Railways ready to ease oil transport headaches: Canada's Cenovus

(Reuters) - Oil and gas producer Cenovus Energy Inc CVE.TO expects Canada's railways to be able to carry more oil in the second half of this year, easing transport bottlenecks and allowing it to stick to previous annual forecasts.

FILE PHOTO: A warning sign is pictured near wellheads that inject steam into the ground and pump oil out at the Cenovus Energy Christina Lake Steam-Assisted Gravity Drainage (SAGD) project 120 km (74 miles) south of Fort McMurray, Alberta, August 15, 2013. REUTERS/Todd Korol

Cenovus, one of the biggest of Canada’s oil sands producers, said in March that it was operating at lower capacity due to the maxing out of pipelines and other routes through which it sends heavy oil south to U.S. markets.

Analysts had wondered if that would threaten its previous targets for the full year, but Chief Executive Alex Pourbaix played down any danger and shares rose 6 percent in response.

“Despite the temporary pullback in production in the first quarter, we still expect our oil sands volumes for the year to be within our original guidance of 364,000 to 382,000 barrels per day,” he told a conference call with analysts.

“I’m really confident that as we move into the second half this year and into the first half of 2019, we’re going to be seeing very material volumes of oil moving by rail,” he added.

Railways are producers’ second best option for hauling crude to the United States after pipelines but have so far been reluctant to sign the short-term contracts the oil industry favors.

Pourbaix said that railway operators have hired and are training crew to handle crude shipments and have “indicated that they’re reactivating a fair amount of locomotives.”

The transport bottlenecks have increased the discount buyers take for Canadian oil over U.S. light crude CLc1 and Cenovus said its differentials averaged $24.28 per barrel in the first quarter, a 67 percent jump when compared with last year.

That in turn hurt profit per barrel. Netbacks, profit after subtracting transport and other expenses, averaged C$16.80 per barrel of oil equivalent in the first quarter, compared with C$21.25 a year earlier.

Cenovus’ total oil sands production, however, jumped to 359,666 barrels per day in the quarter, from 181,501 barrels per day, a year earlier.

“Investor attention increasingly appears to be migrating toward a much more constructive 2019 outlook,” said Raymond James analyst Chris Cox.

The company posted a loss of C$914 million ($711 million), or 74 Canadian cents per share.

Adjusting for some operations the company shut, the quarterly loss was 40 Canadian cents per share, while analysts on average expected a loss of 16 Canadian cents per share, according to Thomson Reuters I/B/E/S.

Shares of the company were trading at C$12.89 Wednesday afternoon, up 5.74 percent.

Reporting by Taenaz Shakir in Bengaluru and Julie Gordon in Vancouver; Editing by Sriraj Kalluvila