By Bruce Lantz
A spring season of unusual circumstances has presented a myriad of challenges for oil and gas companies in Canada’s Alberta and British Columbia provinces. Wildfires have ripped through both provinces and the industries that work there, forcing thousands of evacuations and disrupted production.
Alberta currently is facing 91 wildfires, with 27 burning out of control, and the government has declared a provincial state of emergency. About 38,000 Albertans have been asked to evacuate their homes because of the fires, while oil and gas firms have shut down production of at least 319,000 barrels of oil equivalent per day (boep/d) — about 3.7% of the country’s production. While all but 12,000 were allowed to return to their homes last week thanks to a cold front that helped firefighters, more abnormally hot and dry weather was set to return on the weekend, raising concerns about the next wave of problems. Wildfire concerns have pushed Canadian heavy crude prices to their highest levels in months and nearly 2.7 million barrels per day of Alberta oil sands production in May is at risk in the very high (40%) or extreme (60%) wildfire danger zones.
In B.C., fires raging in more than 50,000 hectares in the northeast quadrant caused the entire communities of Fort St. John and Fort Nelson, four hours drive north, to be placed on evacuation alert, along with Blueberry First Nation, impacting about 21,000 people — 1,800 of them driven from their homes. More than 60 active wildfires are burning across the province including the Stoddart Creek and Red Creek fires near Fort St. John, which are considered to be out of control.
“The Canadian Association of Petroleum Producers (CAPP) is monitoring wildfire developments as they unfold,” CAPP spokesman Jay Averill told Resource World Magazine. “Rapidly changing conditions make it very difficult to quantify the overall industry impact.”
Those conditions could see other areas in both provinces hit by wildfires as record temperatures continue. “I wouldn’t be surprised if alerts and orders shift out of the north and into the rest of the province,” said Cliff Chapman, director of wildfire operations for the B.C. Wildfire Service in a statement Tuesday, noting that a province-wide open burning ban will begin.
The blazes are not only hurting the oil and gas industry; they’re affecting everyone in northern Alberta and B.C. and that concern could broaden if the fires spread southward.
The Alberta government has asked public servants with firefighting experience to volunteer to battle the blazes, which stretch from the Rockies in the west to the Saskatchewan border, from above Fort McMurray south to Red Deer, with more than 600,000 hectares burned so far, prompting comparisons to 2016 when equally hot and dry weather sparked a mega-blaze known as The Beast, which forced the evacuation of all of Fort McMurray. The government already employs about 1,600 people to fight fires, and this year another 900 people have been brought in from other provinces, including 300 from the armed forces. But some have expressed concern that recent budget cuts to $102 million from $130 million in 2018-19 are hindering the province’s wildfire management efforts.
Some examples of the wildfires’ impact are:
Obsidian Energy Ltd. (OBE:TSX; OBE:NYSE) has curtailed 9,700 barrels of oil equivalent per day (boe/d) in the Peace River and Pembina regions of Alberta.
Athabasca Oil Corp. (ATH:TSX) has shut in two of its facilities at Kaybob, shuttering 2,300 boe/d production.
Crescent Point Energy Corp. (CPG:TSX; CPG:NYSE) has shuttered its Kaybob Duvernay production of 45,000 boe/d.
Vermillion Energy Inc. (VET:TO) has shut in some 30,000 boe/d of production in West Central Alberta.
NuVista Energy Ltd. (NVA:TO) shut in operations in the Grande Prairie, AB area, about 40,000 boe/d.
Pipestone Energy Corp. (PIPE:TO) shut in about 20,000 boe/d of production in the Grande Prairie area.
Baytex Energy Corp. (BTE:TO) shut in 20,000 boe/d of production in the Peace River and Peavine regions of northwest Alberta, and 4,000 boe/d in West Central Alberta.
Paramount Resources Ltd. (POU:TSX) has curtailed 45,000 boe/d in the Grande Prairie and Kaybob regions.
Kelt Exploration Ltd. (KEL:TSX) shut in about 5,000 boe/d in its operating region at Oak, 35 kilometres from Fort St. John, B.C.
Consequently, concerns about the wildfires and producers shuttering production have seen benchmark heavy crude prices tighten to multi-month highs. The Western Canada Select heavy crude discount to the benchmark West Texas Intermediate (WTI) has narrowed, last week ending nearly $13 a barrel below the WTI. Meanwhile global oil prices rose a dollar a barrel on the prospect of tightening supplies in Canada, although recession fears kept the market pressured. And the impact of the wildfires on production is expected to continue.
In recent days, some oil and gas producers in Alberta — Crescent Point Energy, Tourmaline Oil Corp. (TOU:TO), Paramount Resources Ltd., Obsidian Energy Ltd., Vermillion Energy Inc. and Pembina Pipeline Corp. (PPL:TO) — have restored production, at least to some extent, after cooler temperatures and some rainfall brought relief to some areas of the province. But the likelihood of more wildfires remains a reality as the forecast for both provinces contain predictions of hot and dry conditions, which will worsen the situation.
Despite their own problems, some industry leaders have stepped up to provide help to communities affected by the raging wildfires. Cenovus Energy Inc. (CVE:TSX; CVE:NYSE) recently announced a C$200,000 donation to the Canadian Red Cross’ 2023 Alberta Fires Appeal to support relief efforts for the communities and people affected by the wildfires in that province. Plus, the company is matching employees’ individual donations to fire relief efforts made through Cenovus Cares, its giving and volunteering program.
“A number of upstream and downstream facilities remain impacted – some due to proximity to the wildfires and others indirectly as a precautionary measure for worker safety and to adhere to evacuation orders,” said Averill. “It is too early to assess any estimated overall costs as the situation remains fluid. We are continuing to closely follow the evolution of conditions and are engaging with the Province to provide support wherever possible to assist with the government’s ongoing emergency response.
“Industry’s top priority is the safety of our workers, and our thoughts are with the people and communities impacted by the wildfires.”