MEG Energy Corp. is facing legal action after the developer of an oil-by-rail terminal blamed the oil sands company for causing it to delay an expansion.
Canexus Corp. said it is taking MEG to court over access to its North American Terminal Operations (NATO) facility about 55 kilometres northeast of Edmonton. The facility has been shut since June while Calgary-based Canexus works to expand capacity to 70,000 barrels per day at the site.
The dispute is over access to an MEG-owned pipeline that connects with MEG’s nearby 900,000-barrel Stonefell storage terminal. Canexus said efforts to connect as much as 100,000 bpd of new pipeline capacity to the line were stymied after MEG refused to allow previously scheduled work to proceed. As a result, a planned Sept. 1 startup for the rail facility has been pushed back indefinitely.
Canexus shares skidded about 11 per cent on the Toronto Stock Exchange Wednesday to close at $4.75 as investors weighed the impact of the delay. MEG shares ended up about 1.5 per cent.
It is not clear what prompted MEG’s actions. A spokesman declined to discuss specifics or speculate on timing of a resolution for legal reasons.
“We continue to have discussions with Canexus to get to a resolution and we’re working in good faith on that,” Brad Bellows said by phone. He said MEG’s production operations remain unaffected.
In a statement, Canexus said it believes MEG has “no legal justification” for blocking access to the feeder pipeline. The company is seeking to enforce terms and provisions of a pipeline agreement that would enable it to complete and commission the needed connection, it said.
“Legal action is being taken to enforce all legal rights and remedies available to Canexus in order to protect Canexus’ NATO business and enable Canexus to obtain the full benefits resulting from the tie-in,” the company said in a statement.
“While we are disappointed with MEG’s actions that have caused an unavoidable delay in the tie-in to the Cold Lake pipeline system and startup of the unit train facility, we believe we are on a very strong legal footing and will be successful in completing the tie-in, in the coming weeks,” Canexus president and chief executive Doug Wonnacott said in a statement issued late Tuesday.
“We are working with our terminal customers to minimize the impact of this delay.”
Canexus declined further comment on the legal skirmish. The company has faced mounting costs for the terminal, with the latest estimate ringing in as high as $360-million, up from $315-million previously.
The Alberta rail terminal is one of several under construction in the energy-rich province, as oil sands companies seek to bypass pipeline congestion that has contributed to volatile swings in prices for Western Canada Select (WCS) heavy blend, the key heavy oil marker. Despite the effective shutdown of the Canexus facility, MEG’s Mr. Bellows said the company has “other options” for moving its crude.
MEG in July said it dispatched 50 bitumen-only trains in the first half of the year from the Canexus site. Phil Skolnick, analyst at Canaccord Genuity, said the legal spat could be driven by competition for limited space at the terminal, which is also used by Cenovus Energy Inc.
However, he said the temporary loss of rail capacity would have minimal impact on MEG’s business. The spread between WCS and U.S. benchmark West Texas intermediate oil has narrowed to around $14 (U.S.), he said, and startup of Enbridge Inc.’s Flanagan South pipeline is imminent, promising smoother access to key U.S. markets for Canadian crude.