Crude curtailment program ‘no way to run a railroad,’ says Imperial Oil CEO

The company is considering cutting its rail movements this month and next

Alberta’s oil curtailment program has worked to reduce inventories that had resulted in steep discounts in local oil prices, but it has hurt crude-by-rail economics and it’s time for it to end, the CEO of Imperial Oil Ltd. said Friday.

The company is considering cutting its rail movements this month and next, after taking them to more than 80,000 barrels per day in June, because of eroding profitability of shipping by rail to the U.S. Gulf Coast, said Rich Kruger on a webcast Friday to discuss second-quarter results.

“Our outlook for August and September is we will ramp down rail because it is not economic to move those barrels on rail,” he said, pointing out that Imperial’s co-owned Edmonton rail-loading terminal was essentially closed in February for the same reason.

“In this ragged edge of up-and-down (volatility) — pardon the pun, but it’s no way to run a railroad.”

Kruger, who has opposed the curtailments since they were put in place in January by Alberta’s previous NDP government, said he doesn’t agree with a suggestion from rivals including Suncor Energy Inc. CEO Mark Little and Canadian Natural Resources Ltd. executive vice-chairman Steve Laut that the government reduce curtailments for companies that add rail export capacity.

“The last thing we want to do is ingrain the concept of curtailment, that you get relief from curtailment if you get rail,” he said on the call.

“I want relief from curtailment and no curtailment. I want it done!”

Alberta has gradually eased the program from an initial withholding of about 325,000 bpd in January to 125,000 bpd in September.

It brought in the cuts after the discount on Western Canadian Select bitumen blend crude rose to more than US$50 per barrel as compared to New York-trade West Texas Intermediate last fall — a situation blamed on the failure of pipeline capacity to keep up with growing production from the oilsands.

The important comparison, however, is the difference between what WCS sells for in Alberta versus what it fetches on the U.S. Gulf Coast, said Kruger.

He said the difference has to be between US$15 and $20 to cover the transportation costs and allow profit. Rail shipments rose when the difference was US$10 to $12, but lately it has fallen to less than US$10, he said.

Meanwhile, Kruger said an investigation has determined the cause of the collapse of a 45-metre-tall fractionation tower during a maintenance shutdown at the Imperial refinery in Sarnia, Ont., in April.

The tower, built in the 1960s, and used to make jet fuel and gasoline components, overheated and fell over, Kruger said, mainly due to work done eight years ago that allowed the accumulation of materials inside that could ignite when exposed to air.

The full-year impact is expected to be $80 million to $90 million in operating and capital costs, Kruger said, adding the margin impact of lost production will be about $100 million.

Imperial reported second-quarter results that beat analyst expectations on the back of strong oilsands output and an allowance for lower future Alberta corporate taxes.

The Calgary-based company, which is about 70 per cent owned by Texas-based Exxon Mobil Corp., reported net income in the three months ended June 30 of $1.2 billion on revenue of $9.26 billion, up from $196 million on $9.54 billion in the same period of 2018.

The results include a $662-million provision for Alberta’s staged corporate tax rate reduction from 12 to eight per cent by 2022.

Analysts had estimated $555 million or 79 cents per share in net income on $9.012 billion in revenue, according to financial markets data firm Refinitiv.

Imperial’s production averaged 400,000 barrels of oil equivalent per day, up from 336,000 boe/d in the second quarter of 2018, on better-than-expected output at its Kearl oilsands mine and from its 25 per cent interest in the Syncrude oilsands mine consortium.

Imperial shares were down four per cent at $34.02 at 2:30 p.m. EDT on the Toronto Stock Exchange.

Dan Healing, The Canadian Press

Just Posted

Lacombe’s AFSC ready to help Alberta producers facing difficult times

2019 season not easy for Alberta producers due toweather and other challenges

Castor seniors learn how to protect themselves from scams and abuse

Around 20 seniors in Castor attended a recent workshop at the Castor Golden Circle

Permits expected in ‘the next month or two’ for the Paintearth Wind Project

The project, if approved, is projected to start construction in the second quarter of 2021

Coronation RCMP seek public assistance for information regarding break and enters

The break and enters occurred during the early morning of Nov. 24th and Nov. 30th

Castor Food Bank receives donations from the Halkirk Light-up event on Nov. 28th

In addition to the food, the event raised over $150 for the Food Bank as well

VIDEO: Federal Liberals’ throne speech welcomes opposition’s ideas

Trudeau will need NDP or Bloc support to pass legislation and survive confidence votes

Final appeal rejected for man convicted in deaths of missing Alberta seniors

Lyle and Marie McCann were in their 70s when they left their home in St. Albert in 2010 and vanished

Infants should be tested for autism if older siblings are diagnosed, Canadian study suggests

Blood test for infants with sibling who’s been diagnosed would get information to families earlier

Rural Alberta gets more police officers, but must pay for them directly

Premier wants areas to pay portion of overall costs on rising scale to bring in extra $200M by 2024

Two vehicle Hwy 11 collision results in 2 dead

Blackfalds RCMP were dispatched to a serious collision on Highway 11

Rebels win second in row 5-2 over Moose Jaw

32 saves from Goalie Byron Fancy leads the way for Red Deer

Nearly 40% of Canadians want creationism taught in schools: poll

23% of Canadians believe God created humans in the past 10,000 years

Blackfalds RCMP lay charges following fatal pedestrian collision

35-year-old male died in the hospital as a result of injuries

Canadian families could pay nearly $500 more for food in 2020: report

Meat prices will increase the most, the report suggests

Most Read