Canada is hurting for takeaway capacity—the industry needs pipelines to take its oil and gas production to market, or more locomotive hauling capacity—or both.
Cenovus Energy Inc. (ticker: CVE) said it has reduced production rates due to pipeline constraints and a lower price for Canada’s oil.
Cenovus is storing excess barrels in its reservoirs due to wider than normal light-heavy price differentials, as well as the slow pace of the ramp-up in crude-by-rail export capacity in Alberta.
Temporary solution: store oil in the oil sands reservoirs till pricing, takeaway options improve
“When Canadian heavy oil is selling at a wide discount to West Texas Intermediate due to transportation bottlenecks, we have significant capacity to store barrels in our oil sands reservoirs to be produced and sold at a later date when pipeline capacity improves and differentials narrow,” said President and CEO Alex Pourbaix.
“As a prudent response to the current transportation and pricing environment, we’ve been operating our Christina Lake and Foster Creek facilities at reduced production levels since February while continuing to inject steam at normal rates.”
According to the company, this strategy may result in fluctuating production from month to month, but Cenovus still expects full-year oil sands volumes for 2018 to be within the company’s guidance range of 364,000 to 382,000 barrels per day. Additionally, Cenovus anticipates first quarter oil sands production of between 350,000 and 360,000 barrels per day.
“We’re taking steps to respond to a critical shortage of export pipeline capacity in Western Canada that is beyond our control and is having a negative impact on our industry and the broader Canadian economy,” said Pourbaix. “These transportation challenges faced by our industry clearly demonstrate the urgent need for approved pipeline projects in Canada to proceed as soon as possible.”
Instead of scheduling maintenance later, maybe now is the time?
Cenovus is evaluating opportunities to optimize the scheduling of maintenance at its oil sands facilities to mitigate the impact of pipeline constraints and discounted heavy oil pricing.
The company is also in ongoing discussions with rail providers to resolve a shortage of locomotive hauling capacity that is preventing Cenovus from fully realizing the benefits of its Bruderheim crude-by-rail facility.
Cenovus expects its first quarter results will be impacted by planned maintenance activity currently underway at the company’s two U.S. refineries jointly owned with Phillips 66, which operates the facilities.
