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Suncor, MEG, Cenovus eye more oil shipments as Alberta offers crude-by-rail incentive


Suncor, MEG Energy may each ship as much as 30,000 b/d by rail

Cenovus eyes 20,000 b/d boost

Operators eye more curtailment allowances

Canadian oil sands producers said Thursday they plan to boost crude-by-rail as the Alberta government announced a deal to exempt those shipments from a production cap on large oil companies.

Alberta set its production cap for December at 3.81 million b/d, but said producers will be able to apply to increase output if that crude is moved by rail.

"Pipeline delays ultimately have constrained market access and dampened investment in our oil sector," Sonya Savage, Alberta's minister of energy, said in a statement. "This program will lead to more production and increased investment, benefitting industry, our province's bottom line, and, ultimately, Alberta taxpayers."

Alberta's government put a cap on the output of large producers at the beginning of 2019 after a shortage of export pipeline capacity and brimming storage caused crude prices at Canada's biggest trading hubs to crash. While the curtailment was initially set to last through 2019, a lack of progress on new pipeline capacity prompted the government to expand the curtailment through 2020. Oil companies, including Suncor, had been negotiating with the province to increase the cap for crude that is not shipped by pipe.

Suncor Energy, MEG Energy and Cenovus Energy each said Thursday they expect to boost crude-by-rail shipments as a result of Alberta's new exemption.

Suncor is poised to begin shipping as much as 30,000 barrels per day of oil by rail, the company said.

Canada's largest oil company by revenue will begin moving crude on rail cars "within the next few months," President and CEO Mark Little said on the company's earnings call. The Calgary, Alberta-based oil sands producer has standing agreements with rail companies and is already a major shipper of refined products.

"We will be taking advantage of this development and curtailment relief that's been put out by the Alberta government this morning," Little said. "In anticipation of that, and our longstanding relationships working in the rail markets and working with the railways, we actually have direct, contracted capacity of 30,000 b/d with the rails to move crude."

Canadian oil sands producer MEG Energy on Thursday said it expects to boost rail shipments, including plans for 30,000 b/d unit train loading capacity at the Bruderheim terminal northwest of Edmonton for at least the next three years.

"Rail will continue to be an important element of the Corporation's marketing strategy to mitigate Edmonton pricing exposure and to reach premium markets," the company said. "This combination of strategic marketing assets advances the Corporation's strategy of having long-term, broadening and reliable market access to world oil prices for its production."

During its earnings conference call, Eric Towes, MEG Energy's CFO, said the government's new allowances could lead to 8,000 to 10,000 b/d of additional Access Western Blend, a heavy bitumen and diluent blend, being shipped by rail this quarter.


Cenovus Energy anticipates increasing crude-by-rail shipments by as much as 20,000 b/d and will be able to raise output at an expansion at its Christina Lake oil sands project in the wake of the Alberta changes.

The Calgary, Alberta-based company said the immediate effect of the government decision could see as much as 85,000 b/d of its production come out from under the cap.

CEO Alex Pourbaix said on a conference call that the move would also allow it to ramp up its Christina Lake G expansion to full production within a year. The company can immediately lift production because it has continued to add steam to its underground oil sands reservoirs throughout the curtailment and the tar-like bitumen is ready to flow from its wells.

"We were continuing to apply more or less maximum steam to our reservoirs and all we did is we dialed back the production," Pourbaix said on the call to discuss third-quarter earnings. "So right now, at both of our oil sands sites, we have significant amounts of oil that is mobilized, liquid in the reservoir. ... We will be able to ramp that up very, very quickly, and that accounts for the 10,000 [b/d] to 20,000 [b/d]."

Cenovus has crude-by-rail capacity of about 100,000 b/d but had only deployed a small amount of it as of the first quarter.

"Given the government's announcement that the baseline for rail above curtailment is Q1 of this year, at that time, we were moving about 15,000 barrels a day," Pourbaix said.

That increase in the production quota will allow the company to bring additional wells at its Christina Lake G expansion project into production within a year. The company had planned to start the project at reduced rates.

"We have ample rail capacity both to undo the impacts of curtailment on our existing facilities and to allow the full production from Christina G," Pourbaix said. "We're just going through the standard process we would go through when we commission a new oil sands phase. ... You'll see that production ramping over a six- to 12-month period."


MEG Energy produced 93,278 b/d of bitumen in Q3 2019, down about 4,000 b/d from Q2 2019 and down 5,473 b/d from Q3 2018, the company said. The company blamed the decline on Alberta's production curtailment program.

Still, MEG Energy was able to increase its average bitumen output through the first nine months of this year to nearly 92,600 b/d, up more than 5% from the first nine months of 2018.

MEG Energy attributed this mostly to no major turnarounds so far this year, compared to a 33-day turnaround in the Q2 2018, and the purchase of third-party curtailment credits which allowed the company to produce above the Alberta governments curtailed limits, which came into force on January 1. Derek Evans, MEG's CEO, said the company purchased 3,100 b/d of third-party curtailment credits, down from 8,500 b/d in Q2.

The company said it "may continue to purchase third-party curtailment credits, if and when they become available."


Suncor managed to increase average output at its giant oil sands operations in northeastern Alberta in the third quarter despite the production cuts thanks to operating improvements at its majority-owned Syncrude Canada operation. Little said the company chose to cut back other types of oil output to meet the Alberta curtailment and produce more expensive bitumen-derived crude to reap higher margins.

"We shut in low-cost, low-value barrels and maximized or shifted the allocation so we could produce higher-cost, but much-higher-margin" crude, Little said. "The net effect of the increased margin is we've been able to generate [C]$200 million of incremental cash flow for the shareholder."

Suncor moves oil on TC Energy Corp.'s Keystone pipeline system, which was shut Wednesday after a leak was detected in North Dakota. Little declined to speculate on the effect of the shutdown.

"We do move some product on Keystone and we'll wait to hear from" TC Energy, he said.

-- Gene Laverty,

-- Edited by Jeff Mower,