Cenovus Energy (TSE:CVE), Canada's second-largest independent oil producer, has agreed to buy a Bruderheim, Alberta-based crude-by-rail terminal from Canexus (TSE:CUS), a chemicals and handling company, for C$75 million in cash.
Cenovus announced the deal in a statement released late yesterday.
The 70,000 barrel-per-day Bruderheim facility was western Canada's first unit train terminal, capable of loading more than 100 tank cars of crude in one go at a cheaper rate than mixed cargo manifest trains.
It is connected by pipeline to projects in Alberta's vast oil sands, the world's third largest crude reserves, and was seen as a front-runner in what many industry observers forecast would be a Canadian crude-by-rail boom.
The oil sands producer said the acquisition would help maximize market access, capture global prices for its oil and give access to niche markets not served by pipeline.
“It really gives us an opportunity to reach out into markets where we believe we’ll get higher prices for our production,” said Reg Curren, a Cenovus spokesman.
The terminal, 50 kilometers northwest of Edmonton, has struggled to reach full capacity since it opened in late 2013. It was put up for sale last August after construction costs spiraled to C$356 million.
The move comes amid a sharp drop in oil-by-rail shipments from Western Canada, a mode of transportation that boomed in recent years but has fallen out of favour as price spreads narrowed between U.S. crude and Alberta’s extra-heavy oil.
Western Canada Select, a Canadian oilsands contract, was trading at $49.54 US a barrel today. The spread between WTI and WCS shrank to as little as $7 earlier this week, the lowest since 2009.
Canadian exports of crude by train averaged roughly 116,000 barrels per day in the first quarter. That is down 27 per cent from the fourth quarter last year, as more producers opted to ship production by pipeline, the National Energy Board said.
Cenovus will hire a third-party service provider to manage the facility, and said the terminal could be expanded if changing market conditions make rail economics more attractive.
The deal is expected to close on August 31.
Shares of Cenovus rose 1.5 percent to C$20.55 at 1:49 p.m. in Toronto, while shares of Canexus jumped 14.6 percent to C$1.65.