Cenovus signs oil-by-rail deals amid Canada pipeline pinch
CALGARY (Bloomberg) -- Cenovus Energy Inc. signed deals to transport about 100,000 bpd of heavy crude by rail to the U.S. Gulf Coast from Alberta as a pipeline bottleneck depresses Canadian oil prices.
The oil-sands producer agreed to three-year deals to ship oil to various destinations along the Gulf of Mexico, according to a statement Wednesday. Canadian National Railway Co. will move the crude from Cenovus’s Bruderheim Energy Terminal starting in the fourth quarter, while Canadian Pacific Railway Ltd. will ship out of USD Partner LP’s terminal in Hardisty beginning in the second quarter of next year.
“Our rail strategy provides a means of mitigating the price impact of pipeline congestion,” Alex Pourbaix, Cenovus chief executive officer, said in the statement. “While we remain confident new pipeline capacity will be constructed, these rail agreements will help get our oil to higher-price markets.”
The agreements were announced as a surge of new oil-sands production has filled pipelines to capacity. As a result of the bottleneck, Western Canadian Select heavy crude’s discount to West Texas Intermediate futures widened to $36/bbl on Sept. 14, the most since late 2013. The discount narrowed 50 cents to $34/bbl at 10:03 a.m. Calgary time on Thursday, data compiled by Bloomberg show.
The Cenovus agreements would represent a boost of about 50% in crude-by-rail exports out of Canada, based on the most recent data from Canada’s National Energy Board. While Canada’s rail networks have served as a relief valve for transporting oil when pipelines are full, the pickup in crude-by-rail exports has been slow. Shipments out of the country rose one percent in July to over 206,000 bpd from June levels, the smallest increase since exports declined in February.
Cenovus said it’s expecting “all-in costs” per barrel to transport the oil from Alberta to the Gulf Coast to be “in the mid-to-high teens” in U.S. dollars. Shares of Cenovus rose as much as 7.8% on Thursday.
