Not a pipe dream: Cenovus ships first crude to China, happy to get $40 a barrel more

Cenovus Energy on Wednesday said its fourth-quarter earnings were more than three times that of last year – $266 million versus $78 million – thanks to increased output and higher achieved oil prices.

The Alberta oil and gas producer, which was spun off from natural gas major Encana three years ago, also upped its quarterly dividend 10% to 22c/share.

The $29 billion company is a backer of the Northern Gateway pipeline project to carry crude from the Alberta oilpatch to markets in Asia via a new marine terminal in British Columbia in an effort to realize world prices for Canadian crude.

According to Canada.com Cenovus last week shipped its first 250,000 barrels to China, locking in relationships with refiners there:

[CEO Brian] Ferguson said last week’s shipment was made possible by Cenovus gaining 12,000 barrels per day of service on the TransMountain Pipeline that runs from Edmonton to the Westridge Terminal in Vancouver.

Most of the oil shipped starting late last year has been bound for California customers and, although it’s less than 10 per cent of overall company oil output, it has helped the bottom line, Ferguson said, because it is fetching a premium by being priced in relation to Brent crude instead of West Texas Intermediate.

North Sea Brent was trading at $117 per barrel on Wednesday while West Texas Intermediate (WTI) fetched just under $102 in New York. Canadian crude in turn trades at a steep discount to WTI.

Western Canada Select, a combination of heavy oil from the oil sands and conventional sources, traded at a $24 discount to WTI on Wednesday. Last week it hit multi-year lows of $35 below WTI.

The discount for Syncrude, a light oil made from oil sands after undergoing an expensive upgrading process, last week traded at its widest in at least six years after dropping to $23 below the value of WTI. That gap has since closed to only $1.00 because of an outage at the Horizon oil sands upgrader, cutting supply.

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