A “critical” lack of crude oil export capacity from Western Canada has forced Cenovus Energy Inc. to reduce production rates and store excess barrels in its reservoirs, the Calgary-based operator said Thursday.
Cenovus cited “wider than normal light-heavy price differentials and recent pipeline capacity constraints as well as the slow pace of the ramp-up in crude-by-rail export capacity in Alberta” as forcing its hand.
“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 oilsands reservoirs to be produced and sold at a later date when pipeline capacity improves and differentials narrow,” said 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.”
The strategy may result in fluctuating production from month to month, but Cenovus management still expects 2018 oilsands volumes to be within guidance of 364,000-382,000 b/d First quarter output is forecast at 350,000-360,000 b/d.
“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,” Pourbaix said. “These transportation challenges faced by our industry clearly demonstrate the urgent need for approved pipeline projects in Canada to proceed as soon as possible.”
To further mitigate the impact of current pipeline constraints and discounted heavy oil pricing, Cenovus “is evaluating opportunities to optimize the scheduling of maintenance at its oilsands facilities.”
The company also is in discussions with rail providers to resolve a shortage of locomotive hauling capacity, which it said is preventing the company “from fully realizing the benefits of its Bruderheim crude-by-rail facility.”
Cenovus also expects 1Q2018 results to be impacted by planned maintenance activity underway at two U.S. refineries jointly owned with Phillips 66, which operates the facilities.