Cenovus Energy Inc. says it is cutting oilsands production, putting more barrels in storage, ramping up rail shipments and may delay producing from a nearly completed expansion project to avoid current steep price discounts.
The cutbacks will likely help relieve a glut of oil in Western Canada blamed on not enough export pipeline space, but CEO Alex Pourbaix said Wednesday the Calgary-based company is doing it strictly for the benefit of its shareholders.
“We’re not going to carry the industry on our backs,” he said on a conference call to discuss third-quarter results.
“We’re going to do this as long as we can justify that we’re creating value for our shareholders… But we are not doing this for charity, we’re doing it because it’s the right thing for our company and hopefully other players would have a similar view.”
Last week, Alberta Premier Rachel Notley called on Ottawa to help increase Canadian crude-by-rail capacity as a short-term solution to improve market access and support prices.
On Monday, analysts with RBC suggested the province could help relieve the oil glut by giving the industry a temporary royalty holiday — essentially paying producers not to produce — a suggestion the province promptly rejected.
Pourbaix clarified that he’s not calling for a concerted industry production curtailment or government action but simply wants to point out that even a small reduction of less than 300,000 bpd in overall output would improve spot prices.
On the call, Drew Zieglgansberger, senior vice-president of operations, said Cenovus will use “dynamic storage” to leave warmed bitumen underground at its Foster Creek and Christina Lake steam-powered oilsands wells south of Fort McMurray.
A similar method was used to cut bitumen production by 40,000 to 50,000 barrels per day for six or seven weeks early this year to avoid low prices, but the new cutbacks would be for lower volumes because they would likely have to be in place longer, he added.
Cenovus said it is starting to load bitumen from its Edmonton area rail terminal under a three-year deal signed recently with Canada’s two major railways to move 100,000 bpd to the U.S. Gulf Coast to be refined. Shipments from a second terminal in central Alberta are to begin next year.
The 100,000-bpd capacity Cenovus terminal is being expanded to about 120,000 bpd — big enough to load two unit-car oil trains per day — by early 2019, said Keith Chiasson, senior vice-president of downstream.
Cenovus’s 50,000-bpd Christina Lake G steam-driven oilsands expansion project could start production next year, Zieglgansberger reported, but the company won’t commission it unless market access is assured.
Analysts applauded Cenovus on Wednesday for reduced capital spending in the three months ended Sept. 30 and a cut in its expected spending for the year by $250 million to a midpoint of $1.35 billion.
They were also impressed by its announcement that net debt had been paid down by about $1.6 billion to less than $8 billion, using cash from operations and the $625-million sale of a northwest Alberta liquids-rich natural gas project.
“While the company remains relatively disadvantaged given its exposure to wide crude oil differentials, this was a much improved quarter… as strong refining results helped mitigate the impact of the wide differentials on the production side,” said Edward Jones analyst Jennifer Rowland in a report.
Cenovus reported better-than-expected third-quarter revenue of $5.86 billion, up from $4.39 billion a year ago, on strong production and higher realized prices.
It reported New York-traded West Texas Intermediate crude prices increased almost 45 per cent versus the third quarter of 2017, while Western Canadian Select bitumen blend crude increased only 23 per cent, resulting in the difference widening to an average of US$22.25 per barrel compared with US$9.94 a year earlier.
In the current quarter, those discounts have peaked at more than US$50 per barrel.
The company reported a net loss from continuing operations of $242 million, versus expectations of a net profit of $270 million according to Thomson Reuters Eikon, and the year-earlier profit of $275 million.
The current loss was mainly due to non-cash losses of $795 million on the gas project sale and $630 million on a reassessment of its real estate portfolio after it sublet eight floors of unneeded Cenovus office space in The Bow tower in downtown Calgary.
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