Cenovus Forges Ahead on Rail Plans as Canadian Peers Dial Back

Cenovus Energy Inc. is forging ahead with plans to expand its rail shipments of crude to U.S. refiners, even as some peers dial back, in a bet that pricing for Canadian heavy crude will soon shift to make those shipments more economical.

Chief Executive Officer Alex Pourbaix said Cenovus’s heavy crude is garnering premium prices to light American grades on the U.S. Gulf Coast as refiners there work to replace declining production from Mexico and Venezuela. The company also has an advantage in that it owns its own rail-loading facility, reducing its cost to ship by rail, he said.

Pourbaix expects Alberta’s government to adjust its curtailment program so that Western Canadian Select crude’s discount to benchmark U.S. oil widens back out, making rail a more attractive proposition. That differential stood at $10.70 a barrel on Wednesday, near its narrowest in about a decade. That’s a stark contrast to a $50 gap reached in October.

“I’d hate to be giving up rail today and find out I can’t get that rail back three months from now when differentials are $20,” Pourbaix said in an interview. “I’m not going to be terribly fussed if it’s 50 cents or $1 in or out of the money in February because I am very, very positive we’re going to want it and we’re going to need it in the second half of the year.”

Cenovus was shipping about 20,000 to 25,000 barrels a day via rail at the end of last year, and plans to ramp that up to around 100,000 barrels this year. By contrast, rival oil-sands producer Imperial Oil Ltd. said last week that it would bring rail shipments from its Edmonton terminal to near zero this month from an already-reduce 90,000 barrels a day in January.