Cenovus inks crude-by-rail pacts with CP, CN

Cenovus Energy Inc. announced yesterday it has signed three-year pacts with Canadian Pacific and CN to move crude oil by rail from terminals in Canada to the U.S. Gulf Coast.

The agreements call for the transport of 100,000 barrels of heavy crude per day. CN will transport oil from the Cenovus Bruderheim Energy Terminal starting in the fourth quarter. CP will transport oil through USD Partners' terminal in Hardisty, Alberta, starting in second-quarter next year, with both ramping up through 2019.

"Moving crude by rail is part of a portfolio approach we take to transporting our product to market," said Cenovus President and Chief Executive Officer Alex Pourbaix in a press release. "Our rail strategy provides a means of mitigating the price impact of pipeline congestion. While we remain confident new pipeline capacity will be constructed, these rail agreements will help get our oil to higher-price markets."

The plan involves not only the freight and loading components but also rail-car leasing, offloading logistics, marketing and other arrangements. The specifications of the cars Cenovus is leasing meet or exceed all applicable current and announced regulatory requirements, company officials said.

Cenovus expects all-in costs to transport the oil from Alberta to the Gulf Coast to be in the mid-to-high teens (U.S. dollars), consistent with prior estimates, they said. Exact financial details of the agreements were not disclosed.

Cenovus will continue discussions about expanding the oil-by-rail agreements to move additional volumes "if the terms are favorable," they added.