Cenovus Energy says it’s benefitted from improved oil prices generated by the NDP government’s plan to reduce oil production and close the price differential earlier this year.
In the first quarter of this year, Cenovus generated cash from operating activities and adjusted funds flow of $436M and more than $1B respectively, compared with a $123M shortfall in operating costs and an adjusted funds flow shortfall of $41M in Q1 of 2018.
Following the implementation of the mandatory oil production curtailment on January 1, Cenovus says the price differential between West Texas Intermediate (WTI) and Western Canadian Select (WCS) narrowed to an average of US$12.37 per barrel.
The energy giant also says the price of WCS was also up in the first quarter of the year to an average US$42.53 per barrel, more than double the average price in Q4 of 2018.
As a result of those improved prices, Cenovus says it paid $191M in royalties to the province of Alberta during the first quarter of 2019 as opposed to the royalty credit of $29M in the fourth quarter of 2018.
Officials say that shows the NDP government’s plan to reduce production was “doing what it was intended to do.”
“[It] has had an immediate, positive impact not only for our industry, but for all Albertans, in the form of improved royalty revenue,” said Alex Pourbaix, president and CEO of Cenovus in a release. “To put it in context, when price differentials reached record highs in the fourth quarter of 2018 due to a lack of takeaway capacity, our company was in a royalty credit position with the provincial government. Over the last three months, we paid nearly $200 million, and we only account for about 10% of Alberta’s total oil production. This has been a big win for Alberta.”
Pourbaix says Cenovus will continue to operate at reduced production volumes while mandatory curtailment remains in place. While that means some of their operating costs will remain high, he expects those to return to normal levels once the curtailment is lifted.
Under the original announcement, the NDP planned to keep the reduction in place until the end of the year. The UCP announced it was in support of the curtailment plan, but Jason Kenney said his government would reverse Notley’s temporary lease agreement for rail cars used to transport oil.
Currently, the price of WTI is $65.79 while WCS is $54.32, resulting in approximate differential of $11.47.
Gross sales at Cenovus from January to March totalled about $5.2B, up from $4.7B in 2018.
(With files from The Canadian Press and BNN)