CALGARY — Cenovus Energy Inc. has tripled its contracted space on the proposed Keystone XL pipeline, but remains concerned by reports that suspected foreign influences are using social media to constrain new pipeline projects in the country.
Cenovus president and CEO Alex Pourbaix said he was disappointed, but not surprised, by a CBC report this week that showed thousands of social media accounts, originating in oil-producing countries such as Russia, Iran and Venezuela, had posted millions of messages directed at Canadians on various topics, including the construction of new pipelines.
“If anybody thinks the world is a better place with Canadian oil being replaced with oil from those countries, they are not thinking very clearly,” Pourbaix said.
“Global demand for oil and gas continues to rise every year, we can either be part of the solution or we can be the world’s Boy Scouts. Every other country in the world with oil and gas is going to be happy to supply that,” he said.
The report said Twitter had suspended thousands of accounts that had been posting critically about Canadian pipelines — potentially in an effort to maintain Russian, Iranian and Venezuelan market share in India and China.
Natural Resources Minister Amarjeet Sohi said Tuesday it is “concerning” that actors outside Canada are trying to influence the country’s economic development. “Misinformation and information that is not based on facts is never healthy for any democratic process,” he said.
Calgary-based Cenovus and other oilsands companies are suffering losses as Canadian heavy oil prices trade at a discount to international benchmarks amid constrained capacity on pipelines.
Still, Pourbaix continues to believe that new pipelines, including the Trans Mountain pipeline expansion to the West Coast and Keystone XL project to the heavy oil hub of the U.S. Gulf Coast, will be built.
Cenovus announced on an earnings call Wednesday that it had increased its shipping commitments on Keystone XL to 150,000 bpd from 50,000 bpd.
“I really view this as a no-regrets strategy,” Pourbaix said, adding that the cost of shipping on Keystone XL will be under US$10 per barrel and the company would send its oilsands product directly to the world’s largest market for heavy oil. “From our perspective, we really do not have any material financial risk in the event the project doesn’t proceed.”
The lack of pipeline capacity caused the discount for Western Canada Select heavy oil prices to hit record highs in the quarter, which in turn blew a hole in the company’s earnings figures for the period.
Cenovus posted a $1.3 billion net loss in the fourth quarter of 2018, or close to double its $773 million net loss during the same period a year earlier.
The company’s results were “a sizeable miss relative to our estimates and consensus,” Raymond James analyst Chris Cox said in a research note.
I really view this as a no-regrets strategyCEO Alex Pourbaix
Most analysts believe, however, the company is poised for a turnaround given that the discount for Western Canada Select relative to the West Texas Intermediate benchmark has shrunk to under US$10 per barrel in the first few weeks of 2019 from US$40 per barrel in the fourth quarter.
Cenovus has also hit the pause button on plans to sell off non-core assets in Alberta’s Deep Basin natural gas formation to pay down debt it took on when it spent $17.7 billion to buy gas and oilsands assets from ConocoPhillips Co. in 2017.
“We did get bids on a significant amount of those non-core assets but, at the end of the day, my perspective is we were not benefitting our shareholders by selling at those valuations,” Pourbaix said.
The company plans to spend all its free cash flow after dividends to pay down its debt.
Cenovus’s long-term debt currently sits at $8.48 billion and Edward Jones analyst Jennifer Rowland said the earliest Cenovus will be able to hit its long-term debt target of $7 billion is the middle of 2020.
“It cements that probably wasn’t the best acquisition they made from Conoco and cements that they likely overpaid for that asset,” she said.
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