Cenovus ready to ramp up crude-by-rail exports
Cenovus Energy Inc is considering further expansion of its agreements to move crude by rail on Canada’s two major railways.
Last month, Cenovus signed three-year deals with Canadian National Railway Co and Canadian Pacific Railway Ltd to transport roughly 100,000 barrels per day (bpd) of crude from northern Alberta to the U.S. Gulf Coast, starting in the fourth quarter. The agreements come as discounts on Canadian oil to U.S. crude grew to record highs this month, due to rising production bumping against pipeline constraints.
Cenovus could expand those agreements by a further 20,000 bpd for a total volume of 120,000 bpd and the equivalent of two unit trains, CEO Alex Pourbaix said in an interview at the Reuters Global Commodities Summit. Unit trains carry a single commodity.
“We’re quite confident that if it makes sense to ramp up to 120, that we’ll be able to have arrangements in place to achieve that,” Pourbaix told Reuters. “We’re going to wait a little while. I want to see how the rest of rail (movement) is ramping up.”
The Calgary, Alberta-based company, which operates a rail loading terminal in northern Alberta, currently moves less than 20,000 bpd of its own oil by rail, with the entire Canadian industry shipping about 250,000, a record high, Pourbaix said. Total shipments look to reach 300,000 bpd by year-end and 450,000 bpd by end of 2019, the company said.
Cenovus said earlier on Wednesday that it was limiting output due to severe discounts and said it expected the price of domestic heavy crude to rise by mid-2019 as increased rail volumes ease transport bottlenecks.
The company did not specify how much production it was restricting but said it has slowed output at both its Foster Creek and Christina Lake sites. Pourbaix said the entire industry needed to do its part to reduce excess supply.
“We’re not going to carry the industry on our backs. We’re going to do this as long as we can justify that we’re creating value for our shareholders by deferring this production,” Pourbaix told analysts.
Pourbaix said there has been no effort among producers to coordinate reductions.
Cenovus faced investor ire following its deal to buy some of ConocoPhillips’ oil sands assets last year and took on a huge debt. The company has been since taking steps to turn around its business through layoffs and asset sales.
Rival Husky Energy Inc has made a hostile bid for MEG Energy Corp, while other Canadian producers are expanding production. Pourbaix said he is not worried about losing market share, and that his focus remains on cutting debt and later, growth through its own projects.
Alberta Premier Rachel Notley recently suggested that Ottawa buy rail cars or locomotives to ease the backlog. Pourbaix said while he supports government help, the bottlenecks require “quick solutions” but will ease late next year.
Total production rose 4 percent to 495,592 barrels of oil equivalent per day in the third quarter.
The company’s net loss was $242 million, compared with a profit of $275 million a year earlier.
On an adjusted basis, Cenovus lost three cents per share. Analysts on average had expected earnings of 21 Canadian cents per share, according to Refinitiv.