting capital investment. We look forward to further technical details in regards to today’s announcement in terms of dealing with these challenges going forward.

Background. Alberta produced more crude oil in 2018 than could be shipped for export by rail or pipeline. This affected storage levels, Canadian crude oil prices and other aspects of the market. To protect the value of the oil, the Government of Alberta temporarily limited production to match export capacity to prevent Canadian crude from selling at large discounts.

The oil production limit has been extended to 31 December 2020, with possible earlier termination. This limit will be monitored closely and adjusted to better match export capacity.

Now, effective 8 November 2019, new wells drilled for conventional oil are exempt from the production limit.

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