CALGARY – Cenovus Energy Inc. says its refinery business cushioned the company from weak prices for heavy oil during the first quarter, when it saw a 15 per cent bump in operating earnings compared to a year ago.
“This quarter we have clearly demonstrated the value of our integrated strategy,” CEO Brian Ferguson said Wednesday.
The Calgary-based oil producer (TSX:CVE) said its profits, excluding hedging and foreign exchange impacts, were $391 million, or 52 cents per share, up from 340 million, or 45 cents per share, during the same 2012 period.
That beat the average analyst estimate of 48 cents per share, according to Thomson Reuters.
Accounting for unrealized hedging and foreign exchange losses, first-quarter net earnings were $171 million, or 23 cents per share, down from $426 million, or 56 cents per share, a year earlier
Revenue was $4.32 billion, down from $4.69 billion.
Operating cash flow from Cenovus’ refining division – which includes interests in refineries in Texas and Illinois, in partnership with Phillips 66 – nearly doubled to $524 million.
During the first three months of the year, the price gap between Canadian heavy oil and U.S. light oil was at US$31.96 per barrel – 49 per cent wider than it was at the beginning of 2012.
A price difference between light and heavy oil is not unusual, given that the latter is more difficult to process. But a dearth of pipeline infrastructure to get that crude to the most lucrative markets worsened the differential late last year and early this year.
More recently, the differential has narrowed to a more normal level at around $14.
Although a wider price gap means Cenovus makes less money on the crude it produces from its oilsands, it’s a boon to its refinery business because it means a cheaper raw product.
Cenovus also said Wednesday that it has been trying to sell its non-core light oil assets in the Bakken and Lower Shaunavon regions of Saskatchewan, but that it’s having a tough time getting a deal done.
“Market conditions appear to be working against us and we may not close the transaction this year,” said chief financial officer Ivor Ruste.
Ferguson added that although many potential buyers have been kicked the tires of those assets, they’re having trouble accessing capital to make an offer.
“As soon as markets improve I would expect that we will be able to announce that we have a transaction we can close.”
All of Cenovus’ oilsands developments use steam to liquefy the sticky bitumen deep underground so it can be more easily drawn to the surface.
Its Christina Lake and Foster Creek developments are part of a 50-50 joint venture with Houston energy giant ConocoPhillips.
Oilsands production increased to 100,347 barrels per day for the quarter, up from 81,947 bpd, while conventional oil production increased to 79,878 bpd, up from 74,903 bpd.
Natural gas production, which Cenovus primarily uses as a hedge against energy costs in its oil operations, slipped to 545 million cubic feet per day from 636 million a year ago.
Like many of its peers, Cenovus has been eager to expand the market reach of the oil it produces. With the fate of the Keystone XL pipeline and other proposals up in the air, the company has been exploring other means of transport such as rail and barge. It has also been committing volumes to several pipelines to various markets so as not to put all of its eggs in one basket.
Cenovus was created in 2009 when Encana Corp. (TSX:ECA) spun off its oil and refinery assets from its natural gas business.
Cenovus shares rose 1.3 per cent to $29.13 in afternoon trading on the Toronto Stock Exchange.