Connacher cuts oil sands output as prices slide

CALGARY (Reuters) – Connacher Oil and Gas Ltd (CLL.TO: Quote, Profile, Research, Stock Buzz) said on Monday it will cut bitumen production at its Alberta oil sands project as prices sink below costs, the first Canadian producer to take such action in the wake of falling oil prices.

Connacher said it will restrict output from its Great Divide project to 5,000 barrels a day for an undetermined period, down from recent rates of about 9,000 barrels a day.

“It recently became evident we could not secure adequate pricing for our bitumen sufficient to cover operating costs and royalties,” Richard Gusella, Connacher’s chief executive, said on a conference call. “Frankly, it does not make sense for us to produce away our reserves … at a loss.”

The company is the first Canadian producer to announce it would slash output because of low oil prices but others may follow if the discount, or differential, to light crude for the tar-like bitumen produced in Alberta’s oil sands region doesn’t narrow, an analyst said.

“Should oil price continue to trade in the $40 to $50 range and differentials remain wide then we will start to see more companies make a hard decision,” said Menno Hulshof, an analyst at Dundee Securities. “I think it’s inevitable.”

Reuters