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Baytex May Move 40% of Crude Output by Rail by End of Year

Baytex Energy Corp., a Calgary-based oil and gas production company, may transport 40 percent of its oil output by rail by year’s end, helping insulate profits from pipeline disruptions.

“We have been moving a very significant amount of our production by rail,” Chief Financial Officer Derek Aylesworth said at the Barclays CEO Energy/Power Conference in New York.

Baytex expects to produce an average of 54,000 barrels of oil equivalent a day this year, Aylesworth said. Oil output accounts for 87 percent of the company’s production.

The company’s internal trucking division can move oil from wellheads to rail terminals, Aylesworth said. Shipping by train allows the company to deliver hydrocarbons into higher-priced markets that are less accessible by pipeline, he said.

“That gives us a pricing advantage, and to the extent that there are pipeline constraints, we’re not going to be exposed to any potential volume shut-ins because of the alternate delivery route,” Aylesworth said.

Prices for heavy Alberta oil and volatility in 2012 may be affected by pipeline disruptions, increased refinery demand and rising Canadian output, Aylesworth said.

Western Canada Select’s discount to U.S. benchmark West Texas Intermediate was unchanged yesterday at $11.50 a barrel. The Alberta grade’s average discount over the past year was $18.66, according to data compiled by Bloomberg.

‘Potential Interruptions’

“The things that will likely impact us for the balance of the year are ongoing potential interruptions in the pipeline system,” Aylesworth said. ‘If there is a downtime on one of the main lines, that impacts all of western Canada.’’

Demand for Canadian heavy oil may rise as Marathon Petroleum Corp. and BP Plc complete upgrades at their Detroit and Whiting, Indiana, refineries to process more high-sulfur Alberta oil, he said. Imperial Oil Ltd.’s Kearl production project may help counter increased refinery demand with more supply, he said.

“For the balance of this year I would really say it’s which comes first,” he said.

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