Cenovus leverages tax credits for record oil-sands output

By Robert Tuttle on 7/27/2020

CALGARY (Bloomberg) --Cenovus Energy Inc. is taking advantage of a plunge in the price for credits that allow the oil-sands company to produce more than output limits imposed by Alberta.

For August, those credits are trading at about $1.25 a barrel, compared with $7 or more before the global pandemic, according to people familiar with the market who asked not to be named because the prices aren’t public.

With those cheap credits, the Calgary-based company has pushed output to more than 405,000 barrels a day, up from less than 344,000 in April. Output at the company’s Christiana Lake reached a record.

“I cannot overemphasize the value of our ability to take advantage of rapidly changing market conditions,” Chief Executive Officer Alex Pourbaix said in an earnings call Thursday. He said the company has been buying “low-cost production credits from peers” to produce above the mandated limit, but didn’t disclose the price it’s paying.

An estimated half a million barrels a day of Western Canadian oil went offline after an unprecedented price crash pushed many producers to the brink.

Now that benchmark U.S. prices have rebounded to about $40 a barrel, from as low as minus $40 in April, the biggest players are in a position to pick up the slack from smaller ones that are struggling to stay afloat. Heavy Canadian crude is trading at its smallest seasonal discount to New York futures in more than a decade.

The resumption of output in Canada has been gradual as some producers conduct maintenance on equipment and wait to see if the rise in oil prices continues.

The market for production credits formed at the start of last year, when Alberta ordered its largest oil producers to curtail production to alleviate a glut caused by too much oil flowing into too few pipelines.

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