Unless the Government of Alberta changes its mind in the next week, their change in the oil curtailment formula will lead to layoffs and no oil production from CNRL in the lakeland starting Feb. 1.
It is estimated that anywhere from 500-1000 workers could be out of work in the Lakeland area if the curtailment formula is not changed back.
A letter sent from CNRL to service providers on Jan. 22 warns that changes in the original curtailment formula for February means that the ECHO pipeline, the main way of transporting crude out of Bonnyville, Elk Point, Lloydminster, will be shut-in for the area.
“Unfortunately, the changes for February 2019 mean that Canadian Natural will be curtailing production far beyond its voluntary and mandated January volumes. This is not sustainable operationally as the ECHO pipeline will need to be shut-in along with the production associated with it. As a result, the disproportionate February 2019 curtailment numbers will hurt jobs, specifically in the Bonnyville/Elk Point/Lloydminster area,” the letter said.
“Canadian Natural will be required to curtail a third more production in February compared to January, and the reduced production will unnecessarily impact jobs significantly in the heavy oil region.”
The original curtailment method, which CNRL agreed to, used the average of the six highest months of production from Nov. 2017 to Oct. 2018 to calculate January 2019’s allowed volume.
Its purpose was to combat the oil price differentials seen worldwide for Canadian oil.
However, changes made by the province on Dec. 30, 2018, say that starting in February production will be based upon the highest production month between Nov. 1, 2017, and Oct. 31, 2018, instead of the average of the highest six individual months during the same period.
The province said they changed the formula after submissions from the Alberta Energy Regulator’s Production Curtailment Issues Panel.
It states: “The current baseline for determining monthly allowable production is being amended to better account for operators who had made significant recent investment and were in the process of increasing production at the time of the government’s announcement of curtailing production.
“Greater recognition of increasing production by operators with single projects and little opportunity to curtail from a range of wells or other projects can also minimize some risks of reservoir damage or operational challenges leading to less safe operation.”
The ramifications for CNRL means that the ECHO pipeline will be running below its minimum capacity and will be shut-in for at least February.
If the curtailment averages don’t change, it is uncertain what will be the long-term future of these sites.
“When will they start that production back up again?” said Dwayne Vogel, owner of Prairie Tech Oilfield in Elk Point.
“There’s going to be a huge cost of putting service rigs on and re-activating those wells. The government has to go back to the original formula which everyone signed up for and not punish the local producer in our area,” he said.
Since companies book how much space they will use in a pipeline, bigger oil companies can usually take more spots than smaller ones. But with the new formula, more companies will ship “air barrels” on pipelines, where there’s no oil actually leaving.
“You have to book how much space in the pipeline you want, next month and the month following that. Sometimes you buy for space in the pipeline, but you never use it. The smaller producers because it hits them harder, they book extra air in the pipeline, extra seats in the plane, and there’s no penalty to use them because the big guys will always steal a small guys spot if they have it,” said Vogel.
“So CNRL actually ships actual metres down the line. Smaller guys kick air, they don’t ship it, it doesn’t get calculated on their formula for the curtailment. So there’s a whole flaw in the curtailment…the old formula is ok, because it’s six months.
The letter from CNRL says they are being “burdened” with 35 per cent of the total target volume of curtailment, but their production is only 23.9 per cent of all oil being curtailed.
“Our provincial government has to realize that and go back to the original formula. If they want to change, ease into the change over time, but not immediately,” said Vogel.
“In a week’s time from now, if no changes are made, there’s going to be a 1000 households out of work. There’s no need to check the wells, no need to service the wells, no oil to haul from the wells, no tank cleaning, no service rig work in CNRL heavy oil of Bonnyville-Lloydminster.
“It’s 100 per cent everybody involved in heavy oil because no heavy oil will be moved out of the area. That pipeline is the only way oil gets out of Bonnyville, Elk Point area,” said Vogel.
If nothing changes before Feb. 1, but the province does return to its original formula, there will be a cost to firing up the wells.
“We were expecting a slower time with the curtailments going, but you can’t pick on one guy to carry the load and kill a community of Bonnyville, Elk Point, Lloydminster,” said Vogel.
He says he encourages anyone to email the premier’s office, minister of energy, and local MLA’s Scott Cyr and David Hanson.
The UCP released a press release this afternoon requesting a meeting with the Minister of Energy to review oil curtailment in the province.
Reeve Greg Sawchuk
“This concern is coming from oil field service providers, should this revised curtailment go through and the company is essentially forced to shut down that pipeline, then the effect on the companies in the area is going to be huge,” said Reeve Greg Sawchuk.
“What were trying to do is twist the energy minister and the government’s arm right now to rethink this. As I put across to the energy minister’s office, this was for some people like the final straw,” he said.
“Our area has not seen an uptick at all since the downturn of 2015. For a lot of companies businesses, families, they’re already just getting by. If you even take one month of employment from these people, that’s it right. They’re using up their savings.
“For a company as a big as CNRL and so important to our area to shut down a lot of this heavy oil cold flow production and their pipeline leaving, the impact is on a few businesses is going to be huge.”
Sawchuk said area politicians could be meeting with the Senate representatives from Alberta in Edmonton next week.