Alberta Natural Gas CEOs Ask for Production Caps in Open Letter

Nine heads of Alberta-based natural gas companies have written an open letter to Premier Jason Kenney warning of a potential crisis and significant job losses in the sector if actions aren’t taken.

The group of CEOs are calling on Alberta’s leader to “show bold leadership” to prevent the continued devaluing of the province’s natural gas sector.

Canadian natural gas prices have steadily declined since January of this year when prices were as high as C$5 per gigajoule (GJ) compared to today’s C$1.29 GJ.

Calling for voluntary production caps and a freeze on royalty payments, the executives from the public and private companies Jupiter Resources, Bellatrix Exploration (TSX:BXE,OTC Pink:BXEFD), Peyto Exploration (TSX:PEY,OTC Pink:PEYUF), Pine Cliff Energy (TSX:PNE,OTC Pink:PIFYF) Advantage Oil and Gas (TSX:AAV,OTC Pink:AAVFN), Canlin Energy, Paramount Resources (TSX:POU,OTC Pink:PRMRF), Bonavista Energy (TSX:BNP,OTC Pink:BNPUF) and Modern Resources assert that the value of natural gas from the province is weakened when the current delivery and transport system is oversupplied.

“The Alberta natural gas sector has endured a prolonged period of distressed and highly volatile prices at the AECO/NIT hub,” reads the missive.

“It is imperative that the Government of Alberta intercedes as the viability of the Alberta natural gas sector is in jeopardy and on our current trajectory the consequences will be dire for the many Albertans that rely upon the natural gas sector directly and indirectly to support their communities.”

The January Supreme Court of Canada ruling to overturn the Redwater decision was also cited as a catalyst to price weakness by the producers. Redwater allowed insolvent oil and gas companies the ability to renounce unprofitable assets, shirking end of life/production remediation responsibilities and passing the task onto the Orphaned Well Association.

The natural gas producers that penned the letter reportedly output as much as 2 billion cubic feet of natural gas per day and employ thousands of Albertans.

Some of the companies have already implemented a production cap as part of a widespread effort to bring prices under control.

In its recently released quarterly report, Advantage noted that there were outputs of 43,000 barrels of oil equivalent per day (boe/d) “despite proactively shutting-in an average of 5,000 boe/d of dry gas during periods of extremely low AECO pricing.”

The three-month update goes on to state that the company is prepared to continue restricting dry natural gas production into the next quarter.

The premier has yet to respond to the letter.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.