Cenovus is "temporarily suspending its crude-by-rail program and deferring final investment decisions on major growth projects. These measures are being taken in response to the recent significant decline in world benchmark crude oil prices," the company said on March 9. Cenovus' operations include oil sands projects in northern Alberta and oil and gas production in Alberta and British Columbia.
Because Cenovus is suspending its crude-by-rail program, it will no longer be making use of the credits under Alberta's Special Production Allowance program. The program allowed crude producers to increase their crude oil production if producers agreed to ship it by rail. The Alberta government set production limits so that Alberta heavy crude would not be sold at steep discounts.
As a result of not increasing crude production and sending crude volumes via rail, Cenovus said it expects oil sands production to average 350,000-400,000 barrels a day, which is 6% lower than the 2020 guidance the company provided last December.
Crude oil prices in "this challenging commodity price environment" have fallen sharply in recent days as Saudi Arabia has sought to ramp up crude production in hopes of slashing prices, including those of competitors such as Russia.
Alberta crude producers look at the pricing spread between Brent crude and West Texas Intermediate (WTI) as they assess their ability to ship via rail. Western Canada Select (WCS) crude, which is Alberta heavy crude, is typically priced against WTI.
WCS gets hauled to the U.S. East or Gulf coasts, and so producers consider rail costs. If the price of WCS, which is WTI minus the prevailing market differential, is competitive with Brent crude, then producers are more willing to bear the rail costs and ship WCS.