Cenovus cuts oilsands production

Cenovus Energy Inc. said Thursday it has been running its oilsands operations at reduced production rates and storing excess barrels due to wider-thannormal light-heavy oil price differentials and pipeline capacity constraints.

The company has been operating its Christina Lake and Foster Creek facilities at reduced production levels since February, CEO Alex Pourbaix said in a statement.

“We’re taking steps to respond to a critical shortage of export pipeline capacity in Western Canada that is beyond our control and is having a negative impact on our industry and the broader Canadian economy.”

The company has resorted to using its significant oil storage capacity because Canadian heavy oil is selling at a wide discount to West Texas Intermediate. It plans to sell the crude when pricing improves, he said.

Cenovus stock was trading down as much as five per cent at $10.99 per share in midday trading on the Toronto Stock Exchange.

But the move is a “sensible commercial decision” in the face of a challenging set of pricing conditions, RBC analyst Greg Pardy wrote in a note.

Cenovus is also evaluating opportunities to optimize the scheduling of maintenance and holding talks with rail providers to resolve a shortage of locomotive capacity.

Railways have been hesitant to add oil shipping capacity because they fear the business will evaporate once new export pipelines come on stream, demanding long-term take-or-pay contracts and higher rates to take on the risk.