CALGARY — Cenovus Energy Inc. executives warn it could be well into next year before oil companies resolve their ongoing dispute with Trans Mountain Corp. over rising pipeline shipping fees.
The Calgary-based oil company is one of the largest contracted shippers on the freshly completed Trans Mountain pipeline expansion, which marked its official commercial start-up date Wednesday.
On a conference call to discuss its first-quarter earnings, Cenovus executives hailed the milestone, which has been long awaited by Canada's energy sector. The Trans Mountain expansion, which runs from Alberta to the B.C. coast, represents a near tripling of the pipeline's capacity from 300,000 barrels per day to 890,000 barrels per day and will open up global export markets for Canadian oil.
"This is a really good day for Canada," said Drew Zieglgansberger, Cenovus' chief commercial officer on Wednesday.
"We're pretty excited on behalf of the industry and Canada to have another great asset available to us."
But Zieglgansberger said oil companies continue to push back against Trans Mountain Corp.'s proposed tolls, the term for the fees the pipeline company will charge to ship oil on the expanded pipeline.
During the course of its construction, the total project cost of the Trans Mountain expansion ballooned from a 2018 estimate of $7.4 billion to the latest estimate topping $34 billion, with a final tally still expected.
While approximately 70 per cent of the project's cost overruns will be borne by Trans Mountain, the remaining third — more than $9 billion — is considered "uncapped costs" which increase tolls in accordance with a formula agreed to by shippers and approved by the Canada Energy Regulator more than a decade ago.
Trans Mountain has previously said the project's cost overruns were "reasonable," because the pipeline expansion was affected by "extraordinary" factors including compliance requirements, Indigenous accommodations, stakeholder engagement and compensation requirements, extreme weather and the COVID-19 pandemic.
But oil companies dispute this, arguing the toll increases are twice the amount of a 2017 estimate and place an unfair burden on pipeline customers.
The Canada Energy Regulator approved Trans Mountain's higher tolls on an interim basis to ensure a tolling structure was in place for the start-up of the pipeline, but it has yet to make a final decision.
On Wednesday, Zieglgansberger said that ruling likely will not come until 2025.
"I think everybody is pleased to see the asset come available for everyone, but that work to ultimately get to the final commercial construct? I would expect that to carry out the remainder of this year and potentially drift into the first quarter, even to the first half of next year, before we finally get closure on that."
Uncertainty over where the tolls will ultimately land have implications for a possible eventual purchase of the pipeline. Trans Mountain Corp. is a Crown corporation, and the federal government which owns the pipeline has stated it does not wish to be its long-term owner.
If the final toll structure comes in lower than what Trans Mountain Corp. wants, it will make it harder for the company to recoup its costs and could impact the potential selling price of the pipeline.
Cenovus announced a first-quarter profit Wednesday of $1.18 billion, up from $636 million a year ago, and raised its quarterly base dividend from 14 cents per share to 18 cents per share.
The company's revenue totalled $13.40 billion in the quarter, up from $12.26 billion in the first quarter of 2023.
Upstream production in the quarter averaged 800,900 barrels of oil equivalent per day, up from 779,000 a year earlier, while downstream throughput averaged 655,200 barrels per day, up from 457,900 in the same quarter last year.
This report by The Canadian Press was first published May 1, 2024.
Companies in this story: (TSX:CVE)
Amanda Stephenson, The Canadian Press
