Expanding Bruderheim and adding refining capacity - Cenovus hints at future growth plans
During this week's conference call, Cenovus Energy says it is working with CN and CP Rail to increase its crude-by-rail export capacity out of the Bruderheim terminal, located about 50 km northeast of Edmonton.
Bruderheim has a crude loading capacity of about 100,000 bbl/day or 10.5 unit trains per week. Cenovus purchased the rail loading terminal from Canexus in 2015 for $75 million, a mere fraction of the $360 million construction cost. The company says the terminal would be relatively easy and quick to expand, with minimal capital requirements.
Cenovus executives admit the company has been negatively impacted by pressure restrictions on TransCanada's Keystone pipeline to the Gulf Coast, after a leak forced the TransCanada to reduce pressure on the line last November. Keystone's operating pressure is expected to return to normal sometime in the near future. For now, Cenovus says it has no near-term export capacity constraints.
STAYING FOCUSED ON COST CUTTING AND DEBT REPAYMENT
The company also says it expects to achieve at least $1 billion in cost savings over the next two years, one year ahead of schedule. About half of those savings will come through capital efficiencies, driven mostly by technology improvements at its production facilities. The remaining savings will come from lower operating and overhead costs.
The company reported sustaining capital costs of $6.34 per barrel in the oil sands last year, down 12% from 2016, and are expected to fall another 13% this year. Operating expenses declined to $8.40/bbl last year, and should fall another 6% in 2018.
Aside from swings in natural gas prices, Cenovus thinks most of these cost savings will be sustainable in the long run.
The investment community remains concerned about the company's debt load, putting pressure on CEO Alex Pourbaix to deleverage the balance sheet. After rallying late last year, Cenovus stock returned to record lows this week after fourth quarter and full year earnings were released.
The company put a number of non-operated oil sands leases up for sale earlier this month. Management reiterated plans to divest more assets this year, including more properties in the Deep Basin, but says it has no intention of selling its refining business. If anything, Pourbaix hinted the company is looking to increase its refining capacity.
Cenovus has a 50% stake in two US refineries – the Wood River Refinery in Illinois, and the Borger Refinery in Texas. The two facilities have a crude processing capacity of 450,000 bbl/day. Both are operated by JV partner Phillips 66.
Pourbaix also reassured shareholders the company's dividend is safe, at least for now.
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