CALGARY — Shares in Calgary-based Canexus Corp. closed more than 11 per cent lower Wednesday after it revealed it was taking one of its clients to court over blocked access to its oil-by-rail terminal northeast of Edmonton.
The stock fell 60 cents to $4.75 from Tuesday’s close of $5.35. It has ranged between $3.97 and $7.72 in the past year.
In a news release late Tuesday, Canexus said it was launching legal action against thermal oilsands producer MEG Energy Corp. after it refused to allow it to tie in an expansion pipeline to a feeder conduit leading from MEG’s Stonefell storage terminal to Canexus’s oil-by-rail loading terminal at Bruderheim.
The project at North American Terminal Operations or NATO was to be completed by Monday but is now delayed, Canexus said. The terminal has been closed to pipeline deliveries since mid-June to accommodate a rail-loading expansion to 100,000 barrels per day and the tie-in of a pipeline delivering Cold Lake Blend crude, it said.
It refused further comment because the matter is before the courts.
MEG spokesman Brad Bellows also refused to discuss details of the dispute in an interview Wednesday because it may be subject to a legal hearing.
“We are continuing to talk to Canexus and negotiate in good faith,” he said, refusing to speculate how long it might take to resolve the impasse.
“We’ve got 900,000 barrels of storage capacity at Stonefell and from there we do have the linkage to the Canexus facility at Bruderheim as well as links to the Edmonton hub as far as pipelines go.”
He wouldn’t say if the delay will affect MEG sales in the third quarter. He said MEG is committed to its multiple transportation option strategy for marketing its oil.
MEG’s thermal operations at Christina Lake in northern Alberta had average second-quarter output of 69,000 bpd, more than double the 32,000 bpd in the same period of 2013, thanks to an expansion project and the employment of enhanced recovery technology.
Bellows said MEG moved about 50 unit-trains of oil from NATO after beginning shipments early in 2014.
Its shares rose 56 cents to $38.62 on Wednesday.
Brett Harris, a spokesman for oilsands giant Cenovus Energy Inc., said the company has moved some oil to the NATO terminal for rail shipment and intends to move more via pipeline when the link is in place.
“It’s an issue for those two parties to work out,” he said Wednesday. “We expect and hope they are going to be able to resolve something and in the meantime we’re looking at other options.”
Cenovus has targeted being able to move 30,000 bpd by rail by the end of 2014. Harris wouldn’t give specifics but confirmed the company has long-term contracted oil-by-rail capacity at both NATO and a rival terminal operated by Gibson Energy and U.S. Development Group at Hardisty.
Canexus recently raised the estimated cost of the NATO project to between $350 million and $360 million from $315 million estimated in January. It said the expansion would allow it to match contracted loadings of six or seven unit trains per week and it may be expanded to 10.5 unit trains per week next year.
Two financial analysts who cover Canexus said in overnight notes the situation is a clear negative for the midstream firm.
In a note titled “Nightmare at NATO,” analyst Jacob Bout of CIBC World Markets said the impasse has several negative implications.
He said Canexus may be in breach of contract with its other NATO customers — Cenovus and another midstream company it has not named.
The window of opportunity for oil-by-rail operations, created by north-south pipeline constraints, will close as pipeline capacity grows, he added, noting that a third consequence is a “ruined relationship with MEG” which could affect future revenue streams.
Bout cut his 2014 adjusted earnings estimate for Canexus by $2 million to $109 million and his 2015 forecast by more than $11 million to $123 million, but maintained his price target of $5.25.
In a followup note, he said it appears Canexus is hoping for a bench decision on Friday and will have a team ready to do the tie-in on Saturday, if allowed.
If not allowed, Canexus may have to build a three to five kilometre pipeline to go around the MEG link, he said.
Nelson Ng, an analyst for RBC Dominion Securities, agreed the news is negative but left his Canexus rating at outperform.
“The dispute may discourage parties who are interested in partnering or acquiring a financial interest in the NATO facility (Canexus is currently exploring asset sales),” he wrote.
He added the dispute “could potentially sour the long-term relationship between the two parties,” and speculated that MEG may be using the tie-in delay to negotiate better terms for future terminal contracts.
dhealing@calgaryherald.com