Canada’s Cenovus Energy on Wednesday praised government-ordered oil production cuts that have dramatically improved Canadian crude oil prices, allowing the company to post a return to quarterly profits after a torrid 2018.
Alberta, Canada’s main oil-producing province, ordered companies to cut output by 325,000 barrels per day (bpd), effective Jan. 1, 2019, to deal with pipeline bottlenecks that led to a glut of crude in storage and record price discounts.
Subsequently, Canadian heavy crude prices surged to an average of $42.53 a barrel in the first quarter, more than doubling from the previous quarter and up 10 per cent on the first quarter of 2018.
Cenovus, the first of the country’s major producers to report earnings since the cuts took effect, said higher prices more than offset the impact of reduced production and increased operating costs during the first quarter.
Some producers, such as Imperial Oil, have criticized government intervention in the market but Cenovus chief executive officer Alex Pourbaix said the move had boosted both company profits and provincial royalty revenues.
“It’s crystal clear that temporary mandatory curtailment has been a big win for our industry and for our province,” Mr. Pourbaix said on an investor call.
Cenovus, which accounts for 10 per cent of Alberta’s total oil production, paid the province more than $190-million in the first quarter of 2019, versus being owed $30-million in royalties in the fourth quarter of last year.
Curtailments have been reduced slightly since January and are expected to ease throughout the year. Cenovus is ramping up its crude-by-rail shipments to 100,000 bpd to ensure it can get crude to market while waiting for new export pipeline capacity like Enbridge Inc’s Line 3 to move forward.
Calgary-based Cenovus reduced its 2019 oil sands production guidance by 7 per cent, reflecting the impact of the curtailments. It now expects oil sands production to average 350,000-370,000 bpd in 2019, below the 377,000-395,000 bpd range forecast in December.
Net income for the quarter was $110-million, or 9 cents per share, compared with a loss of $914-million a year earlier.
Cenovus reported free cash flow of $731-million, and said its top priority will be deleveraging the balance sheet.
“With oil stocks still greatly lagging the rally in crude prices we were looking for opportunities to buy, and we believe Cenovus is good value right now,” said Norman Levine, managing director of Portfolio Management Corp in Toronto.
Cenovus shares were last down 1.9 per cent at $13.74 on the Toronto Stock Exchange, tracking a broader drop in Canadian energy stocks.