Plans to move forward with Grand Rapids oil sands project
"Our first quarter results have us off to a good start for delivering predictable, reliable performance this year," said Brian Ferguson, Cenovus President & Chief Executive Officer. "Our oil sands projects are on track and we continue to see value from our integrated business plan. Our strong cash flow and healthy balance sheet allow us to keep our focus on growing total shareholder return."
Production & financial summary | |||||
(for the period ended March 31) Production (before royalties) |
2014 Q1 |
2013 Q1 |
% change | ||
Oil sands total (bbls/d) | 120,444 | 100,347 | 20 | ||
Conventional oil1 (bbls/d) | 76,410 | 79,878 | -4 | ||
Total oil (bbls/d) | 196,854 | 180,225 | 9 | ||
Natural gas (MMcf/d) | 476 | 545 | -13 | ||
Financial ($ millions, except per share amounts) |
|||||
Cash flow2 | 904 | 971 | -7 | ||
Per share diluted | 1.19 | 1.28 | |||
Operating earnings2 | 378 | 391 | -3 | ||
Per share diluted | 0.50 | 0.52 | |||
Net earnings | 247 | 171 | 44 | ||
Per share diluted | 0.33 | 0.23 | |||
Capital investment | 829 | 915 | -9 |
1 | Includes natural gas liquids (NGLs) and Pelican Lake production. |
2 | 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. |
CALGARY, April 30, 2014 /CNW/ - Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) reported solid first quarter results that continued to reflect the strength of its integrated business plan. While increased oil prices and lower market crack spreads reduced margins from the company's refining operations, those higher prices benefited Cenovus's operating cash flow from its producing oil assets.
Cenovus's oil sands production averaged 120,444 bbls/d net in the first quarter, up 20% from a year earlier, primarily driven by strong performance at the company's Christina Lake oil sands project. Production at Christina Lake increased 48% from 2013, averaging 65,738 bbls/d net as phase E approached full production capacity. This latest expansion phase which was on time and on budget, brought Christina Lake's gross production capacity to 138,000 bbls/d.
Foster Creek production was at the upper end of Cenovus's expected range, averaging 54,706 bbls/d net in the quarter, a 2% decrease from the same period a year earlier. Cenovus is on track with its plan to optimize steam use at Foster Creek. The company is using new operating techniques to improve the conformance of steam along wellbores. Cenovus continues to strategically use its Wedge Well™ technology, which involves drilling single, horizontal producing wells between well pairs, allowing Cenovus to recover more oil while adding very little additional steam. The company drilled 11 of these wells in the first quarter of 2014 and expects to have 42 starting production over the next 14 months.
"We're pleased with how Foster Creek has responded to the changes we've made," said John Brannan, Cenovus Executive Vice-President and Chief Operating Officer. "We're on track with our expansion plans and expect to produce between 100,000 and 110,000 barrels per day gross until we begin ramping up production from our next expansion phase in the third quarter."
Demonstrating the value of integration
Total operating cash flow was nearly $1.2 billion in the quarter, a 4% decrease from the same period a year earlier. Cenovus's upstream operations generated $924 million in operating cash flow in the first quarter, an increase of 35% due to a rise in oil and natural gas sale prices and higher oil sands production. This helped offset a 54% decline in operating cash flow from the company's refining operations, which generated $241 million in the first quarter. The decrease in operating cash flow from refining was primarily due to lower market crack spreads, higher feedstock costs associated with increased oil prices and planned maintenance and turnarounds in the quarter.
Cenovus's conventional oil and natural gas assets also demonstrate the strength of integration. The company's conventional oil operations provide predictable near-term cash flow to help fund the development of its oil sands projects, and natural gas acts as an economic hedge for the fuel required at both Cenovus's oil sands and refining operations. These assets generated $228 million in operating cash flow in excess of capital investment in the first quarter.
Taking the next step at Grand Rapids
Cenovus received regulatory approval for its Grand Rapids oil sands project in the first quarter. Similar to its existing oil sands projects, the company plans to develop Grand Rapids through a series of expansion phases. Phase A is expected to produce between 8,000 and 10,000 bbls/d, with first steam planned in 2017. Cenovus has purchased a pre-existing facility, which has a design capacity of 10,000 bbls/d, from the Joslyn steam-assisted gravity drainage (SAGD) oil sands project and plans to move it to the Grand Rapids project site. This will allow Cenovus to quickly implement what the company has learned from its pilot project.
"Our focus on attacking costs is one way we're building shareholder value," said Ferguson. "Using this pre-existing facility at Grand Rapids is a great opportunity for us and a good example of our strategy in action."
Cenovus plans to continue work on the existing pilot project, which consists of two producing well pairs. Grand Rapids has regulatory approval for a gross production capacity of 180,000 bbls/d.
Oil Projects | ||||||||
Daily production1 | ||||||||
(Before royalties) (Mbbls/d) |
2014 | 2013 | 2012 | |||||
Q1 | Full Year | Q4 | Q3 | Q2 | Q1 | Full Year | ||
Oil sands | ||||||||
Christina Lake | 66 | 49 | 61 | 53 | 38 | 44 | 32 | |
Foster Creek | 55 | 53 | 52 | 49 | 55 | 56 | 58 | |
Oil sands total | 120 | 103 | 114 | 102 | 94 | 100 | 90 | |
Conventional oil | ||||||||
Pelican Lake | 25 | 24 | 25 | 25 | 24 | 24 | 23 | |
Weyburn | 16 | 16 | 16 | 16 | 16 | 17 | 16 | |
Other conventional2 | 36 | 36 | 34 | 34 | 37 | 39 | 37 | |
Conventional total | 76 | 77 | 75 | 75 | 77 | 80 | 76 | |
Total oil | 197 | 179 | 189 | 177 | 171 | 180 | 165 |
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 operations currently producing, Foster Creek and Christina Lake, use SAGD, which involves drilling into the reservoir and pumping the oil to the surface. Cenovus is currently building its third major oil sands project at Narrows Lake, which is part of the Christina Lake Region. These projects are operated by Cenovus and jointly owned with ConocoPhillips. Cenovus has an enormous opportunity to deliver increased shareholder value through production growth from several identified emerging projects and additional future developments. The company continues to assess its resources and prioritize development plans to create long-term value.
Christina Lake
Production
Expansions
Foster Creek
Production
Expansions
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. Cenovus has been injecting polymer since 2006 to enhance production from the reservoir, which is also under waterflood.
Other conventional oil
In addition to Pelican Lake, Cenovus has conventional oil assets in Alberta, including tight oil opportunities, as well as the established Weyburn operation in Saskatchewan that uses carbon dioxide injection to enhance oil recovery.
Natural Gas | ||||||||
Daily production | ||||||||
(Before royalties) (MMcf/d) |
2014 | 2013 | 2012 | |||||
Q1 | Full Year | Q4 | Q3 | Q2 | Q1 | Full Year | ||
Natural gas | 476 | 529 | 514 | 523 | 536 | 545 | 594 |
Cenovus has a solid base of established, reliable natural gas properties in Alberta. These properties are managed as financial assets, not production assets, 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.
Market access
Cenovus is concentrating on finding new customers in North America and around the world and working to ensure it has the ability to move its oil to these customers.
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 when crude oil prices are discounted 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
Operations
Financial
Dividend
The Cenovus Board of Directors declared a second quarter dividend of $0.2662 per share, payable on June 30, 2014 to common shareholders of record as of June 13, 2014. Based on the April 29, 2014 closing share price on the Toronto Stock Exchange of $33.02, this represents an annualized yield of about 3.2%. Declaration of dividends is at the sole discretion of the Board. Cenovus's continued commitment to a meaningful dividend is an important aspect of its strategy to focus on increasing total shareholder return.
Cash flow, earnings and capital investment
Risk management, expenses and financial ratios
Operating earnings1 | |||
(for the period ended March 31) ($ millions, except per share amounts) |
2014 Q1 |
2013 Q1 |
|
Earnings, before income tax Add back (deduct): |
358 | 294 | |
Unrealized risk management (gains) losses2 | (26) | 230 | |
Non-operating unrealized foreign exchange (gains) losses3 | 196 | 47 | |
Operating earnings, before income tax | 528 | 571 | |
Income tax expense | 150 | 180 | |
Operating earnings | 378 | 391 |
1 | Operating earnings is a non-GAAP measure as defined in the Advisory. |
2 | The unrealized risk management (gains) losses include the reversal of unrealized (gains) losses recognized in prior periods. |
3 | Includes unrealized foreign exchange (gains) losses on translation of U.S. dollar denominated notes issued from Canada and the Partnership Contribution Receivable and foreign exchange (gains) losses on settlement of intercompany transactions. |
Conference Call Today
9 a.m. Mountain Time (11 a.m. Eastern Time)
Cenovus will host a conference call today, April 30, 2014, 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 12 p.m. MT on April 30 until 10 p.m. MT on May 7, 2014, by dialing 855-859-2056 or 416-849-0833 and entering password 13236294. A live audio webcast of the conference call will also be available via cenovus.com. The webcast will be archived for approximately 90 days.
Investor notice
The Depository Trust Company ("DTC") has terminated its participation in Dividend Reinvestment Programs ("DRIP") for Canadian securities for all events announced with a record date beyond March 31, 2014. Please note that this affects only beneficial holders who hold common shares of Cenovus Energy Inc. through DTC participant brokers in the United States and who are currently enrolled in the Cenovus DRIP. To view the official notice from DTC, including information for beneficial holders who still want to participate in dividend reinvestment, please visit cenovus.com under 'Investors.'
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.
OIL AND GAS INFORMATION
Barrels of Oil Equivalent Certain natural gas volumes have been converted to barrels of oil equivalent (BOE) on the basis of six Mcf to one bbl. BOE may be misleading, particularly if used in isolation. A conversion ratio of one bbl to six Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent value equivalency at the wellhead.
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", "projected", "could", "focus", "proposed", "schedule", "potential", "may", "strategy" or similar expressions and includes suggestions of future outcomes, including statements about our growth strategy and related schedules, projections contained in our 2014 guidance, projected 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, broadening market access, improving cost structures, 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, including to reduce our environmental impact 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 disclosed 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.
2014 guidance, updated February 13, 2014, available at cenovus.com, is based on an average diluted number of shares outstanding of approximately 757 million. It assumes: Brent US$105.00/bbl, WTI of US$102.00/bbl; Western Canada Select of US$76.00/bbl; NYMEX of US$4.00/MMBtu; AECO of C$3.30/GJ; Chicago 3-2-1 crack spread of US$13.50/bbl; exchange rate of $0.98 US$/C$. For the period 2015 to 2023, assumptions include: Brent US$105.00-US$110.00; WTI of US$100.00-US$106.00/bbl; Western Canada Select of C$81.00-C$91.00/bbl; NYMEX of US$4.25-US$4.75/MMBtu; AECO of C$3.70-C$4.31/GJ; Chicago 3-2-1 crack spread of US$12.00-US$13.00; exchange rate of $1.00 US$/C$; and average diluted number of shares outstanding of approximately 782 million.
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, including sufficient crude-by-rail or other alternate 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 sedar.com, EDGAR at 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 $30 billion. For more information, visit cenovus.com.
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Video with caption: "Video: Cenovus's CEO Brian Ferguson discusses Q1 results". Video available at: http://stream1.newswire.ca/cgi-bin/playback.cgi?file=20140430_C5575_VIDEO_EN_39729.mp4&posterurl=http://photos.newswire.ca/images/20140430_C5575_PHOTO_EN_39729.jpg&clientName=Cenovus%20Energy%20Inc%2E&caption=Video%3A%20Cenovus%27s%20CEO%20Brian%20Ferguson%20discusses%20Q1%20results&title=CENOVUS%20ENERGY%20INC%2E%20%2D%20%3F&headline=Cenovus%20oil%20sands%20production%20climbs%2020%25%20in%20first%20quarter
Image with caption: "Cenovus's Foster Creek operation in northern Alberta uses steam-assisted gravity drainage (SAGD) to produce oil (CNW Group/Cenovus Energy Inc.)". Image available at: http://photos.newswire.ca/images/download/20140430_C5575_PHOTO_EN_39720.jpg
Image with caption: "Cenovus's Christina Lake operation in northern Alberta uses specialized methods to drill and pump the oil to the surface (CNW Group/Cenovus Energy Inc.)". Image available at: http://photos.newswire.ca/images/download/20140430_C5575_PHOTO_EN_39718.jpg
Image with caption: "Cenovus continues to expand its oil sands operations in northern Alberta (CNW Group/Cenovus Energy Inc.)". Image available at: http://photos.newswire.ca/images/download/20140430_C5575_PHOTO_EN_39719.jpg
SOURCE: Cenovus Energy Inc.
For further information:
CENOVUS CONTACTS:
Investor Relations
Susan Grey
Director, Investor Relations
403-766-4751
Bill Stait
Senior Analyst, Investor Relations
403-766-6348
Graham Ingram
Senior Analyst, Investor Relations
403-766-2849
Anna Kozicky
Senior Analyst, Investor Relations
403-766-4277
Media
Rhona DelFrari
Director, External Communications
403-766-4740
Jessica Wilkinson
Advisor, Media Relations
403-766-8990
General media line
403-766-7751
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