Will Alberta’s Production Cuts Help Oil and Gas Stocks?

Cenovus Energy Inc (TSX:CVE)(NYSE:CVE) stock has started taking off and could be a great buy today.

| More on:

Alberta Premier Rachel Notley made headlines recently when she announced that the government would be scaling back on oil and gas production in an effort to boost struggling oil prices.

The cuts won’t be effective until January and will result in 325,000 fewer barrels of oil per day, or just less than 9% of the province’s total production. However, the province expects the sharp reduction to last for only three months, when it expects that the big gap between supply and demand will shrink, at which point it will reduce the amount of the cuts to just 95,000 barrels.

But haven’t oil and gas prices been rising?

While it’s true that crude oil prices have been higher for much of the year, the problem is that Western Canada Select (WCS) has been trading at a big discount, which is why Canadian producers have still been struggling.

WCS has been trading north of $30 a barrel for much of the year, but fell below that in October, and in late November it dropped below even $12. Since the cuts were announced by the Premier, we’ve seen WCS bounce back, rising up to nearly $30 again.

We’ve seen production cuts take place in the global markets, but this has not been typical for WCS.

The Premier showed a great deal of concern for the current conditions, stating, “We must act immediately, and we must do it together. I can’t promise the coming weeks and months will be easy, but I can promise we will never back down in our fight to protect jobs and the resources owned by all Albertans.”

The move underscores another significant concern: the loss of potential jobs in the industry as a result of less production. However, with the cuts expected to go no longer than a year, the risk should be contained, but it’s still a sensitive issue in a province that is still struggling to recover from the latest downturn.

Positive reaction from the markets

Cenovus Energy Inc (TSX:CVE)(NYSE:CVE) saw its share price jump by more than 15% over the past five days as the news gave the company renewed hope that things may be a bit brighter in the months ahead.

The stock has struggled, hitting all-time lows recently and it’s been hard to justify investing in the company with the outlook on the industry being so bearish. How strong of an impact the cuts will have on the stock remains to be seen, but Cenovus CEO Alex Pourbaix was very happy with the news.

In an interview with BNN, Pourbaix stated, “If the government had not stepped in, not only would Cenovus have massively cut back its winter program, but that would have had knock-on effects to the communities we work in, the contractors that we use.”

With Cenovus still trading at a fairly low price and still well below book value, it might be a great buy for investors looking for a stock with a lot of upside. If the production cuts prove to keep WCS prices higher, that will be good news for Cenovus and its peers.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned.

More on Energy Stocks

construction workers talk on the job site
Energy Stocks

Best Stock to Buy Right Now: Baytex vs Suncor?

Suncor and Baytex stocks both look like solid companies offering growth and dividends. But which is the better buy?

Read more »

bulb idea thinking
Energy Stocks

3 Incredibly Cheap Energy Stocks to Buy Now

Energy stocks are trending upwards on the back of several key factors. And these three continue to be top cheap…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Should You Buy Freehold Royalties Stock for its 8% Yield?

Freehold Royalties is a TSX dividend stock that offers shareholders a forward yield of 8%. But is the energy stock…

Read more »

Muscles Drawn On Black board
Energy Stocks

Is Suncor Energy Stock a Good Buy?

Suncor is on a roll in 2024. Are more gains on the way?

Read more »

profit rises over time
Top TSX Stocks

3 Reasons to Buy Enbridge Like There’s No Tomorrow

Have you considered buying Enbridge (TSX:ENB)? Here are 3 reasons to buy Enbridge today for lasting growth and income.

Read more »

oil pump jack under night sky
Energy Stocks

Is CNQ Stock a Buy for its 4.5% Dividend Yield?

CNQ stock is one of the best options out there for dividend growth. But what about value? Let's take a…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Is Imperial Oil Stock a Buy, Sell, or Hold for 2025?

Imperial Oil stock is in a precarious position, so what should investors consider as we head nearer to 2025?

Read more »

construction workers talk on the job site
Energy Stocks

Is Suncor Stock a Buy, Sell, or Hold for 2025?

Suncor Energy stock is trading at its decade-high on uncertainty in the oil market. Should you buy, sell, or hold…

Read more »