Cenovus pays $60mn for NATO rail site

OREANDA-NEWS. June 05, 2015. Canadian producer Cenovus Energy will pay a fire-sale price of C\\$75mn (\\$60mn) for Canexus' North American Terminal Operations (NATO) crude-by-rail facility in Bruderheim, Canada, marking the first time a producer has taken over a rail site in Canada.

The NATO facility has been plagued by challenges and is selling at a significant loss; Canexus said in 2014 it the site was expected to cost C\\$315mn (\\$252mn) to build. The company's chief executive departed last year shortly after announcing the facility would overrun costs by 40pc.

NATO has met its share of troubles, including an unexpected months-long shutdown, a dispute over a necessary connection with customer and producer Meg Energy, and the loss of a contract to load two unit trains per week. Canexus had been shopping around the terminal with little success amid low crude prices.

The sale will allow Canexus to return its focus on the sodium chlorate and chlor-akali business, and give Cenovus a platform from which to export its rising crude output. The company has been pursuing a strategy to expand its capacity to transport crude by rail. In the first quarter, the producer moved more than 13,000 b/d of crude by rail to markets in Canada and the US. As of 31 March, it had taken delivery of more than half of the 825 coiled and insulted rail cars needed to move bitumen it had ordered.

Producer-run rail sites are unusual, but not unheard of. ExxonMobil owns a crude-by-rail site in Edmonton, Alberta, while Hess and EOG Resources both operate crude-by-rail facilities in North Dakota. Refiner Phillips 66 has said it will build a site in the Bakken. This marks the first time a producer has taken over a crude-by-rail site in Canada, however.