Thursday July 31, 2014

Industry Has Alternatives To Keystone: Cenovus

TransCanada Corporation's proposed Keystone XL is important to Cenovus Energy Inc. and the entire Canadian oil and gas industry but if the pipeline is not approved there are other options, says a top Cenovus executive.

Those options include pipelines to the West Coast such as Enbridge Inc.'s Northern Gateway project and increased capacity on Kinder Morgan Canada Inc.'s Trans Mountain oil pipeline, John Brannan, executive vice-president and chief operating officer, told the Barclays Capital 2011CEO Power-Energy Conference in New York today.

"I know that the Enterprise [Products Partners, which had partnered with Energy Transfer Partners] line was not necessarily subscribed because of the uncertainty associated with it. As soon as Keystone goes in then they don't want to pay those kinds of premiums for moving crude from Cushing to the Gulf Coast, but if Keystone for some reason is not approved then I think some of those other lines would go forward to be moving crude out of Cushing to the Gulf Coast," said Brannan.

The market has the ability to correct itself, he added.

Cenovus has acquired firm transportation capacity on Keystone and continues to plan on the basis that it will be approved by the end of this year.

The company is well positioned, thanks to its downstream operations at Wood River and Borger and particularly with the Coker and Refinery Expansion (CORE) project coming online soon, to take advantage of Brent and WTI differentials in the near-term and ultimately long-term if there are huge differentials associated with Western Canada Select and WTIs said Brannan.

The CORE project at Wood River, Illinois, with partner ConocoPhillips, is more than 98.5 per cent complete. Vacuum and coker units are to be completed in the third quarter and the project is expected to start up in the fourth quarter, he said.

The project will add 65,000 bbls per day of gross coking capacity, bringing the total coking capacity at Wood River to 83,000 bbls per day. The CORE project also involves 50,000 bbls per day of increased crude throughput and 130,000 bbls per day of increased heavy crude capacity.

The refinery will have an increased ability to process heavy crude oil feedstocks and produce a larger percentage of high-value products. The company's two refineries (Wood River and Borger, Texas) will then have a combined capacity to process as much as 275,000 bbls per day gross of heavy crude oil, including 108,000 bbls per day of coking capacity.

Originally estimated to cost $3.6 billion to build, spending is now expected at $3.7 billion by the end of this year, with a little more work on support equipment in following years, said Brannan, adding the project is also a little behind schedule.

"We think that the overall incremental cash flows, say at a $9 crack, will give us an extra US$200 million a year in cash flow from the refineries but at today's cracks I would expect that will be significantly more."

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