The price crisis affecting both heavy and light Canadian oil is “staggering,” says the chief executive of Whitecap Resources Inc., who warned that the situation will get even worse next year when the oil hedging strategy for many companies starts to fade.
Grant Fagerheim, president and CEO of the Calgary-based light oil producer, told BNN Bloomberg that Whitecap has hedged for fluctuations in the price of oil until the end of December.
“We have a $3.50 differential versus what settled for the month of December at a differential price of US$35… a tenfold increase from what the historical norm is,” Fagerheim said, referring to the price gap between West Texas Intermediate, the North American crude benchmark, and Edmonton light crude. “So, through to the end of December, we’re pretty well-hedged at this particular time. Going forward in 2019, now we’re into unchartered territory for most of the producers out here.”
Fagerheim said producers’ inability to ship light oil to the U.S. Midwest, because of a lack of pipelines is penalizing all Canadians, not just Albertans.
“These are Canadian resources that should be extracted at world prices and sold at world prices, and they’re not,” Fagerheim said. “We’re talking about receiving in the month of December, generally on a US$72 oil price, light oil (Canadian) producers receiving US$27 a barrel, and heavy oil producers receiving between US$14 to $15 a barrel. It’s staggering.”
Fagerheim said he blames the federal government for not being “consistent, honest and transparent” in its energy policy, adding that producers financed projects years ago with the understanding that they were going to have government support to get their products to the market.
“When the Trudeau government came into power, the first thing they did was they killed Energy East and they shut down Northern Gateway. Those were two real live pipelines, and they could have advanced Trans Mountain,” Fagerheim said. “So, what have we done now? We’ve used taxpayers’ money to buy a pipeline, and still have it on hold rather than forcing through policy to get product online.
“Why do you kill pipelines and then you come back to finance it with taxpayers’ money? It’s very inconsistent.”
Fagerheim also said Whitecap supports recent calls for government production cuts to help alleviate the supply glut, adding that some producers are already doing so.
“People are starting to curtail production, we’ll see how far that gets. But, it may mean intervention from the government, which we would be supportive of quite frankly,” he said.
(Bloomberg News)
