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

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

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

COVID-19. (Image courtesy CDC)
Alberta reports 1,731 new COVID-19 cases on Saturday

The province’s central zone has 992 active cases

(Photo submitted)
Ermineskin citizen graduates vet school, is part of busy practice

Dr. Justin Hodgson is rolling up his sleeves in Meadow Lake, Sask.

Shaela Dansereau/Pipestone Flyer
Wetaskiwin City services impacted by new public health measures

Public centers and availability to public impacted by the new public health measures.

Wetaskiwin Composite High School. Shaela Dansereau/ Pipestone Flyer.
Wetaskiwin Regional Public Schools prepare for transition back to online learning

Grades 7-12 will are mandated to transfer to online learning starting Nov. 30, 2020.

Idyllic winter scenes are part of the atmosphere of the holiday season, and are depicted in many seasonal movies. How much do you know about holiday movies? Put your knowledge to the test. (Pixabay.com)
QUIZ: Test your knowledge of holiday movies and television specials

The festive season is a time for relaxing and enjoying some seasonal favourites

In this undated photo issued by the University of Oxford, a volunteer is administered the coronavirus vaccine developed by AstraZeneca and Oxford University, in Oxford, England. Pharmaceutical company AstraZeneca said Monday Nov. 23, 2020, that late-stage trials showed its coronavirus vaccine was up to 90% effective, giving public health officials hope they may soon have access to a vaccine that is cheaper and easier to distribute than some of its rivals. (University of Oxford/John Cairns via AP)
Moderna chairman says Canada near head of line for 20 million vaccine doses

Trudeau created a firestorm when he said Canadians will have to wait a bit to get vaccinated

Conservative MP Pierre Poilievre speaks during a news conference Monday, Nov. 16, 2020 in Ottawa. Poilievre says building up the Canadian economy post-pandemic can't be achieved without a massive overhaul of the tax system and regulatory regime. THE CANADIAN PRESS/Adrian Wyld
Conservatives attack Trudeau’s ‘reset’ but they have ideas for their own

‘We don’t need subsidized corporate welfare schemes that rely on endless bailouts from the taxpayer’

There were 47 new COVID-19 cases in Alberta Tuesday. (THE CANADIAN PRESS/Paul Chiasson)
Spread of COVID-19 in Brampton, Ont., linked to systemic factors, experts say

‘We’re tired. We’re numb. We’re overworked. We’re frustrated, because it’s not our rules’

A couple embrace during a ceremony to mark the end of a makeshift memorial for victims of the Toronto van attack, at Yonge St. and Finch Ave. in Toronto on Sunday, June 3, 2018. THE CANADIAN PRESS/Cole Burston
‘I’ve been spared a lot,’ van attack survivor says as she watches trial alone

Court has set up a private room for victims and families of those killed in the Toronto van attack

A person enters a building as snow falls in Ottawa, Sunday, Nov. 22, 2020. Ottawa has been successful in limiting the spread of COVID-19 during its second wave thanks to the city’s residents who have been wearing masks and staying home, said Ottawa’s medical officer of health Dr. Vera Etches. THE CANADIAN PRESS/Justin Tang
People to thank for Ottawa’s success with curbing COVID-19: health officer

The city’s chief medical officer said much of the credit goes to the people who live in Ottawa

Ridge Meadows RCMP are developing a new strategic plan for the detachment. (Phil McLachlan)
UPDATED: Male wanted for Montana First Nation shooting arrested

Darcy Cattleman located in Conklin, Alta.

The Red Deer Games Foundation has made changes to its grant program as a result of the ongoing COVID-19 pandemic. (Photo supplied)
Red Deer Games Foundation adjusts grant program due to COVID-19 pandemic

The foundation postponed the spring 2020 grant program due to the COVID-19 pandemic

Alexandre Bissonnette, who pleaded guilty to a mass shooting at a Quebec City mosque, arrives at the courthouse in Quebec City on February 21, 2017. THE CANADIAN PRESS/Mathieu Belanger - POOL
Court strikes down consecutive life sentences; mosque shooter has prison term cut

The decision was appealed by both the defence and the Crown

Most Read