Future Could Bring Oil Output Growth to Western Canada

As mining and in situ startups approach, Western Canada’s oil production appears to be on the road toward growth, analysts say.

The outlook, shared during a recent Rystad Energy webinar, was delivered after some Alberta thermal oil sands producers posted large monthly gains this summer and more production came back online following a massive drop during first-half 2020 amid the coronavirus-driven oil demand slowdown.

Thermal steam-assisted gravity drainage (SAGD) projects along with conventional and light tight oil production drove most of the declines, according to Thomas Liles, vice president of global E&P research for Rystad. However, a preliminary recovery was evident based on data from June through August when about 325,000 bbl/d came back online.

Data shows cyclic steam stimulation (CSS) projects in Alberta’s non-mining oil and lease condensate segment had the greatest month-on-month change, adding 23,397 bbl/d, followed by conventional/light tight oil at 15,678 bbl/d.

Big gainers included Canadian Natural Resources Ltd. (CNRL), ConocoPhillips Co. and MEG Energy Corp. The latter two brought projects back online after extended summer maintenance prolonged by the pandemic, he said. The projects are expected to produce higher volumes in the third and fourth quarters.

“Another notable project to point out here is CNOOC’s Long Lake Project, which basically went to zero production in June,” Liles said. “But we would expect a cumulative gain of at least 30,000 barrels from that scheme by the end of this year.”

The recovery comes as the Canadian province of Alberta gears up to lift production limits in December. Oil and gas producers in Canada, like other parts of the world, are planning to raise production as crude prices continue to rebound from historic lows as job losses mount.

During the spring, producers cut 972,000 bbl/d to about 4 MMbbl/d. Only about 270,000 bbl/d of production remained offline by late October, the Canada Energy Regulator said.

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Turning to oil sands mining, Liles described production as “robust” during first-quarter 2020 when output averaged about 1.4 MMbbl/d. By the second quarter as the pandemic began to impact demand, output dropped to 1.2 MMbbl/d, with each operator reacting differently. Suncor Energy Inc. took a production train offline at its Fort Hills mine and Syncrude moved up maintenance plans, while CNRL-operated Athabasca and Horizon oil sands projects had healthy production and pushed maintenance plans to the fall.

“We would expect around 1.1 [to] 1.2 million barrels per day from mining projects in the third quarter,” Liles said. “Moving into the fourth quarter of 2020, we could see a lot of those volumes begin to recover based on what operators have talked about in terms of maintenance and guidance.”

Long-term, Rystad sees oil output growth ahead for Western Canada, albeit at a slower pace than the last decade.

“In terms of compounded rate, we would expect about 2% growth to 2030 from this year. That is still very much an oil sands-dominated story,” Liles said, “although we do expect to see some resilience from light tight oil plays, particularly in Saskatchewan and Alberta.”

Expected to contribute to the growth story are Cenovus Energy Inc.’s Foster Creek and Christina Lake oil sands project and Husky Energy Inc.’s thermal projects in Saskatchewan. In late October, Cenovus agreed to buy Husky in an all-stock deal valued at CA$3.8 billion set to create Canada’s No. 3 oil and gas producer.

Other potential contributors include Imperial Oil’s Aspen SAGD and Cold Lake projects along with expansions at MEG Energy’s Christina Lake project and other debottlenecking projects, according to Liles.

Reuters reported Nov. 2 that Suncor Energy plans to raise production at its Fort Hills mine next year and is improving its Firebag site in hopes of growing capacity. The company’s output could increase 10% to 710,000 boe/d in 2021.

Speaking during Cenovus’s third-quarter earnings call Oct. 29, Keith Chiasson, executive vice president of downstream operations, said the company anticipates producing at full rates through year-end or early 2021.

“With curtailment ending in December, we are unconstrained and no longer have to acquire production credits to be able to do so,” said Chiasson. “So, it’s something that we watch really closely and monitor, and because of the low-cost nature of our production, we’re able to produce and generate positive variable costs netback.”

Norrie Ramsey, executive vice president of upstream at Cenovus, pointed out that as much as 80,000 bbl of oil sands production was curtailed on some days during the second quarter but all of that is back online. “From December onwards, we’ll have a lot more flexibility,” he said. “But it’s always going to be a value conversation, and it’s the value rather than the actual volume of production that we’re most interested in.”