Imperial Oil takes crude-by-rail shipments to 100,000 bpd as differentials widen

CALGARY — Imperial Oil Ltd. has ramped up crude-by-rail shipments to more than 100,000 barrels per day from zero in October and plans to continue to add railcars as profitability of the transportation option strengthens.

Earlier this week, rival oilsands producer Cenovus Energy Inc. said it had met its year-end goal of taking its crude-by-rail shipments to 100,000 barrels per day, crediting a decision in Alberta to exempt rail-exported crude from production quotas.

Higher local discounts for western Canadian oil make moving it to the U.S. Gulf Coast to win higher prices more profitable, encouraging companies to use rail in spite of its higher cost compared with pipelines.

Imperial co-owns a rail terminal in Edmonton with capacity to move 210,000 barrels per day but it has cut its usage to zero or near zero at least three times in the past year as price differentials tightened with Alberta production curtailments, storage levels and rail and pipeline disruptions.

"With the current differentials and arbitrage, it makes good economic sense for us to ship barrels on the rail," said Imperial CEO Brad Corson on Friday during a conference call to discuss fourth-quarter results, his first such call since replacing Rich Kruger this month.

"We started in October at zero. We ramped up very quickly in November and December, finished the year in December at 88,000 barrels per day and now in January ... it's slightly above 100,000 barrels a day and I think we're going to see that trend continue in the near term."

The difference between Western Canadian Select bitumen-blend heavy oil and New York-traded West Texas Intermediate oil prices had widened to as much as US$52 a barrel in October 2018 before the then-NDP government implemented Alberta production limits to better match growing output with limited pipeline space, thus drawing down overflowing storage.

On Friday, oil brokerage Net Energy Exchange said the WCS-WTI differential had averaged US$23.19 per barrel in January for February delivery, up from US$20.68 in the previous month.

Imperial's production is set to rise after it completed the installation of supplemental ore crushers at its Kearl open pit oilsands mining operations in December and January.

The project will allow the company to improve reliability and throughput to average gross production from Kearl of about 240,000 bpd in 2020, up from the current 200,000 bpd, said Corson.

On the call, Corson told analysts his priority as Imperial chairman and CEO is to efficiently manage its existing portfolio of assets, declining to speculate on changes that might come to the company which is 70 per cent owned by Texas-based Exxon Mobil Corp.

"I want to take a great company and make it greater. That's the bottom line," he said. Corson has worked for Exxon for 36 years.

Imperial reported a fourth-quarter profit of $271 million, down from $853 million in the same quarter last year, as revenue and other income totalled $8.16 billion, up from $7.89 billion.

Analysts said the results beat their forecasts mainly due to better-than-expected performance from the downstream, which was impacted by maintenance shutdowns at the company's Nanticoke and Sarnia, Ont., refineries.

Imperial reported a downstream profit of $225 million, compared with $1.14 billion a year earlier, due to lower margins and planned turnaround activities.

Imperial's upstream operations recorded a profit of $96 million in the quarter compared with a loss of $310 million in the final quarter of 2018, thanks to higher oil prices as production fell to 398,000 barrels of oil equivalent per day from 431,000 boe/d in the same period of 2018.

This report by The Canadian Press was first published Jan. 31, 2020.

Companies in this story: (TSX:IMO, TSX:CVE)

Dan Healing, The Canadian Press