Cenovus keeps some of its bitumen in the ground until the heavy oil discount narrows

Cenovus keeps some of its bitumen in the ground until the heavy oil discount narrows

Following in the footsteps of Suncor Energy last week, Cenovus also warned this week that first quarter production will be a little on the light side, this time blamed on a "wider than normal" discount for its heavy oil.

The company says it is continuing to inject steam normally at its Christina Lake and Foster Creek SAGD facilities, but will not pump all of the oil out of the ground, opting to keep some volumes in its reservoirs. As a result, first quarter production is expected to be between 350,000 and 360,000 bbl/day of bitumen, slightly less than the facilities' combined capacity of 390,000 bbl/day.

Full year 2018 guidance for its oil sands operations was left unchanged, expected to range between 364,000 and 382,000 bbl/day. Cenovus' budget for this year assumes an average Western Canadian Select (WCS) price of US$37 a barrel. So far this year, WCS prices have bounced between US$30 and US$40, not far from the company's expectations. However, Cenovus had expected the WCS discount to WTI to be about US$15 a barrel, US$10 less than current levels.

Cenovus says it is looking to optimize the schedule of its maintenance shutdown at both of its SAGD facilities, and continues to press for more crude-by-rail hauling capacity. CP Rail, which primarily serves Western Canada, is asking Alberta's heavy oil producers to lock in longer term contracts, which can be considerably more expensive than pipeline deliveries. A shortage of rail cars is not helping either, leaving grain and oil shipments stranded in the prairies.

Cenovus purchased a crude-by-rail loading terminal in Bruderheim back in 2015 but says a shortage of locomotive hauling capacity is preventing it from fully utilizing the facility. An unusually harsh winter, bursting demand for crude oil transport and a huge backlog in grain shipments left Canada's rail operators unable to cope with shipment volumes.

Canadian crude-by-rail exports to the US have risen from a low of 45,000 bbl/day in June 2016 to over 150,000 bbl/day by the end of last year. Some analysts estimate that number could more than double by the end of this year as production out of the oil sands continues to rise and additional pipeline capacity is nowhere to be found.

Total domestic railcar loadings have already more than doubled since the spring of 2016, now close to 280,000 bbl/day, including fuel oils.

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