Connacher Oil and Gas Ltd., a company with oil sands assets but short on bundles of cash to develop them, on Monday detailed two ways it expects to rake in more money for its bitumen: trains to the south and infrastructure in the north.
As Andrew Potter, an analyst at CIBC World Markets Inc., put it last week, Connacher has "excessive debt levels, dwindling operational performance and an ongoing strategic alternatives process." In short: it needs to pretty itself up. Monday's press release was chock-full of plans which may help.
Connacher said it plans to "re-institute" work on its so-called diluent recovery unit. The project will reduce the amount of diluent, a product needed to transport Alberta's thick bitumen, in order to enhance Connacher's "marketability" of its oil. The Calgary-based company expects its net realized price for its diluted bitumen (aka: dilbit) to climb by as much as $5 per barrel because of this project.
The company also expects to market more than 50 per cent of its bitumen production by rail next year. Connacher doesn't put a dollar figure on its expected gain here, but still boasts about the advantages.
"This strategy allows the company to maximize pricing (after transportation costs) for diluted bitumen railed to refineries not accessible by pipeline, due in part to wide pricing differentials and volatility in various North American crude oil markets," it said in the statement. "In combination with the previously announced transportation and transloading partnership with Canexus Corporation, Connacher expects to control a rail car fleet of approximately 400 cars in 2013, as well as utilizing a significant number of rail cars controlled by the company's customers."
Rail has become a popular transportation option as oil sands outfits scramble to get around the backlog of crude caused by a pipeline shortage connecting Canada to refineries in the United States. It was once ruled out as too expensive, but as Canadian oil trades at a discount to West Texas Intermediate, which trades at a discount to the international benchmark, companies have made the numbers work. Connacher also noted it closed its previously announced transaction to sell its Montana Refining Co. Inc., and Great Divide Pipeline Co. The $201-million will be used to repay the outstanding $97-million on its credit facility. It also closed asset sales worth $17-million.
"Connacher believes that these transactions have realized significant value for shareholders, and that with its growing dilbit by rail strategy and a prudent hedging program, the company can now manage its exposure to heavy oil differentials without a capital-intensive integrated business model," it said in the statement.
In turn, the company pegged its 2013 budget at $70-million. It wants to improve operating costs, and believes its projects will increase bitumen production at its Great Divide effort by as much as 5,000 barrels of oil per day in the next 15 to 24 months.
Progress on at the Great Divide property may be key to Connacher's future. Sources have told The Globe and Mail it could be tossed into a deal with Athabasca Oil Corp.'s negotiations with Kuwait Petroleum Corp.