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Global Energy Advisory – 22nd June 2018

Global Energy Advisory – 22nd June 2018

Bottlenecks in the Permian are…

Low Canadian Oil Prices Throttle Production, Company Earnings In Q1

Pipeline pieces

Worsening transportation bottlenecks that led to wider discount of Canadian crude oil prices stifled the production and earnings of some of the big oil sands producers in the first quarter.

Not enough pipelines and crude-by-rail capacity to ship Canadian crude widened the discount at which Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta—trades relative to West Texas Intermediate (WTI). Meanwhile, three pipeline projects—Kinder Morgan Canada’s Trans Mountain pipeline expansion, TransCanada’s Keystone XL pipeline, and Enbridge’s Line 3 have yet to be approved.

On Thursday, Husky Energy said that its production in Q1 was 300,400 barrels of oil equivalent per day (boe/d), down from 320,000 boe/d in Q4 2017 and 334,000 boe/d in Q1 2017. The company lowered its annual production guidance range to 310,000-320,000 boe/d, to reflect a slower ramp up at a project in Indonesia and a “decision to temporarily reduce heavy oil production to take advantage of wide differentials in the quarter.”

On Wednesday, Cenovus Energy said that it responded to the wider price differentials and transportation constraints by temporarily slowing oil sands production in February and March and storing excess barrels in its reservoirs. Cenovus took a hit from a bad bet on hedging and reported wider-than-forecast loss for Q1.

Related: Are Investors Turning Away From Big Oil?

Cenovus had hedged 80 percent of its expected oil production for the first half of 2018 “to support financial resilience by establishing downside protection at a time when commodity prices were lower and the timing and amount of proceeds from planned divestitures were uncertain. This was the main contributor to the realized risk management losses in the quarter as benchmark prices exceeded Cenovus’s contract prices,” the company said.

Speaking on the conference call about new investment in production, CEO Alex Pourbaix said: “We will not be considering any material new additions until we see clear line of sight to increased pipeline capacity out of the province.”

By Tsvetana Paraskova for Oilprice.com

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  • Kr55 on April 26 2018 said:
    The most embarrassing part of CVE's results were their pathetic hedges. Companies need to bite the bullet soon and exit their hedges early or they are just going to embarrass themselves more as the year goes on. Good news is, there are almost 2M short hedges, so when companies finally start to give up on them and cover early, it will start a wave and lift prices and make them all feel better about their decision. Well, at least the first bunch that do it, the guys that panic and do it last won't gain much more, but at least they will learn a lesson.

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