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Cabot Energy eyes better oil sales prices as a result of Alberta’s mandated production cuts

An order from the Alberta authorities to cut out 325,000 bopd of production in the region could support an improvement in crude prices
oil and gas operations
A company's first 10,000 bopd of output will be untouched by the measures

Cabot Energy Plc (LON:CAB) has told investors that new measures by the Alberta authorities to cut-back crude production in the short-term won’t impact its business.

The regional government has this week revealed it will mandate a reduction in oil production by 325,000 barrels of oil per day, which represents a clip of about 8.7%, in order to address surpluses in the local market.

Cabot noted that the order includes an exemption on each producer’s first 10,000 bopd of production, which means its operations will be unaffected.

READ: Cabot Energy reveals upgrade to reserves and resources

It, in fact, highlighted that the measures should support the business as it is expected to help improve the price of oil in Alberta.

Broker Macquarie estimating that the spread between WTI crude and the Edmonton oil price would tighten by US$5 to US$10, from the currently spread which range between US$20 to US$25 per barrel.

For context, the West Texas Intermediary crude price averaged around US$67 per barrel over the ten months to the end of October, whereas the crude price available in Alberta averaged US$44.45 per barrel in the same period.

“Whilst the exact impact and timing of the spread tightening estimated in the Macquarie report is difficult to quantify, the Alberta mandated the short-term reduction of oil production is expected to accelerate the return of the WTI-Edmonton benchmark price differential from the current divergence to normal levels,” Cabot said in a statement.

“This, in turn, is expected to lead to an improvement in the average sale price per barrel of oil received by the company.”

Cabot’s group crude oil sales averaged 767 bopd in the first half of 2018, up from 233 bopd in the comparative period of the previous year. It generated some $7.5mln of revenue in the first half.

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