Cenovus Energy Inc. said Thursday it would hold back on future oil production until pipeline bottlenecks have eased, while some of the country’s top oil and gas producers increased output in the recent quarter in response to higher demand.
As demand for heavy Canadian crude from U.S. Gulf of Mexico refiners has risen amid a drop in Venezuelan production, the country’s energy infrastructure has failed to keep pace.
The surge in production – expected to reach more than half a million barrels per day in 2019 – has led to pipeline constraints, resulting in Canadian heavy crude trading at steep discounts to U.S. light crude as well as producers turning to crude-by-rail options.
“Transportation bottlenecks are by far the biggest challenge for Canadian producers, mainly because the pipeline constraints won’t be alleviated until the end of 2019, at the earliest,” Edward Jones analyst Jennifer Rowland said. “It impacts their decisions for future production projects, and it impacts investor sentiment toward the companies.”
Shares in Cenovus, based in Calgary, fell as much as 2 per cent, but recovered to edge up slightly in afternoon trading.
Cenovus’s second-quarter production soared 61 per cent to 518,530 barrels of oil equivalent a day (boe/d), while rival Suncor Energy Inc.’s output rose 22.7 per cent to 661,700 boe/d.
“We do not want to expand our oil sands production until we are confident about transportation capacity,” Cenovus chief executive Alex Pourbaix told analysts.
Cenovus said it is beginning to see increased activity across its rail-loading facilities as pipelines operate at full capacity.
Calgary-based rival Husky Energy Inc., however, reported a 7.5-per-cent drop in total production as it increased focus on its refining business to take advantage of widening heavy crude price differentials.
“The physical integration of our upstream and downstream businesses, including our committed pipeline capacity, shielded us from location and quality differentials,” Husky CEO Rob Peabody said.
Husky posted a second-quarter profit of $448-million compared with a loss of $93-million a year ago.
Suncor’s net income more than doubled to $972-million, or 60 Canadian cents a share, in the quarter ended June 30, from $435-million, or 26 Canadian cents a share, a year earlier.
The company cut its output guidance for the year after a power outage at its majority-owned Syncrude oil project.
Shares of Suncor were up 1.7 per cent at $54.03, while Husky shares were up 1.02 per cent at $20.86.