Canada's Cenovus sticks to shipping oil by rail despite price swings

By Rod Nickel

(Reuters) - Canadian oil producer Cenovus Energy Inc is sticking to its plan to accelerate rail shipments starting in the second quarter, as crude transported by that form remains profitable despite price swings this year, its chief executive said.

Cenovus signed long-term agreements in September with Canadian National Railway Co and Canadian Pacific Railway, when Canadian heavy crude was selling at near record-large discounts to U.S. light oil.

Those discounts have shrunk dramatically in 2019 since the Alberta government ordered production cuts to deal with a glut, reducing the incentive for shippers to use rail over less costly but usually congested pipelines.

Partly offsetting that negative factor are higher than usual prices available for Canadian crude at the U.S. Gulf Coast and lower costs for Cenovus of using its own rail facility, said Chief Executive Alex Pourbaix on Wednesday.

U.S. sanctions against Venezuela's state oil company have forced U.S. Gulf Coast refiners to seek more heavy crude from other sources, including Canada.

"With these really narrow differentials, we're not making a ton of money, but we're not losing money" on rail shipments, Pourbaix said in an interview.

Cenovus currently ships about 20,000 bpd by rail, and intends to boost that to 100,000 bpd by year-end.

Pourbaix said on a conference call earlier that he expects Alberta's government to ease curtailment orders if price differentials remain narrow.

Canadian heavy oil traded for $11 per barrel lower than West Texas Intermediate on Wednesday, less than a quarter of the record large discount reached in October.

Cenovus supports Alberta's curtailment orders, but rivals Imperial Oil and Suncor Energy, which own refineries, oppose them, and said recently that the output cuts and resulting narrower differentials have caused rail shipments to scale back.

Cenovus' shares were up 4.7 percent at C$10.92 in Toronto.

Calgary-based Cenovus posted a wider quarterly loss on Wednesday but said it expected an improvement in Canadian crude prices this year to more than offset the impact of Alberta's mandatory production cuts.

Its net loss grew to C$1.35 billion ($1.02 billion), or C$1.10 per share, in the fourth quarter, from C$776 million, or 63 Canadian cents per share, in the year-ago period.

(Reporting by Rod Nickel in Winnipeg, Manitoba; additional reporting by John Benny in Bengaluru; Editing by Shailesh Kuber and Steve Orlofsky)