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Cenovus Will Stick to Its Bitumen

http://www.reuters.com/article/idAFN1725534020100617

›Thu Jun 17, 2010 5:39pm EDT
By Scott Haggett

CALGARY, Alberta, June 17 (Reuters) - Cenovus Energy Inc (CVE) said on Thursday there are no plans to further expand two U.S. refineries it co-owns with ConocoPhillips (COP), though the pair's oil sands production could soon surpass their capacity.

Cenovus, spun off from Encana Corp late last year [#msg-44088103], said it was comfortable with selling tar-like bitumen from its oil sands projects on the open market once the its output surpassed the processing capacity of refineries at Wood River, Illinois, and Borger, Texas.

The company said on Wednesday it expects its production to top 300,000 barrels per day within a decade, a five-fold increase from its current output. [This includes CVE’s pro rata share of its JV with COP as well as its wholly owned production.] However, the capacity of the refineries is unlikely to be significantly expanded after the partners complete a C$3.6 billion ($3.5 billion) expansion of the Wood River facility next year.

"We have no ... downstream expansions in our current plans," John Brannan, president of the company's integrated oil division, said in an investor presentation. "We believe it will be to our advantage at this time to be long bitumen.

Oil sands production could surpass the capacity of the two refineries by 2012. Cenovus and Conoco will look to debottleneck [LOL—is that a word?] both refineries, which can add up to 10 percent more capacity.

The price of the bitumen that is stripped out of the oil sands has been trading closer to the price benchmark [for] crude as refineries add equipment to process the tar-like fuel and new pipelines from northern Alberta tap additional markets.

That narrowing differential has also convinced other operators, like Syncrude Canada Ltd, to forgo building expensive new upgraders to convert bitumen into synthetic crude and sell the raw bitumen directly.

Cenovus also said it and Conoco could expand the lands held by their joint venture, which includes the Foster Creek and Christina Lake oil sands projects and the planned Narrows Creek project.

"Where we can improve our position around an existing asset that adds value, then we are prepared to do that," Brian Ferguson, Cenovus's chief executive, told reporters. "Conoco is also prepared to do that. They are looking at other lands that they might swap that are outside of the joint venture."

Planned expansions at Foster Creek and Christina Lake are expected to be completed a year ahead of schedule, with Foster Creek output up to 150,000 bpd in 2014 and Christina Lake's capacity raised to 138,000 bpd in 2016.

On Wednesday, Cenovus raised its estimate for maximum gross output for both projects to 493,000 barrels per day, 15 percent higher than previously forecast, while the Narrows Lake project will produce 130,000 bpd by 2106.‹