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Wildfires to continue to close wells in Alberta's oil patch

Cenovus operations at Pelican Lake


The forest fires raging across northern Alberta have forced a steep cut in the province's crude production, as companies ordered new evacuations Wednesday and began assembling millions in disaster relief money.

With wildfires forcing the closure of roads and a key pipeline, a broad cohort of oil and gas companies has been forced to close down wells from several prolific oil plays. Companies have confirmed that well over 100,000 barrels of daily production has been temporarily halted - equivalent to about 5 per cent of Alberta's overall output. Unless the fires rapidly abate, the production shutdowns threaten to impair the cash flow and earnings of companies unable to sell their crude.

And as the outages spread Wednesday, oil executives say the total impact could already be far greater.

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"I would think the number is probably closer to 200,000 barrels per day," said Bill Andrew, chief executive officer of Penn West Exploration, which has been among the companies most affected by the blaze. It has now closed the taps on between 25,000 and 30,000 barrels a day, and says the fires have impacted some infrastructure.

"Swan Hills is an area we had some smaller fires. We did have a little bit of damage to electrical," Mr. Andrew said. In other areas, the fires are still burning so hot that many companies have yet to check for damage, although there was some cause for optimism.

On Wednesday, the number of forest fires burning out of control in Alberta fell by two to 21.

In total, however, the province is still home to 86 forest blazes, and the ferocity of the burning continues to create numerous problems. Electrical service has been interrupted in some areas, forcing Plains All American Pipeline LP to halt all operations on its Rainbow pipeline, which had been partially closed from a massive spill in late April. Electrical outages have stymied production at fields that are distant from the fires. Flames and thick smoke have also closed highways, preventing crude from moving by truck.

Even in places where highways remain open, energy and forestry companies are loathe to clog roads.

"We are not trucking anything. We're keeping the roads clear" so supplies and fuel can move to firefighting operations, Mr. Andrew said. "We're not about to stick drilling rigs and service rigs and loads of lumber in the way of that."

At the same time, companies are scrambling to care for their own employees. Penn West, for example, has had nearly 400 employees, contractors and drilling rig workers affected by the fires. At least half a dozen of its employees have lost houses, and the company is providing accommodations to workers that need it. It's also committing financial assistance to help people rebuild.

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"This is a situation where there shouldn't be a dime out of their individual pockets. It's no fault of their own that Mother Nature's fury hit them," said Mr. Andrew, who is also working to organize a massive industry investment into Slave Lake, an important centre for oil production.

"It's going to be a big target we're going to aim for as far as support for infrastructure and housing," Mr. Andrew said. "I think you're dealing with tens of millions of dollars at the end of the day."

The corporate losses are also likely to be substantial, as a clearer picture emerged Wednesday of how broadly the fires have affected industry.

Canadian Natural Resources Ltd. expected to have 40,000 barrels of daily production shut down as of Wednesday. Cenovus Energy Inc. was down by 14,000, with another 8,000 expected to close by Thursday morning. Royal Dutch Shell PLC was down roughly 10,000, with another 10,000 threatened. Apache Corp. was down 6,200; Murphy Oil Corp. 6,000; Pengrowth Energy Corp. 5,000; ARC Resources Ltd. 1,000; and Baytex Energy Corp. 500.

The extent of the actual damage to operations remains unclear, however, and some of the closures have been precautionary. Apache, for example, halted some production because of concern over a wooden bridge used to access a facility. But the company, which donated $80,000 to the Red Cross on Wednesday, is working to open up the taps again soon.

"We're hopefully going to have everything back on line by the first part of next week," spokesman Paul Wyke said.

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But risks remain. Small fires have ignited to the north and west of Edmonton - some more than 300 kilometres from Slave Lake, the community most affected. Others are burning in Fort McMurray, where Imperial Oil Ltd. continues to keep workers away from building a water intake facility for its Kearl mine. Syncrude Canada Ltd. also evacuated non-essential workers from its Aurora Mine late Wednesday morning, although the mine has been able to maintain its output.

"If you look at where the fires are, it's crazy. It's raging everywhere," said Wassem Khalil, manager of investor relations at Pengrowth.

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About the Author
Asia Bureau Chief

Nathan VanderKlippe is the Asia correspondent for The Globe and Mail. He was previously a print and television correspondent in Western Canada based in Calgary, Vancouver and Yellowknife, where he covered the energy industry, aboriginal issues and Canada’s north.He is the recipient of a National Magazine Award and a Best in Business award from the Society of American Business Editors and Writers. More

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