CALGARY, Alberta -- Threatened by surging production from North America, the Organization of Petroleum Exporting Countries has been pumping above its quota for 17 months as it seeks to take market share from higher-cost regions. The resulting 60 percent price crash is hitting Alberta harder than Texas.
Canadian producers are struggling to cut the cost of extracting bitumen from oil sands, and their other wells are failing to match the efficiency gains of U.S. rivals, a Bloomberg Intelligence analysis shows. While output keeps rising in the Permian Basin, the largest U.S. shale play, companies are slowing output from wells in Alberta and have shelved 18 oil-sands projects during the downturn, according to ARC Financial Corp.
"OPEC wants to hinder shale from its strong growth trajectory, but there are higher-cost producers, such as in the oil sands of Canada, that are in the line of fire," said Peter Pulikkan, an analyst at Bloomberg Intelligence in New York. "Shale will eventually be impacted, but it's not the first on the list."
In a policy shift a year ago, the 12-nation cartel decided against propping up oil prices, keeping its output target at 30 million barrels a day even as the supply glut worsened. It has exceeded that ceiling since June 2014 and pumped 32.2 million barrels a day in October, according to data compiled by Bloomberg.
In Alberta, high extraction costs and oil-price discounts relative to global benchmarks are poised to continue crimping output, Bloomberg Intelligence analysts Pulikkan, Michael Kay, Gurpal Dosanjh, Andrew Cosgrove, Rob Barnett, Cheryl Wilson and William Foiles said in research published Wednesday. Production, excluding bitumen extraction, dropped about 13 percent this year through July. That compares with a roughly 19 percent increase in output from Permian wells over the same period.
"We are one of the highest-cost basins in the world," said Rafi Tahmazian, a Calgary-based fund manager at Canoe Financial. He predicted more job losses as Canadian producers try to save money and stay profitable despite the low prices. "We're constantly working to bring down those costs."
Parts of Canada's energy industry have been resilient. Existing oil-sands projects have kept production flowing, and the weaker Canadian currency has helped exporters. Still, Canadian production is poised to be slower to rebound than U.S. shale.
Business on 11/19/2015