Cenovus Energy has turned up the taps at its oil sands facilities in response to a rebound in prices for heavy crude.
The Calgary, Alberta-based company produced more than 405,000 b/d of bitumen in June after dropping production to a second-quarter low of 344,000 b/d in April, CEO Alex Pourbaix said on a conference call. The quick reaction to market signals resulted in free funds flow of more than C$290 million, he said.
"When the average price of Western Canadian Select increased almost tenfold in June compared with April, we acted fast to ramp up our oil sands production back up to take advantage of the improved pricing," Pourbaix said on the July 23 call. "Our low-cost structure means that with WCS prices at current levels we are generating free funds flow and strengthening our balance sheet."
Cenovus uses a production method known as steam-assisted gravity drainage, where pairs of wells are drilled and steam is injected into one to heat the bitumen, which is pumped out of the other.
When oil prices and demand crashed with the onset of the coronavirus, the company slowed the pumping of bitumen out of its reservoirs, but continued to inject steam into the pools, keeping the product mobile and ready for a quick return to production.
As prices have increased, Cenovus has bought low-priced credits from its rivals that allow it to lift production above a cap that was imposed by the Alberta government in response to export pipeline constraints.
"We believe we're on the way to recovery from the low point in the downturn in April, although we expect commodity price volatility for the foreseeable future," Pourbaix said. "We are not counting on a swift recovery. Second only to the safety of our staff, balance sheet strength remains our priority."
Crude-by-rail savings
Prior to the crash in oil prices, Cenovus had been a major user of rail to ship crude to refiners that are hungry for bargain-priced Western Canadian Select. The company's Bruderheim, Alberta, terminal has the capacity to load as much as 100,000 b/d onto rail cars, but it was mostly idle in the second quarter, saving the company approximately C$60 million per month.
"We were spending about [C]$80 million a month," Pourbaix said. "Now that we've ramped it down, we're incurring just the fixed charges, which is about [C]$18 million to [C]$20 million."
The COVID-19-related drop in fuel demand was felt at the company's refineries in Texas and Illinois, which it runs in a joint venture with Phillips 66. The ability of the refining business to react to the downturn mitigated the effect on profits, Pourbaix said.
"The flexibility of our refineries meant that refining runs could be adjusted to take into account refined product demand signals to maximize value for our shareholders," Pourbaix said.
