Cenovus reiterates support for Alberta's curtailment program, despite lower output and higher operating costs
Cenovus Energy says it generated more than $1 billion in funds this past quarter, helped by a significant narrowing of light-heavy oil price differentials.
The company's oil sands operations produced 342,980 bbl/day of heavy oil in the first quarter, down 5% from the same time last year, due in part to Alberta's mandated curtailment program.
An update on Christina Lake and Foster Creek
Christina Lake averaged 188,824 bbl/day in the first quarter, down 7% from the same time last year. Foster Creek averaged 154,156 bbl/day, down 2% year-over-year.
Cenovus says it has maintained normal steam injection levels at both in-situ facilities, despite the lower output. The move has increased operating costs and steam-to-oil ratios (SORs), although the company calls the increases "temporary" and "modest."
Construction of Christina Lake’s phase G expansion project was completed ahead of schedule and 25% under budget. Cenovus says phase G will begin oil production once it has more clarity on market access and duration of Alberta's production curtailment.
Second quarter production is expected to average 355,000 bbl/day, a slight improvement over Q1, but still below nameplate. Christina Lake is also scheduled to begin a 23-day maintenance turnaround this week.
Cenovus is by far the largest in-situ operator in the province, accounting for almost 10% of Alberta’s total oil output.
Curtailment still the right move, despite higher costs
CEO Alex Pourbaix says the negative impact of higher operating costs and lower production has been more than offset by a significant narrowing of the heavy oil discount.
Since the province announced its curtailment program last December, the differential between Western Canadian Select (WCS) and the US benchmark (WTI) has narrowed from US$35 a barrel to about US$10. WCS prices have improved from a low of US$12.50/bbl in mid-November to about US$55 over the past month.
The company also cut its 2019 heavy oil production guidance by 7% to between 350,000 and 370,000 bbl/day. Fuel operating costs are expected to rise by about $0.25 per barrel, to about $2. Overall operating costs at its oil sands operations averaged $9.06/bbl in the first quarter of this year, up from $8.78 for Q1/2018.
Still bullish on crude-by-rail
The company moved about 50,000 bbl/day of crude by rail in the first quarter, and is working towards boosting capacity at its Bruderheim terminal from 100,000 bbl/day to 120,000 bbl/day.
Cenovus says it plans to boost crude-by-rail volumes to 100,000 bbl/day through the remainder of 2019, as it waits for Enbridge to expand service on its Line 3 pipeline to the US Midwest.
Including natural gas production and output from its Deep Basin properties, Cenovus averaged 447,270 boe/day in the first quarter.