“Our refining business continues to deliver excellent results, clearly demonstrating the benefit of our integrated strategy. When our cash flow from heavy oil production is affected by low commodity prices, our refineries give us a financial advantage by turning that discounted crude into higher-value refined products,” said Brian Ferguson, President & Chief Executive Officer of Cenovus. “We also delivered another quarter of strong oil production growth, mainly due to our oil sands assets.”
Financial & production summary | ||||
(for the period ended March 31) ($ millions, except per share amounts) |
2013 Q1 |
2012 Q1 |
% change | |
Cash flow1 Per share diluted |
971 1.28 |
904 1.19 |
7 | |
Operating earnings1 Per share diluted |
391 0.52 |
340 0.45 |
15 | |
Net earnings Per share diluted |
171 0.23 |
426 0.56 |
-60 | |
Capital investment | 915 | 900 | 2 | |
Production (before royalties) | ||||
Oil sands total (bbls/d) | 100,347 | 81,947 | 22 | |
Conventional oil2 (bbls/d) | 79,878 | 74,903 | 7 | |
Total oil2 (bbls/d) | 180,225 | 156,850 | 15 | |
Natural gas (MMcf/d) | 545 | 636 | -14 |
1 Cash flow and operating earnings are non-GAAP measures as defined in the Advisory. See also the earnings reconciliation summary in the operating earnings table.
2 Includes natural gas liquids (NGLs) production and production from Pelican Lake.
CALGARY, April 24, 2013 /CNW/ – Cenovus Energy Inc. (TSX, NYSE: CVE) reported strong first quarter performance, benefiting from its integrated business plan. The company delivered excellent results from its U.S. refining operations and continued growth in its oil production. Cenovus achieved cash flow of $971 million, 7% higher than the first quarter of 2012. Increased crude oil production was offset by a 27% decline in the average crude oil sales price the company received compared with the same period a year ago.
While lower oil prices had a negative impact on cash flow from the company’s oil producing assets, they benefited Cenovus’s refining operations. This is due to the company’s ability to process discounted heavy oil and at the same time receive elevated prices for its refined products. Operating cash flow from refining increased to $524 million in the first quarter, 97% higher than the year before.
During the first quarter, the price of Western Canadian Select (WCS), the benchmark Canadian heavy oil blend, fell against the price of West Texas Intermediate (WTI), the North American benchmark. The differential averaged US$31.96/bbl in the first quarter, widening 49% from the same period in 2012. The company’s refineries, one in Illinois and the second in Texas, have access to WCS and other discounted oil feedstock.
Steady oil production growth
Average daily oil production in the quarter was 15% higher compared with the same period in 2012, primarily led by growth at the company’s Christina Lake oil sands project. Combined output from Foster Creek and Christina Lakeaveraged 100,347 bbls/d net in the first quarter, up 22% from the same period in 2012. Production at Christina Lakeaveraged 44,351 bbls/d net, an increase of 79% from a year earlier, resulting mainly from the successful ramp-up of the phase D expansion. Foster Creek output averaged about 56,000 bbls/d net, down 2% from the same period a year earlier due to higher than expected downtime on some production wells.
There are now five phases operating at Foster Creek and four at Christina Lake. Expansions continue at each of these projects, with a combined 85,000 bbls/d of gross production capacity expected to be added before the end of 2014, helping to advance Cenovus’s long-term oil growth strategy.
Cenovus has started moving wells at Foster Creek into the final phase of production, called blowdown. This is a first at a major commercial steam-assisted gravity drainage (SAGD) project. As SAGD wells are prepared for blowdown, steam injection is reduced and pressure is maintained with the co-injection of methane. In full blowdown, the well continues to produce without steam, which lowers operating costs. The steam is then redirected to a newer well pad. One well pad at Foster Creek entered full blowdown mode in the first quarter and two more are being converted.
Addressing market access challenges
The predictability of Cenovus’s oil production growth, combined with its financial strength, gives the company the confidence to consider support for all proposed major pipeline projects that would open up additional access to existing markets and potentially add new ones.
“It’s vital to the economy that Canadian oil companies continue to expand market access for their production,” Ferguson said. “Without pipelines to new markets, Canada’s oil industry will continue to leave billions of dollars in lost revenues on the table every year to the detriment of all Canadians. With the third largest oil reserves in the world,Canada has a tremendous opportunity to meet the growing global demand for energy.”
Cenovus continues to examine ways to mitigate the negative impact of market access constraints on pricing for Canadian oil producers. The company takes a portfolio approach to market access and continues to proactively assess various options to transport its oil. Cenovus is receiving higher international prices on about 40,000 bbls/d of oil production through a combination of pipeline, barge and rail options that provide access to ocean transport. For example, in early 2012, Cenovus started shipping 11,500 bbls/d of oil under a firm service agreement on the Trans Mountain pipeline that runs from Edmonton to the West Coast. This enables Cenovus to receive a premium for itsFoster Creek production relative to the WCS heavy oil benchmark. In addition to pipelines, Cenovus is now shipping about 6,000 bbls/d of conventional oil to market by rail and is looking to increase that to about 10,000 bbls/d by the end of this year.
Oil Projects | |||||||||
Daily production1 | |||||||||
(Before royalties) (Mbbls/d) |
2013 | 2012 | 2011 | ||||||
Q1 | Full Year | Q4 | Q3 | Q2 | Q1 | Full Year | |||
Oil sands | |||||||||
Foster Creek | 56 | 58 | 59 | 63 | 52 | 57 | 55 | ||
Christina Lake | 44 | 32 | 42 | 32 | 29 | 25 | 12 | ||
Oil sands total | 100 | 90 | 101 | 96 | 80 | 82 | 67 | ||
Conventional oil | |||||||||
Pelican Lake | 24 | 23 | 24 | 24 | 22 | 21 | 20 | ||
Weyburn | 17 | 16 | 16 | 16 | 16 | 17 | 16 | ||
Other conventional2 | 39 | 37 | 37 | 36 | 36 | 38 | 31 | ||
Conventional total | 80 | 76 | 77 | 76 | 75 | 75 | 68 | ||
Total oil2 | 180 | 165 | 178 | 171 | 156 | 157 | 134 |
1 Totals may not add due to rounding.
2 Includes NGLs production.
Oil sands
Cenovus has a substantial portfolio of oil sands assets in northern Alberta with the potential to provide decades of growth. The two currently producing operations, Foster Creek and Christina Lake, use SAGD, which involves drilling into the reservoir and pumping the oil to the surface. Cenovus has begun work on its third project, Narrows Lake, which is part of the Christina Lake Region. These projects are operated by Cenovus and are jointly owned with ConocoPhillips. Cenovus also has an enormous opportunity to deliver increased shareholder value through production growth from future developments. The company has identified several emerging projects and continues to assess its resources to prioritize development plans and support regulatory applications for new projects.
Foster Creek and Christina Lake
Production
Expansions
Operating costs
Steam to oil ratio
Christina Dilbit Blend (CDB)
Narrows Lake
Emerging projects
Grand Rapids
Telephone Lake
Conventional oil
Pelican Lake
Cenovus produces heavy oil from the Wabiskaw formation at its 100%-owned Pelican Lake operation in the Greater Pelican Region, about 300 kilometres north of Edmonton. While this property produces conventional heavy oil, it’s managed as part of Cenovus’s oil sands segment. Since 2006, Cenovus has been injecting polymer to enhance production from the reservoir, which is also under waterflood. Based on reservoir performance of the polymer program, the company has a multi-year growth plan for Pelican Lake with production expected to reach 55,000 bbls/d.
Other conventional oil
In addition to Pelican Lake, Cenovus has conventional and tight oil assets in Alberta as well as the established Weyburn operation in Saskatchewan that uses carbon dioxide injection to enhance oil recovery.
Natural Gas | ||||||||||
(Before royalties) (MMcf/d) |
Daily production | |||||||||
2013 | 2012 | 2011 | ||||||||
Q1 | Full Year | Q4 | Q3 | Q2 | Q1 | Full Year | ||||
Natural Gas | 545 | 594 | 566 | 577 | 596 | 636 | 656 |
Cenovus has a solid base of established, reliable natural gas properties in Alberta. These assets are an important component of the company’s financial foundation, generating operating cash flow well in excess of their ongoing capital investment requirements. The natural gas business also acts as an economic hedge against price fluctuations, because natural gas fuels the company’s oil sands and refining operations.
Refining
Cenovus’s refining operations allow the company to capture value from crude oil production through to refined products such as diesel, gasoline and jet fuel. This integrated strategy provides a natural economic hedge against discounted crude oil prices by providing lower feedstock costs to the Wood River Refinery in Illinois and Borger Refinery in Texas, which Cenovus jointly owns with the operator, Phillips 66.
Financial
Dividend
The Cenovus Board of Directors declared a second quarter dividend of $0.242 per share, payable on June 28, 2013 to common shareholders of record as of June 14, 2013. Based on the April 23, 2013 closing share price on the TorontoStock Exchange of $28.75, this represents an annualized yield of about 3.4%. Declaration of dividends is at the sole discretion of the Board. Cenovus’s continued commitment to the dividend is an important aspect of the company’s strategy to focus on increasing total shareholder return.
Hedging strategy
Cenovus’s natural gas and crude oil hedging strategy helps it to achieve more predictability around cash flow and safeguard its capital program. The Board-approved risk management policy allows the company to financially hedge up to 75% of this year’s and next year’s expected natural gas production, net of internal fuel usage, and up to 50% and 25%, respectively, in the two following years. The policy also allows the company to enter fixed price hedges on as much as 50% of net liquids production this year and next, as well as 25% of net liquids production for each of the following two years. In addition to financial hedges, Cenovus benefits from a natural hedge with its gas production. About 135 MMcf/d of natural gas is expected to be consumed at the company’s SAGD and refinery operations, which is more than offset by the gas Cenovus produces. The company’s financial hedging positions are determined after considering this natural hedge.
Cenovus’s financial hedge positions at March 31, 2013 include:
Financial highlights
Operating earnings | ||
(for the period ended March 31) ($ millions, except per share amounts) |
2013 Q1 |
2012 Q1 |
Net earnings Add back (deduct): |
171 | 426 |
Unrealized risk management (gains) losses, after-tax | 173 | (48) |
Non-operating unrealized foreign exchange (gains) losses, after-tax | 47 | (38) |
Operating earnings | 391 | 340 |
Per share diluted | 0.52 | 0.45 |
Oil sands project schedule | |||
Project phase | Regulatory status | First production target |
Expected production capacity (bbls/d) gross |
Foster Creek1 A – E | 120,000 | ||
F | Approved | Q3-2014F | 45,0002 |
G | Approved | 2015F | 40,000 |
H | Approved | 2016F | 40,000 |
J | Submitted Q1-2013 | 2019F | 50,000 |
Future optimization | 15,000 | ||
Total capacity | 310,000 | ||
Christina Lake1 A – D | 98,000 | ||
E | Approved | Q3-2013F | 40,000 |
F | Approved | 2016F | 50,000 |
G | Approved | 2017F | 50,000 |
H | Submitted Q1-2013 | 2019F | 50,000 |
Future optimization | 12,000 | ||
Total capacity | 300,000 | ||
Narrows Lake1 | |||
A | Approved | 2017F | 45,000 |
B-C | Approved | TBD | 85,000 |
Total Capacity | 130,000 | ||
Grand Rapids | Submitted Q4-2011 | 2017F | 180,000 |
Telephone Lake3 | Submitted Q4-2011 | TBD | 90,000 |
1 Properties 50% owned by ConocoPhillips. Certain phases may be subject to partner approval.
2 Includes 5,000 bbls/d gross submitted to the regulator in Q1 2013.
3 Projected total capacity of more than 300,000 bbls/d.
Conference call today
9 a.m. Mountain Time (11 a.m. Eastern Time)
Cenovus will host a conference call today, April 24, 2013, starting at 9 a.m. MT (11 a.m. ET). To participate, please dial 888-231-8191 (toll-free in North America) or 647-427-7450 approximately 10 minutes prior to the conference call. An archived recording of the call will be available from approximately 1 p.m. MT on April 24, 2013, until midnight May 1, 2013, by dialing 855-859-2056 or 416-849-0833 and entering passcode 23074842. A live audio webcast of the conference call will also be available via cenovus.com or via the following URL: http://event.on24.com/r.htm?e=596612&s=1&k=0D405CC046D10E2B744548CBF1E6E02F
The webcast will be archived for approximately 90 days.
ADVISORY
FINANCIAL INFORMATION
Basis of Presentation Cenovus reports financial results in Canadian dollars and presents production volumes on a net to Cenovus before royalties basis, unless otherwise stated. Cenovus prepares its financial statements in accordance with International Financial Reporting Standards (IFRS).
Non-GAAP Measures This news release contains references to non-GAAP measures as follows:
These measures have been described and presented in this news release in order to provide shareholders and potential investors with additional information regarding Cenovus’s liquidity and its ability to generate funds to finance its operations. For further information, refer to Cenovus’s most recent Management’s Discussion & Analysis (MD&A) available at cenovus.com.
FORWARD-LOOKING INFORMATION
This document contains certain forward-looking statements and other information (collectively “forward-looking information”) about our current expectations, estimates and projections, made in light of our experience and perception of historical trends. Forward-looking information in this document is identified by words such as “anticipate”, “believe”, “expect”, “plan”, “forecast” or “F”, “target”, “project”, “could”, “focus”, “vision”, “goal”, “proposed”, “scheduled”, “outlook”, “potential”, “may”, “strategy” or similar expressions and includes suggestions of future outcomes, including statements about our growth strategy and related schedules, projected future value or net asset value, forecast operating and financial results, planned capital expenditures, expected future production, including the timing, stability or growth thereof, expected future refining capacity, anticipated finding and development costs, expected reserves and contingent and prospective resources estimates, potential dividends and dividend growth strategy, anticipated timelines for future regulatory, partner or internal approvals, future impact of regulatory measures, forecasted commodity prices, future use and development of technology and projected increasing shareholder value. Readers are cautioned not to place undue reliance on forward-looking information as our actual results may differ materially from those expressed or implied.
Developing forward-looking information involves reliance on a number of assumptions and consideration of certain risks and uncertainties, some of which are specific to Cenovus and others that apply to the industry generally.
The factors or assumptions on which the forward-looking information is based include: assumptions inherent in our current guidance, available at cenovus.com; our projected capital investment levels, the flexibility of our capital spending plans and the associated source of funding; estimates of quantities of oil, bitumen, natural gas and liquids from properties and other sources not currently classified as proved; our ability to obtain necessary regulatory and partner approvals; the successful and timely implementation of capital projects or stages thereof; our ability to generate sufficient cash flow from operations to meet our current and future obligations; and other risks and uncertainties described from time to time in the filings we make with securities regulatory authorities.
The risk factors and uncertainties that could cause our actual results to differ materially, include: volatility of and assumptions regarding oil and gas prices; the effectiveness of our risk management program, including the impact of derivative financial instruments and the success of our hedging strategies; the accuracy of cost estimates; fluctuations in commodity prices, currency and interest rates; fluctuations in product supply and demand; market competition, including from alternative energy sources; risks inherent in our marketing operations, including credit risks; maintaining desirable ratios of debt to adjusted EBITDA as well as debt to capitalization; our ability to access various sources of debt and equity capital; accuracy of our reserves, resources and future production estimates; our ability to replace and expand oil and gas reserves; our ability to maintain our relationships with our partners and to successfully manage and operate our integrated heavy oil business; reliability of our assets; potential disruption or unexpected technical difficulties in developing new products and manufacturing processes; refining and marketing margins; potential failure of new products to achieve acceptance in the market; unexpected cost increases or technical difficulties in constructing or modifying manufacturing or refining facilities; unexpected difficulties in producing, transporting or refining of crude oil into petroleum and chemical products; risks associated with technology and its application to our business; the timing and the costs of well and pipeline construction; our ability to secure adequate product transportation; changes in the regulatory framework in any of the locations in which we operate, including changes to the regulatory approval process and land-use designations, royalty, tax, environmental, greenhouse gas, carbon and other laws or regulations, or changes to the interpretation of such laws and regulations, as adopted or proposed, the impact thereof and the costs associated with compliance; the expected impact and timing of various accounting pronouncements, rule changes and standards on our business, our financial results and our consolidated financial statements; changes in the general economic, market and business conditions; the political and economic conditions in the countries in which we operate; the occurrence of unexpected events such as war, terrorist threats and the instability resulting therefrom; and risks associated with existing and potential future lawsuits and regulatory actions against us.
Readers are cautioned that the foregoing lists are not exhaustive and are made as at the date hereof. For a full discussion of our material risk factors, see “Risk Factors” in our most recent Annual Information Form/Form 40-F, “Risk Management” in our current and annual MD&A and risk factors described in other documents we file from time to time with securities regulatory authorities, all of which are available on SEDAR at www.sedar.com, EDGAR atwww.sec.gov and our website at cenovus.com.
TM denotes a trademark of Cenovus Energy Inc.
Cenovus Energy Inc.
Cenovus Energy Inc. is a Canadian integrated oil company. It is committed to applying fresh, progressive thinking to safely and responsibly unlock energy resources the world needs. Operations include oil sands projects in northern Alberta, which use specialized methods to drill and pump the oil to the surface, and established natural gas and oil production in Alberta and Saskatchewan. The company also has 50% ownership in two U.S. refineries. Cenovus shares trade under the symbol CVE, and are listed on the Toronto and New York stock exchanges. Its enterprise value is approximately $27 billion. For more information, visit cenovus.com.
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Video with caption: “Video: Cenovus President & CEO Brian Ferguson discusses Q1 results”. Video available at:http://stream1.newswire.ca/cgi-bin/playback.cgi?file=20130424_C7943_VIDEO_EN_25932.mp4&posterurl=http://photos.newswire.ca/images/20130424_C7943_PHOTO_EN_25932.jpg&clientName=Cenovus%20Energy%20Inc%2E&caption=Video%3A%20Cenovus%20President%20%26%20CEO%20Brian%20Ferguson%20discusses%20Q1%20results&title=CENOVUS%20ENERGY%20INC%2E%20%2D%20Cenovus%20oil%20production%20climbs%2015%25%20in%20first%20quarter&headline=Cenovus%20oil%20production%20climbs%2015%25%20in%20first%20quarter
Image with caption: “Expansion work at Cenovus’s Christina Lake operations in northern Alberta (CNW Group/Cenovus Energy Inc.)”. Image available at:http://photos.newswire.ca/images/download/20130424_C7943_PHOTO_EN_25843.jpg
Image with caption: “Cenovus’s Christina Lake operations in northern Alberta (CNW Group/Cenovus Energy Inc.)”. Image available at: http://photos.newswire.ca/images/download/20130424_C7943_PHOTO_EN_25844.jpg
Image with caption: “Cenovus has 50% ownership in the Wood River Refinery in Illinois (CNW Group/Cenovus Energy Inc.)”. Image available at: http://photos.newswire.ca/images/download/20130424_C7943_PHOTO_EN_25845.jpg
SOURCE: Cenovus Energy Inc.
For further information:
CENOVUS CONTACTS:
Investors:
Paul Gagne
Specialist, Investor Relations
403-766-7045
Bill Stait
Senior Analyst, Investor Relations
403-766-6348
Graham Ingram
Senior Analyst, Investor Relations
403-766-2849
Media:
Rhona DelFrari
Director, Media Relations
403-766-4740
Reg Curren
Senior Advisor, Media Relations
403-766-2004