Morningstar | Alberta Announces Mandatory Production Cuts; Stocks Mixed on the News
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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Suncor Energy is an energy company. Co.'s operations include oil sands development and upgrading, onshore and offshore oil and gas production, petroleum refining, and product marketing under the Petro-Canada brand. Co.'s segments include: oil sands, which develop and produce synthetic crude oil and related products through the recovery and upgrading of bitumen; exploration and production, which include offshore activity, and the exploration and production of crude oil, natural gas, and natural gas liquids; and refining and marketing, which include the refining of crude oil products, and the distribution and marketing of these and other purchased products, as well as a lubricants plant.
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