Cenovus Sees Canadian Crude Bottlenecks Easing in Coming Months

(Bloomberg) -- Cenovus Energy Inc. says the end may be in sight for the pipeline bottlenecks that have throttled Canadian crude prices.

The near-record gap between Western Canadian and U.S. prices will start to ease in the coming months as large North American refineries return to normal operations and the movement of crude via rail ramps up, the Calgary-based oil-sands producer said. The start-up next year of Enbridge Inc.'s Line 3 Replacement project will further alleviate the shipment crunch.

Cenovus has reduced the damage from the discounted Canadian oil by cutting costs, running its Foster Creek and Christina Lake projects at reduced rates and signing deals to move 100,000 barrels a day by rail. The company also owns 50 percent stakes in two refineries in Texas and Illinois, which benefit from the cheaper feedstock when crude prices are weaker.

“With our rail contracts, pipeline commitments and existing refining capacity, our long-term market access position is strong,” Chief Executive Officer Alex Pourbaix said in a statement. “To further mitigate the impact of wider differentials and improve long-term shareholder value, we're taking action on a number of fronts to optimize the margin on every barrel of oil we produce.”

The shares rose 4 percent to C$14.17 at 11:37 a.m. in Toronto. Cenovus had fallen 3.4 percent this year through Tuesday, compared with a 14 percent drop for the S&P/TSX Energy Index.

The company also reported that free funds flow, a measure of cash flow minus the capital spending required to keep its production flat, was C$706 million ($537 million). That's up from C$482 million in the second quarter and C$544 million a year earlier.

Still, Cenovus's third-quarter results were hurt by the glut of Western Canada Select crude, which fell about 28 percent last quarter and earlier this month touched the lowest price in more than two years. Excluding one-time items, the company lost 3 Canadian cents per share. All 14 analysts in a Bloomberg survey estimated a profit.

Cenovus also has been working to pay down debt it took on last year to fund its $13.3 billion acquisition of ConocoPhilips' oil-sands and Deep Basin holdings. The company said Wednesday that net borrowings now stand at C$8 billion, down by about C$1.6 billion from the end of the second quarter.

The company also said:

• It cut its forecast for 2018 capital spending by about C$250 million.
• It expects oil sands production for the full year to be 364,000 to 382,000 barrels per day.
• It's looking at “additional low-cost storage options” for its oil.

To contact the reporters on this story: Simon Casey in New York at scasey4@bloomberg.net;Kevin Orland in Calgary at korland@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Carlos Caminada

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