Cenovus expects widening Canadian crude discount to be temporary; won't change output plans (updated)

Cenovus Energy Incorporation

Wed 11:19

Updates and changes lede after conference call; adds CEO comments; adds byline and bullets
Third-quarter net income rises to C$3.36 billion from C$1.29 billion a year earlier
Quarterly oil production tops 1 million boepd for first time at 1.024 million boepd
Wide Canadian heavy crude discount reflects global factors not pipeline constraints, McKenzie says
By Amanda Stephenson and Dharna  Bafna
Nov 4 (Reuters) - Canada's Cenovus Energy CVE.TO said on Wednesday it will not change its output plans in response to this fall's unexpectedly wide discount on Western Canadian crude oil, which the company said it expects to be temporary.
Cenovus reported an increase in third-quarter profit on Wednesday, supported by record oil production and improved refining margins.
But CEO Jon McKenzie acknowledged the recent weakness in Canadian heavy crude prices, which began to slump relative to the US benchmark in October. As of Monday, Western Canada Select was trading more than US$30 a barrel below WTI, its widest spread since 2018. 
That year, the wide discount on Alberta crude prompted the province's government to order its biggest producers to curtail production in an effort to get the price blowout under control.
But McKenzie said the current weak pricing is different, in that it is not being driven by a lack of Canadian pipeline capacity but by global factors. In particular, high freight rates have sharply cut export demand for Canadian barrels being re-exported off the US Gulf Coast. 
While the company does not know when the situation will normalize, McKenzie said he expects the wide differentials to be temporary and added the company is not changing its production outlook as a result.
"We will continue to execute our long-term plans, and continue to execute on our strategy and operate well through this," he said.
One of Canada's largest oil sands producers, Cenovus pumped a record 1.024 million barrels of oil equivalent per day during the reported quarter, up from 832,900 boepd a year earlier.
The company surpassed the 1-million-boepd mark for the first time, as production hit quarterly records at its Christina Lake, Foster Creek and Sunrise oil sands projects.
The company's adjusted refining margin rose to C$55.52 per barrel in the third quarter, from C$29.83 in the preceding three months. 
Cenovus has been expanding its oil sands business through acquisitions. In October, it agreed to acquire Athabasca Oil ATH.TO in a C$5.7 billion cash-and-stock deal, which would add about 45,000 boepd to its thermal oil sands production.
     The transaction, expected to close in December, follows Cenovus' purchase of MEG Energy last year.
During the third quarter, Cenovus processed 437,200 barrels per day of crude in its refineries, down from 710,700 bpd a year earlier. It said a planned turnaround at its Lima refinery weighed on US refining throughput.
Cenovus' overall crude unit utilization rate stood at 92%, while US refining adjusted market capture was 88%.
The Calgary, Alberta-based company's net income rose to C$3.36 billion ($2.40 billion), or C$1.83 per share, in the three months ended September 30, from C$1.29 billion, or 72 Canadian cents per share, a year earlier.
     
($1 = 1.3971 Canadian dollars)

(Reporting by Amanda Stephenson in Calgary and Dharna Bafna and Tyakshi Singh in Bangalore; Editing by Shilpi Majumdar and Andrea Ricci )
((amanda.stephenson@thomsonreuters.com))