Market forces more oil companies to idle operations

Market forces more oil companies to idle operations by Jonathan Muma Posted Jan 13, 2016 7:38 am MDT AddThis Sharing ButtonsShare to TwitterTwitterShare to FacebookFacebookShare to RedditRedditShare to 電子郵件Email (Stock photo: As the price of oil continues its historic slide, more companies are shutting down wells and going into survival mode.West Texas Intermediate fell to its lowest level in more than 12 years Tuesday, briefly dipping below US$30 a barrel, before closing at US$30.44Many companies made budget assumptions that oil would rebound to at least US$40 or US$50 a barrel to start the year, but now that that hasn’t happened, they’re in the process of putting the cap on wells and slashing spending.David Yager, national leader Oilfield Service MNP LLP, explains why it’s hitting heavy oil producers in Alberta so hard:“In some cases it costs more to lift it out of the ground than you can fetch for it, so it’s sort of like selling dollar bills for 85 cents,” he said.That’s especially true for those pumping heavy oil, which is more expensive to convert to a useable product.For example, the Globe and Mail reports output at Canadian company Gear Energy Ltd’s wells cost upward of CAN$37.50 a barrel for crude which is selling for less than CAN$20 a barrel.The paper says Connacher Oil and Gas Ltd. has cut production by 3,000 barrels a day, Baytex Energy Corp. is suspending about 2,400 barrels a day at its operations and Canadian Natural Resources Ltd is cutting back a whopping 10,000 barrels a day.Yager says it makes sense, and may actually lead to higher prices.“People say, ‘Well this is stupid, I can’t throw good money into that,’ they shut-in their wells, all of a sudden the supply/demand equation reverses, the prices go up and things return to normal, albeit at a slower pace,” he said.Some analysts say larger companies have the financial backing to keep pumping even at sharp losses.

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