CALGARY – A number of the largest oil corporations in Canada are in talks to buy the crude-by-rail contracts presently held by the Alberta authorities that Premier Jason Kenney has been trying to offload.
“We’re very all in favour of taking over rail capability,” mentioned Steve Laut, govt vice-chairman of Canadian Pure Sources Ltd., which is the biggest upstream oil and fuel producer in Canada. “We’re significantly taking part within the course of.”
Talking on the sidelines of a TD Securities funding convention in Calgary, Laut mentioned he didn’t know when the federal government would award the contacts however that Canadian Pure had responded to a request for proposals.
The Calgary-based producer has been extensively thought-about the almost certainly purchaser of the crude-by-rail contracts, particularly after its $3.8-billion buy of Oklahoma Metropolis-based Devon Power Corp.’s oilsands enterprise in Could, that has elevated the corporate’s want for takeaway capability.
Kenney’s authorities employed CIBC Capital Markets on June 27 to divest the $3.7-billion, 120,000-barrels-per-day crude-by-rail contracts that former premier Rachel Notley and her NDP authorities secured in the midst of February in an effort to clear a glut of oil within the province.
Kenney has repeatedly mentioned the contracts belong within the non-public sector and there are a number of corporations within the rail capability, although some are on the lookout for a discount.
Cenovus, which owns a crude-by-rail loading facility close to Edmonton, and is within the technique of ramping up its oil-by-rail capability to 100,000 bpd by the top of this yr would solely take a look at the chance if there’s a discount on provide.
“We’ll all the time check out all the pieces however, for my part, 100,000 barrels per day is our rail dedication, which is fairly significant for our firm. So we’re in all probability, except there are some actual bargains there, we’re extra seemingly simply going to be pleased with our scenario,” Cenovus Power Inc. president and CEO Alex Pourbaix mentioned.
The oil-by-rail contracts are extensively seen inside the oilpatch as the important thing to lifting an oil manufacturing restrict imposed by the earlier NDP authorities in late 2018 to forestall home heavy oil costs from collapsing additional. Within the fourth quarter of 2018, Canadian heavy oil traded at numerous instances for US$50 per barrel lower than the West Texas Intermediate benchmark.
“This can be a really orderly strategy to cut back curtailment over time. I don’t assume the Alberta authorities is all in favour of seeing differentials blow out once more,” CNRL’s Laut mentioned of promoting off the oil-by-rail contracts.
Presently, oil producers within the province are required by the Alberta authorities to restrict their manufacturing by a cumulative complete of 175,000 bpd. On the similar time, and to the annoyance of the nation’s largest oil corporations, there may be sufficient oil-by-rail loading capability within the province to maneuver that quantity of crude however it’s not getting used.
“I name this the Kindergarten MBA check. What’s incorrect with this image? Now we have oil shut in and we now have idle takeaway capability,” mentioned Mark Little, president and CEO of Suncor Power Inc., the biggest oil firm in Canada by market capitalization.
What’s incorrect with this image? Now we have oil shut in and we now have idle takeaway capability
Mark Little, president and CEO of Suncor Power
Little mentioned a gaggle of oil producers within the province have been in talks with Kenney’s authorities on the way it can ease the curtailment order in a method that will stop huge reductions for Canadian crude and encourage extra oil-by-rail actions.
“I feel that we’re inside rounding distance of having the ability to actually get the entire manufacturing to market with the surplus rail that’s accessible and get a good value for it, and I feel that’s the target that the businesses working along with the federal government is concentrated on,” Little mentioned.
Nonetheless, not one of the corporations have been prepared to foretell if the oil curtailment order, which took impact in January, can be lifted by the top of the yr or would nonetheless be in place in 2020.
The problem is that oil manufacturing from Alberta exceeds pipeline takeaway capability and there have been multi-year delays to all lively pipeline proposals out of the province, together with the federally owned Trans Mountain pipeline enlargement, TC Power Corp.’s Keystone XL pipeline and Enbridge Inc.’s Line Three pipeline.
“All of us had an expectation that round this time this yr Line Three can be line filling and can be taking a big quantity of stress off the egress scenario and that clearly hasn’t occurred,” Cenovus’ Pourbaix mentioned.