Cenovus rail deal provides line of sight to improved oil takeaway: analysts

Cenovus Energy CEO Alex Pourbaix. Image: Deborah Jaremko/JWN

In a positive sign for Canadian heavy crude, oilsands producer Cenovus Energy has signed long-term agreements for rail transport.

The company will ship 100,000 bbls/d by rail over the next three years through its Bruderheim Energy Terminal near Edmonton.

Cenovus produced approximately 390,000 bbls/d from its oilsands projects in the second quarter. The Phase G expansion currently underway at its Christina Lake SAGD project will add a further 50,000 bbls/d, with ramp up expected to begin in the third quarter of 2019.

“While we remain confident new pipeline capacity will be constructed, these rail agreements will help get our oil to higher-price markets,” Cenovus CEO Alex Pourbaix said in a statement.

Analysts with Peters & Co. welcomed the announcement for the company as well as for the broader market.

“While this deal has been anticipated for some time, the 100,000 bbl/d contract size is positive and provides line of sight for industry takeaway to improve through 2019. We estimate the WCSB will need to move ~500,000 bbls/d of crude oil by rail to balance the market and improve differentials through 2019,” the investment dealer said on Thursday.

The most recent data from the National Energy Board, out this week, said crude by rail volumes reached approximately 206,000 bbls/d in July, but Peters & Co. reported that even higher volumes have been achieved.

“The most recent industry high of ~300,000 bbls/d is encouraging, and this deal should give further confidence in the ability for rail volumes to ramp up and for WCS differentials to improve. From Cenovus’s perspective, the deal is positive and the net pricing uplift is a material benefit to cash flow – it also lowers the company’s overall exposure to WCS differentials.”