Cenovus to hold back oil output on pipeline woes, Suncor weighs hit

(Reuters) - Canada’s Cenovus Energy said on Thursday it would hold back on future oil production until pipeline bottlenecks have eased, while some of the country’s top oil and gas producers ramped up output in the recent quarter in response to higher demand.

FILE PHOTO: Cenovus sign is on display during the company's annual general meeting in Calgary, Alberta, Canada, April 24, 2013. REUTERS/Todd Korol/File Photo

As demand for heavy Canadian crude from U.S. Gulf of Mexico refiners has risen amid a drop in Venezuelan production, the country’s energy infrastructure has failed to keep pace.

The surge in production - expected to reach more than half a million barrels per day in 2019 - has led to pipeline constraints, resulting in Canadian heavy crude trading at steep discounts to U.S. light crude as well as producers turning to crude-by-rail options.

“Transportation bottlenecks are by far the biggest challenge for Canadian producers, mainly because the pipeline constraints won’t be alleviated until the end of 2019, at the earliest,” said Edward Jones analyst Jennifer Rowland.

“It impacts their decisions for future production projects, and it impacts investor sentiment toward the companies,” she added.

Shares in Calgary, Alberta-based Cenovus fell as much as 2 percent, but recovered to edge up slightly in afternoon trading.

Cenovus’ second-quarter production soared 61 percent to 518,530 barrels of oil equivalent per day (boe/d), while rival Suncor Energy’s output rose 22.7 percent to 661,700 boe/d.

“We do not want to expand our oil sands production until we are confident about transportation capacity,” Cenovus Chief Executive Alex Pourbaix told analysts.

Cenovus said it is beginning to see increased activity across its rail-loading facilities as pipelines operate at full capacity.

Calgary-based rival Husky Energy, however, reported a 7.5 percent drop in total production as it increased focus on its refining business to take advantage of widening heavy crude price differentials.

“The physical integration of our upstream and downstream businesses, including our committed pipeline capacity, shielded us from location and quality differentials,” Husky Chief Executive Officer Rob Peabody said.

Husky posted a second-quarter profit of C$448 million compared to a loss of C$93 million a year ago.

Suncor’s net income more than doubled to C$972 million ($745.6 million), or 60 Canadian cents per share, in the quarter ended June 30, from C$435 million, or 26 Canadian cents per share, a year earlier.

The company to cut its output guidance for the year following a power outage at its majority-owned Syncrude oil project.

Shares of Suncor were up 1.7 percent at C$54.03, while Husky shares were up 1.02 percent at C$20.86.

Reporting by Laharee Chatterjee in Bengaluru; editing by Maju Samuel and Saumyadeb Chakrabarty