CLR Reports Another Huge Wiley Well Today -- December 7, 2018

One one well coming off the confidential list today -- Friday, December 7, 2018:

• 33108, 1,547, CLR, Wiley 12-25H, Pershing, 4 sections, 51 stages; 8.3 million lbs, t7/18; cum 121K 10/18; the Wiley wells are tracked here:

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	10-2018	31	23410	23403	9129	50143	45479	4412
BAKKEN	9-2018	30	27645	27605	16636	59202	53819	5113
BAKKEN	8-2018	25	22053	22134	14660	46372	43165	3008
BAKKEN	7-2018	31	35281	35198	34250	73203	68781	4174
BAKKEN	6-2018	15	12662	12585	15645	23509	22039	1301

Active rigs:

$51.57	12/7/2018	12/07/2017	12/07/2016	12/07/2015	12/07/2014
Active Rigs	63	53	39	64	188

Price of neighborhood regular unleaded gasoline: $1.89. 

RBN Energy: major fundamental shifts swing crude oil prices in Canada.

For months, the crude oil market had Canada figured out. Production was growing, bit by bit.

Pipelines were maxed out. Railcars were hard to come by but were providing some incremental takeaway capacity. Midwest refineries, a big destination for Canadian crude, went in and out of turnaround season, moving prices as they ramped-up runs. Overall, the supply and demand math was straightforward also, tilted towards excess production.

Canadian crude prices were going to continue to be heavily discounted for the next year or two, until one of the new pipeline systems being planned was approved and completed. Western Canadian Select (WCS) — a heavy crude blend and regional benchmark — was averaging at a discount to West Texas Intermediate (WTI) near $40/bbl in November, dragging down Syncrude prices with it.

As the market was settling in for a long, cold winter in Canada, a bombshell dropped:

Alberta’s premier announced on December 2 (2018) that regulators would institute a mandatory production cut, taking 325 Mb/d of production offline, and that the government would invest in new crude-by-rail tankcars. That announcement has had a massive impact on prices, with WCS’s differential narrowing to $18.50/bbl most recently. In today’s blog, we look at several catalysts for the recent swing in Canadian prices, and how the recent governmental intervention will impact differentials.

The fact that Canadian crude has been heavily discounted to WTI at the Cushing (OK) hub is nothing new. We most recently discussed these price differentials and analyzed the price breakdown last spring.

Canadian prices have been subject to massive discounts due to a severe lack of takeaway capacity. WCS has been steadily trading at a double-digit discount to WTI for years due to a limited number of outlets for barrels.

WCS had averaged a discount of $26/bbl in 2018 before widening even further to $50/bbl on October 11.

Syncrude, WCS’s lighter brother (red line), had been averaging a $5/bbl discount before blowing out to $30/bbl in October and $34/bbl in early November. During that time, there was a myriad of bad news engulfing Canadian crude differentials.

The Keystone XL pipeline project, which finally appeared to be heading for daylight, was hit with another ruling from a federal judge to halt construction. Canadian producers Canadian Natural Resources, MEG Energy, Cenovus Energy and ConocoPhillips all announced they were going to cut back on some production until prices improved. And many of those same producers also announced they had signed year-or-longer commitments to ship crude via rail, signaling that they were worried enough about long-term pipeline constraints that they would roll the dice on more expensive, binding take-or-pay rail deals.