Morningstar | Alberta Announces Mandatory Production Cuts; Stocks Mixed on the News. See Updated Analyst Note from 03 Dec 2018
On Dec. 2, Alberta Premier Rachel Notley announced production cuts of 325 thousand barrels per day of crude oil and bitumen in Alberta. The cuts become effective Jan. 1, 2019 and extend throughout 2019. Initially, the 325 mbbl/d will be in place until excess storage is drawn down, which is expected to take three months. After which, production cuts will drop to 95 mbbl/d and will undergo monthly adjustments to match production with takeaway infrastructure. The mandatory cuts could be lifted before the end of 2019, depending on market conditions.Accordingly, we lowered our 2019 production estimates for our oil sands producers. The production cuts are short-term and we see them as a bridge to boost heavy oil prices until pipeline expansion projects are placed into service. We think this move benefits producers who have limited pipeline commitments, such as Cenovus Energy, while hampering producers, who are planning to bring on production during 2019, such as MEG Energy and Suncor Energy.
We are lowering our fair value estimates for MEG Energy, Imperial Oil, Canadian Natural, Husky Energy, and Suncor Energy due to higher operating costs associated with the production cuts and maintaining our fair estimate on Cenovus. Stocks are mixed on the news. Cenovus and Canadian Natural are up as much as 9% each on the news, while Imperial is down 3%. Despite the rally, we continue to see upside in Best Idea Cenovus, and Canadian Natural.
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MEG Energy is engaged in a steam assisted gravity drainage oil sands development at its 80 section Christina Lake Regional Project. As of Dec 31 2010, Co. had total proved bitumen reserves of 605.9 gross thousand barrels (470.5 net thousand barrels).
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