Cenovus boosts oil output plans on Alberta move to curtailment relief for rail

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Rail cars wait for pickup in Winnipeg on March 23, 2014. The Alberta government is easing production limits on oil companies that ship their product by rail. THE CANADIAN PRESS/John Woods

CALGARY — Cenovus Energy Inc. says it will add as much as 70,000 barrels per day of oilsands output following the Alberta government’s decision to ease production curtailments for producers that add crude-by-rail capacity.

On a conference call Thursday morning after the decision was announced, CEO Alex Pourbaix said the company can quickly add 10,000 to 20,000 bpd of raw bitumen output from its Christina Lake and Foster Creek northeastern Alberta thermal oilsands projects.

Meanwhile, it plans to begin startup procedures on its $675-million, 50,000-barrel-per-day Christina Lake phase G oilsands expansion project with production expected within six to 12 months.

Construction of the expansion was completed earlier this year but commissioning was put on hold until market access questions were answered.

“We think it’s a great way to incent further rail takeway capacity out of Alberta and we applaud the government for moving forward with this initiative,” said Pourbaix.

He added the move doesn’t remove the necessity of building more oil export pipelines.

Under the previous NDP government, Alberta put a cap on the amount of oil the industry can produce starting in January as a way to narrow local price discounts that grew as oil production exceeded the ability of pipelines to get the crude to market.

The measure was continued by the United Conservative government when it was elected last spring. The total industry quota is to increase to 3.81 million barrels per day in December, up 250,000 bpd from the original limit of 3.56 million barrels a day.

“Overall, we believe this program will be an important addition to the efforts to increase market access,” said Energy Minister Sonya Savage on Thursday.

“Looking ahead, maximizing the amount of crude shipped by rail is an important factor in moving forward towards an orderly exit out of curtailment altogether, which, under the enhanced policy, is scheduled to be concluded by the end of December 2020.”

Alberta currently ships around 310,000 barrels per day on rail, she said, but the rail system has the capacity for daily shipments of 500,000 to 600,000 barrels.

The new program is to be available as of Dec. 1 and operators will need to apply on a monthly basis and verify their rail shipments.

The province is still working on a plan to divest railcar contracts signed by the NDP government, Savage said.

Suncor Energy Inc. CEO Mark Little also welcomed the Alberta initiative which had been requested by several oilsands producers earlier this year.

“I think this is a very positive development because the whole purpose of curtailment was to reduce production to align with the takeaway capacity,” he said on conference call Thursday morning.

“But I think we all know that ever since that was implemented, the takeaway capacity in Western Canada has declined, which is the exact opposite of what you want to happen when you have excess production.”

Between 200,000 and 300,000 bpd of additional rail could be brought to market to accompany about 200,000 bpd of incremental pipeline capacity additions, Little said.

In third-quarter results released Wednesday afternoon, Suncor cut its production guidance for 2019 to a mid-point of 785,000 barrels of oil equivalent per day, down from 800,000 boe/d, in part because of curtailments that have been in place for longer than anticipated.

Last week, Husky Energy Inc. CEO Rob Peabody said his company was directing most of its spending to regions other than in Alberta because of the curtailments.

 

This report by The Canadian Press was first published Oct. 31, 2019.

Companies in this story: (TSX:CVE, TSX:SU, TSX:HSE)

 

 

 

Dan Healing and Lauren Krugel, The Canadian Press


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