Global rating agency warns of downgrading of Canadian oil stocks if crude price problems persist

The global rating agency DBRS warns that if Canadian crude oil price problems persist without improvement, it could negatively affect the credit ratings of oil-dependent energy companies in Western Canada.

The Toronto-based company said in a comment on Wednesday that while global and US oil prices have fallen, western Canadian producers have been subject to "greater stress" while Canadian benchmark prices have dropped even more.

In general, integrated energy companies – those with refineries and service stations – have been able to withstand heavy price reductions. But other less diversified producers have experienced difficulties.

If bottlenecks that prevent getting more oil to US markets persist, DBRS says producers who depend on energy production in Western Canada are at risk. a significant deterioration of their cash flows and the resulting key credit indicators ".

"This has happened quickly and it is a source of worry," said an interview with Victor Vallance, senior vice president of energy at DBRS. "And if it stays that way for a while, it will probably force us to take action on our ratings and lead to demotions."

A shortage of pipeline capacity and the growth of oil sands production have led to bottlenecks that have widened the usual price differential between Canadian crude and the US benchmark market.

For weeks, the price of Western Canadian Select (WCS) has been around US $ 40 a barrel less than West Texas Intermediate (WTI). In more favorable times, it could be around 15 USD.

Expanding the reduction in the price of oil is expensive for some companies and the government. Analysts said the two countries are losing tens of millions of dollars every day because of the rebates.

DBRS has not named any companies that could be subject to a comprehensive solvency review due to price reductions in Canada.

But Vallance said the agency would determine within six months whether measures would be needed.

"It's really about seeing price improvements, linked to the introduction of greater transport capacity and / or additional production stuck beyond what is currently closed," said Vallance.

Vallance said the cuts themselves were not unexpected given the sector's difficulties in gaining market access.

"But I think it 's the level of discounting that has surprised most people in the industry and, I think, also in the investment industry," he said. he adds.

Vallance said it remained to be seen how long the cuts would continue.

Some badysts expect the discount to decrease when the situation returns to more normal conditions next year.

Alberta Premier Rachel Notley announced Wednesday the province's plan to reduce oil bottlenecks by buying more cars. (The Canadian Press)A flawless stay

Scotiabank economists expect the average difference to be around $ 24 per barrel by 2019 as oil production shrinks as US refineries complete maintenance and shipments of oil. gross by train.

But Samir Kayande, director of RS Energy Group, is not looking for discounts to return to normal before next year. It's about the same time as the Enbridge Line 3 pipeline project, from Alberta to Wisconsin, is expected to be completed.

Kayande said crude rail shipments are expected to increase slowly but steadily, which should help. He said that improving the efficiency of pipelines would also be a positive factor. But he does not count on a quick fix.

"We saw a small improvement in [price differentials] but it seems to be related to a fall in WTI, which of course is not bullish, "said Kayande.

The Alberta government is looking for a short-term solution, appointing three envoys to collaborate with the industry to find solutions.

Some companies – and now the leader of the unified Conservative Party of Alberta, Jason Kenney – are asking the provincial government to put in place mandatory cuts in production to correct the overabundance of supply that weighs on price.

But large integrated companies – such as Suncor, Husky Energy and Imperial Oil – reject this idea, believing that the market is working well and that mandatory reductions also pose risks to trade.

On Wednesday, Alberta Premier Rachel Notley announced that her government would purchase two new unit trains that could carry an additional 120,000 barrels a day, increasing by one third the amount of oil shipped by road. iron in Canada.

Mr Kenney said that buying a wagon could be useful at "mid-term", but would hardly help to immediately reduce the price gap.