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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.
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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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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.