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Oilsands producer’s profit rose sharply in the fourth quarter
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A Cenovus employee works at its Christina Lake oil facility in Alberta. Photo by Brent Lewin/Bloomberg
Cenovus Energy Inc. said it is prepared to back new pipeline projects or expansions to help keep Western Canadian crude prices stable as its production nears one million barrels per day.
“Heavy oil egress is a really important part of our strategy, and we are actively evaluating and looking at all of those options that are available to us,” Cenovus president and chief executive Jon McKenzie said Thursday on the company’s fourth-quarter earnings call.
“You shouldn’t be surprised if we take action on some of those.”
The oilsands major said it is willing to commit to long-term shipping contracts to help advance new projects, though it declined to identify specific ones. Geoff Murray, Cenovus’s executive vice-president of commercial, acknowledged Enbridge Inc.’s phased plans to increase capacity on its Mainline network to the U.S., and alluded to other pipeline proposals in the works.
“There are more out there as well under development,” Murray said, adding, “very few of them look like the big challenging mega-projects we saw a decade ago.”
Cenovus confirmed Thursday it is pursuing contracts for 150,000 barrels per day of additional export capacity over the next two years.
McKenzie made the comment about pipelines after being asked if the company’s growing production — which reached a record 970,000 barrels of oil equivalent per day in December — left it vulnerable to price discounts if export pipeline capacity in Western Canada were in short supply again.
“Cenovus has been pressing hard across the industry for what’s next,” Murray said. “Although the (price differential on Western Canada’s heavy crude) is in the right place and stable, we know that we need to take action to continue that.”
While the Trans Mountain Pipeline expansion, which came online May 2024, is helping to stabilize prices for heavy crude in Western Canada, Murray said, the industry is looking to avoid pipeline bottlenecks and capacity shortages that triggered steep price discounts in the past.
Enbridge’s Mainline, North America’s largest pipeline network at more than three million barrels per day, has seen demand for available shipping space exceed capacity for all but three of the last twelve months, the company said last week.
A project to add 150,000 barrels per day of capacity has already been approved, and analysts expect a decision later this year on a second phase to add a further 250,000 barrels per day by 2028. A third expansion is in the early stages of development, Enbridge said.
The federal Crown subsidiary behind the Trans Mountain pipeline has also applied to regulators to use a drag-reducing chemical on its pipeline to the West Coast to increase throughput by up to 10 per cent by 2027, and is exploring projects totalling 400,000 barrels per day of additional capacity on the 890,000-barrel-per-day line.
“We probably see more proposed projects today than I’ve seen in the last 10 years, and more projects that are doable in a shorter time frame than we’ve had in a long period of time,” McKenzie said Thursday.
The oilsands producer saw a sharp rise in fourth-quarter profit as higher oilsands production — including volumes from its newly acquired MEG Energy Corp. assets — boosted results.
Cenovus reported net earnings of $934 million in the last three months of the year, up from $146 million in the same period last year.
The company handily beat fourth-quarter expectations, delivering adjusted funds from operations roughly 20 per cent above forecasts based on stronger earnings from oilsands production and robust U.S. refining performance.
Upstream production averaged 918,000 barrels of oil equivalent per day was also slightly ahead of expectations.
“While it was an enormous (adjusted funds from operations) beat, we note multiple nonrecurring wins like cash tax recovery and the pipeline settlement in U.S. refining do explain a healthy portion of the beat,” Raymond James wrote in a note Thursday. “Even still, strong upstream performance, impressive U.S. refining capture rates and higher free funds flow are all likely to be received well by investors.”
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