|
Cenovus inks big rail deals, 3-year contracts to Gulf Coast
Gary Park for Petroleum News
Cenovus Energy, one of the largest oil sands producers, watched its shares jump in value by more than 9 percent a day after it locked in three-year deals with Canada’s two largest railroads to move 100,000 barrels per day of heavy crude to key markets on the U.S. Gulf Coast.
The contracts with Canadian Pacific and Canadian National railways were seen as clear proof that producers believe delays in multibillion-dollar pipeline expansions will drag on longer than expected.
Until now, many of the upstream companies have been reluctant to commit to major shipping contracts.
“Our rail strategy provides a means of mitigating the price impact of pipeline congestion,” said Cenovus Chief Executive Officer Alex Pourbaix.
“While we remain confident new pipeline capacity will be constructed, these rail agreements will help get our oil to higher-price markets.”
The new shipments will start in the second quarter of 2019, with deliveries originating at a Cenovus-owned terminal north of Edmonton and from a facility at Hardisty in central Alberta that is owned by Houston-based USD Partners, which has raised its capacity by 50 percent at the terminal, or one more 120-car unit train per day.
Costs in mid- to high-teens Cenovus said it is expecting all-in costs to move the oil by rail from Alberta will be in the mid- to high-teens in U.S. dollars per barrel.
The company has been under pressure since its 2017 acquisition of oil sands assets from ConocoPhillips - a transaction that vastly expanded its production but stirred worries among investors about its exposure to weakening heavy crude prices.
Cenovus, without disclosing the commercial terms, estimated the all-in costs of transporting oil by rail to the Gulf Coast will be less than US$20 a barrel.
National Bank Financial analyst Travis Wood pegged the cost in the range of US$17-US$19, a level he said is economic in light of the outlook for future heavy-crude prices.
He estimated the Alberta industry will need to raise total crude-by-rail shipments to 300,000 bpd.
Concerns about rail shipments In British Columbia, Andrew Wilkinson, leader of the opposition Liberal Party, said the surging use of rail has “increased the risk to public safety and the environment” based on what he described as the government of Premier John Horgan’s “reckless war on the Trans Mountain pipeline.”
He said the New Democratic Party government has “been so concerned with pleasing their activist friends that they’ve forgotten about the dozens of communities in British Columbia that bear the consequences of a rail spill.”
The government said it “knows more needs to be done to mitigate potential spill risks and we will continue to work collaboratively with federal agencies. We have a responsibility to ensure the best possible measures are in place to protect our province’s land, coast and waters from the impacts of potential spills.”
- GARY PARK
| 