Cash flow up 37% on higher volumes and prices
- Combined oil sands production at Foster Creek and Christina Lake averaged almost 125,000 barrels
per day (bbls/d) net in the second quarter, up 33% from a year
earlier.
- Production at Christina Lake
averaged nearly 68,000 bbls/d net in the second quarter, an
increase of 77% when compared with the same period a year earlier
as phase E reached its design capacity.
- Foster Creek production averaged almost 57,000 bbls/d net in
the quarter, an increase of 3% from the second quarter of
2013.
- Steaming at Foster Creek's phase F expansion began in May.
- Cenovus generated nearly $1.2
billion in cash flow, a 37% increase when compared with the
same period in 2013 due to increased production and higher
commodity prices.
"Cenovus generated record cash flow in the second quarter, with
strong contributions from all of our business operations," said
Brian Ferguson, Cenovus President
& Chief Executive Officer. "Once again, we've been able to
generate predictable, reliable results and deliver growing total
shareholder return."
|
Production &
financial summary |
(for the period ended June 30)
Production (before royalties) |
2014
Q2 |
2013
Q2 |
% change |
Oil sands total (bbls/d) |
124,827 |
93,797 |
33 |
Conventional oil1 (bbls/d) |
76,861 |
77,330 |
-1 |
Total oil (bbls/d) |
201,688 |
171,127 |
18 |
Natural gas (MMcf/d) |
507 |
536 |
-5 |
Financial
($ millions, except per share amounts) |
|
|
|
Cash flow2
Per share diluted |
1,189
1.57 |
871
1.15 |
37
|
Operating earnings2 |
473 |
255 |
85 |
Per share diluted |
0.62 |
0.34 |
|
Net earnings |
615 |
179 |
244 |
Per share diluted |
0.81 |
0.24 |
|
Capital investment |
686 |
706 |
-3 |
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,
July 30, 2014 /CNW/ - Cenovus Energy
Inc . (TSX: CVE) (NYSE: CVE) achieved strong second quarter results
as the company benefited from increased oil production and higher
commodity prices, contributing to a significant increase in cash
flow compared with the same period a year earlier.
Cenovus's oil sands production averaged almost 125,000 bbls/d
net in the second quarter, up 33% from a year earlier, primarily
driven by strong performance at the company's Christina Lake project. Christina Lake production increased 77% from
the second quarter of 2013, averaging nearly 68,000 bbls/d net as
phase E reached its design capacity and the company completed a
planned partial turnaround with minimal impact to production.
Foster Creek performed in line with expectations, achieving
production that averaged almost 57,000 bbls/d net in the second
quarter, up 3% from the same period in 2013. Through the remainder
of the year, the company expects the steam to oil ratio (SOR) at
Foster Creek to be at the upper end of its annual guidance range of
2.6 to 3.0 as steaming of the phase F expansion continues. First
production from phase F wells is expected in the fourth
quarter.
Cash flow for the quarter was almost $1.2
billion, an increase of 37% from the same period in 2013.
The increase was driven by 34% higher operating cash flow from the
company's oil and natural gas producing assets, largely due to a
year-over-year increase in oil sands production and higher crude
oil and natural gas prices. In addition, current tax and
exploration expenses were lower in the quarter than in the same
period in 2013. Cenovus's strong performance from its oil sands and
conventional oil and natural gas producing assets more than offset
a decline in refining operating cash flow due to lower market crack
spreads and higher crude oil feedstock costs. Cenovus had free cash
flow in the quarter of $503
million.
"We're pleased with the solid growth in our oil sands
production, supported by strong cash flow from both our
conventional and refining assets," said John Brannan, Executive Vice-President &
Chief Operating Officer. "This continues to demonstrate the value
of our integrated business strategy."
Strengthening our leadership team
As Cenovus continues to ensure it has adequate transportation
capacity to move its growing production to market, the company has
added new expertise to its leadership team. Robert (Bob) Pease joined Cenovus in June as the
company's Executive Vice-President, Markets, Products &
Transportation. He is responsible for all commercial activities
associated with crude oil, natural gas and natural gas liquids as
well as the company's refining business. With more than 34 years of
experience in refining, marketing and transporting oil, he will be
responsible for developing and executing strategies that help
Cenovus maximize the return it receives for its products across the
value chain.
The company has also added new expertise to support its growing
capacity to ship crude oil by rail to access higher value markets.
Kent Avery has joined Cenovus's
management team as Vice-President, Rail. He has extensive
experience in rail operations and business development involving
the transportation of oil and other petroleum products.
Oil Projects |
Daily
production1 |
(Before royalties)
(Mbbls/d) |
2014 |
2013 |
2012 |
|
Q2 |
|
Q1 |
|
Full Year |
Q4 |
|
Q3 |
|
Q2 |
|
Q1 |
|
Full Year |
Oil sands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christina Lake |
68 |
|
66 |
|
49 |
61 |
|
53 |
|
38 |
|
44 |
|
32 |
|
Foster Creek |
57 |
|
55 |
|
53 |
52 |
|
49 |
|
55 |
|
56 |
|
58 |
Oil sands total |
125 |
|
120 |
|
103 |
114 |
|
102 |
|
94 |
|
100 |
|
90 |
Conventional
oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pelican Lake |
25 |
|
25 |
|
24 |
25 |
|
25 |
|
24 |
|
24 |
|
23 |
|
Weyburn |
16 |
|
16 |
|
16 |
16 |
|
16 |
|
16 |
|
17 |
|
16 |
|
Other
conventional2 |
36 |
|
36 |
|
36 |
34 |
|
34 |
|
37 |
|
39 |
|
37 |
Conventional
total |
77 |
|
76 |
|
77 |
75 |
|
75 |
|
77 |
|
80 |
|
76 |
Total oil |
202 |
|
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 steam-assisted gravity drainage (SAGD), which involves drilling
into the reservoir and injecting steam at low pressures to soften
the thick oil so it can be pumped 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
- Production at Christina Lake
averaged 67,975 bbls/d net in the second quarter, 77% higher than
the same period a year earlier due to phase E reaching its design
capacity, both on time and on budget. Work to optimize phases C, D
and E continues, with incremental production expected in 2015.
- The SOR at Christina Lake was
1.8 in the second quarter, consistent with the same period a year
earlier.
- Operating costs at Christina
Lake were $12.08 per barrel
(bbl) in the second quarter, a 28% decline from the same period a
year ago. This was primarily due to higher production volumes. The
decrease was partially offset by increased fuel expenses,
consistent with higher natural gas prices.
- Non-fuel operating costs were $8.22/bbl, compared with $13.46/bbl in the second quarter of 2013, a 39%
decline.
- The netback the company received for its Christina Lake oil production increased 81% to
$51.66/bbl in the second quarter
compared with the same period of 2013.
Expansions
- The phase F expansion at Christina
Lake is on schedule and on budget with about 57% of the
project complete. First production is expected in 2016. Cenovus is
also working on engineering and procurement for phase G.
- Total capital investment was $183
million, 13% higher compared with the second quarter of
2013. Most of the increase was driven by phase F plant and well pad
construction, the drilling of sustaining wells and phase G
engineering and procurement.
Foster Creek
Production
- Foster Creek production averaged 56,852 bbls/d net in the
quarter, in line with company expectations, representing a 3%
increase from the same period a year earlier.
- The SOR at Foster Creek was 2.6 in the second quarter of 2014,
compared with 2.4 in the same period of 2013. The SOR is expected
to be at the upper end of the company's projected annual range of
2.6 to 3.0 for the remainder of 2014 as the company steams phase F
in advance of first production, anticipated in the fourth quarter.
The ramp-up to design capacity is expected to take 12 to 18 months
after first production.
- During the quarter, the company received regulatory approval
for blowdown for two additional well pads. This brings the total
number of well pads approved for blowdown at Foster Creek to five.
The company expects to begin rampdown of these two additional pads
by early 2015. Rampdown is the first phase of the blowdown process,
which enables the company to move steam from well pads that no
longer need it for continued production to new or existing areas of
the reservoir. The company currently has one pad on full blowdown
and two well pads on rampdown using methane co-injection. Cenovus
continues to monitor conditions in the reservoir to optimize steam
placement.
- Operating costs at Foster Creek averaged $19.38/bbl in the second quarter, a 20% increase
from the same period a year ago. The majority of the per-barrel
operating cost increase was due to higher fuel expenses, consistent
with higher natural gas prices and increased consumption.
- Non-fuel operating costs were $14.78/bbl in the quarter compared with
$13.36/bbl in the same period of
2013. The increase was mainly associated with higher workforce and
workover costs.
- The netback the company received for its Foster Creek oil
production rose 4% to $50.15/bbl in
the second quarter from the same period in 2013.
Expansions
- The Foster Creek phase F main plant was 96% complete at the end
of the second quarter. Capital costs for the F, G and H expansion
phases are trending higher as a result of a decision to incorporate
additional learnings from existing operations at Foster Creek and
related scope changes. Final capital efficiencies for the expansion
will be dependent on SOR performance, costs associated with
optimization activity, and debottlenecking, which is expected to
increase production capacity and improve operating efficiency.
- Phase G is 73% complete with initial production expected in
2015. Phase H is 48% complete with first production expected in
2016.
- Capital investment was $209
million, an increase of 11% compared with the same period in
2013. The increase was primarily directed to phase F well pad
construction and phase F start-up.
Narrows Lake
- Work on phase A was 25% complete at the end of the quarter and
site construction, engineering and procurement are
progressing.
- The first phase of the project is designed to have production
capacity of 45,000 bbls/d gross. Narrows Lake is expected to be the
industry's first project to demonstrate solvent aided process
(SAP), using butane, on a commercial scale.
- Cenovus invested $45 million at
Narrows Lake in the second quarter, compared with $25 million in the same period a year
earlier.
Emerging projects
Grand Rapids
- Cenovus received regulatory approval for its 100%-owned
Grand Rapids project in the first
quarter of 2014. The project, which is located within the Greater
Pelican Region, is expected to produce up to 180,000 bbls/d.
- Cenovus is moving forward with phase A, which is expected to
produce between 8,000 and 10,000 bbls/d. The company has begun
decommissioning an existing SAGD central plant facility that it
purchased earlier this year and plans to relocate it to the
Grand Rapids site for use at phase
A.
- Work continues on the SAGD pilot project, which has two
producing well pairs.
- Excluding the central plant purchase, Cenovus invested
$5 million at Grand Rapids in the second quarter, compared
with $8 million in the same period a
year earlier.
Telephone Lake
- Cenovus's 100%-owned Telephone Lake property is located within
the Borealis Region of northern Alberta. A revised application and
environmental impact assessment (EIA) submitted in December 2011 is advancing through the regulatory
process with approval anticipated in the second half of 2014.
- In 2013, Cenovus successfully concluded a dewatering pilot
project designed to remove an underground layer of non-potable
water sitting on top of the oil sands deposit at Telephone Lake.
Approximately 70% of the top water was removed during the pilot and
replaced with compressed air. While dewatering is not essential to
the development of Telephone Lake, the company believes it could
help improve the SOR by up to 30%, which would enhance project
economics and reduce its impact on the environment.
- Cenovus invested $19 million at
Telephone Lake in the second quarter, compared with $17 million in the same period a year ago. The
company plans to drill 13 stratigraphic test wells at Telephone
Lake this summer using Cenovus's SkyStratTM drilling
rig.
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.
- Pelican Lake produced an average of 24,806 bbls/d in the
quarter, up 4% from the same period a year earlier as additional
infill wells came on production and there was increased response
from the polymer flood program.
- Cenovus invested $68 million at
Pelican Lake in the second quarter, compared with $111 million in the same period a year earlier.
Pelican Lake generated $51 million in
operating cash flow in excess of capital investment in the second
quarter.
- Operating costs at Pelican Lake were $21.23/bbl in the quarter, down from $22.21/bbl in 2013. The decrease was primarily
due to higher production volumes and lower workover costs.
Other conventional oil
In addition to Pelican Lake, Cenovus has tight oil opportunities in
Alberta, as well as the
established Weyburn operation in
Saskatchewan that uses carbon
dioxide injection to enhance oil recovery.
- Conventional oil production, excluding Pelican Lake, averaged
52,055 bbls/d in the second quarter, a decline of 2% from the same
period a year earlier. The decrease primarily reflects production
associated with the sale of the company's Shaunavon assets in 2013 and certain of its
Bakken assets earlier in the second quarter of this year.
- The transaction to sell the company's operated Bakken assets
closed on April 1, 2014, with a gain
of $16 million recorded on the sale.
Cenovus retained a royalty interest in production from these assets
as they are on Cenovus fee title lands.
- Solid operational performance from the company's horizontal
drilling program in southern Alberta more than offset expected natural
declines in production.
- Production at the Weyburn
operation was about 16,485 bbls/d net compared with approximately
15,938 bbls/d net in the second quarter of 2013.
- Operating costs for Cenovus's conventional oil operations,
excluding Pelican Lake, were $17.75/bbl, a 9% increase compared with the same
period in 2013 due to higher chemical, workforce, repairs and
maintenance expenses, partially offset by a decline in electricity
costs.
- Cenovus invested $81 million in
its conventional oil assets, excluding Pelican Lake, in the second
quarter, compared with $130 million a
year earlier, due to a decrease in facility spending. These assets
generated $188 million of operating
cash flow in excess of capital investment in the second
quarter.
Natural Gas |
Daily production |
(Before royalties)
(MMcf/d) |
2014 |
|
2013 |
|
2012 |
|
Q2 |
|
Q1 |
|
Full Year |
|
Q4 |
|
Q3 |
|
Q2 |
|
Q1 |
|
Full Year |
Natural gas |
507 |
|
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.
- Natural gas production averaged 507 million cubic feet per day
(MMcf/d) in the second quarter, down 5% compared with the same
period a year earlier, driven by expected natural declines.
- The company invested $5 million
in its natural gas assets in the second quarter, consistent with
the same period a year earlier. Natural gas assets generated
$157 million in operating cash flow
in excess of capital investment.
- Cenovus's average realized sales price for natural gas,
including hedges, was $4.85 per
thousand cubic feet (Mcf), compared with $3.68 per Mcf in the same quarter of 2013. Higher
cash flow from natural gas more than offset the increase in fuel
costs at Cenovus's oil sands operations as the company produced
more natural gas than it consumed.
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.
- Cenovus loaded its first unit train at the U.S. Development
Group/Gibson Hardisty rail
terminal during the second quarter. The company also has a
multi-year agreement for unit train loading services at the Canexus
Bruderheim rail terminal. In total, Cenovus completed eight unit
train deliveries in the first half of the year. The company remains
on track to reach 30,000 bbls/d of rail loading capacity by the end
of 2014.
- Through their oil sands partnership, Cenovus and ConocoPhillips
have a transportation agreement in place with Inter Pipeline (IPL)
to receive up to 350,000 bbls/d of diluent via the new Polaris East
pipeline. Deliveries on the Polaris line commenced at Foster Creek
in July and are anticipated to begin at Christina Lake in September. These deliveries
are expected to increase over the next few years as the company's
diluent needs grow. The agreement also includes future diluent
deliveries to the Narrows Lake project.
- The partnership also has an agreement in place with IPL to ship
up to 500,000 bbls/d of oil blend via the planned Cold Lake pipeline expansion. Oil blend
deliveries on the Cold Lake
expansion are expected to commence in early 2015. The agreement
also includes future oil blend shipping capacity from the
partnership's Narrows Lake project.
- Cenovus has committed to ship 75,000 bbls/d on Enbridge's
Flanagan South system and expects to
start moving an initial 50,000 bbls/d in the second half of
2014.
- Cenovus has also committed to move 200,000 bbls/d on the
proposed Energy East pipeline, has additional shipping capacity of
175,000 bbls/d on proposed pipelines to the West Coast, and plans
to move 75,000 bbls/d on TransCanada's proposed Keystone XL
system.
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
- Operating cash flow from refining was $219 million in the second quarter, a 32% decline
when compared with the second quarter of 2013, due to lower market
crack spreads and higher heavy crude oil feedstock costs reflecting
increased prices for Western Canadian Select and increased
operating expenses.
- Capital investment was $46
million, up from $26 million
in the same period a year earlier. Increased capital expenditures
were related to planned maintenance and reliability and safety
projects.
- Cenovus's refining operating cash flow is calculated on a
first-in, first-out (FIFO) inventory accounting basis. Using
the last-in, first-out (LIFO) accounting method employed by
most U.S. refiners, Cenovus's operating cash flow from refining
would have been approximately $31
million lower.
Operations
- Cenovus's refineries processed an average of 466,000 bbls/d
gross in the quarter, a 6% increase from the same period a year
earlier due to reliable refinery performance and an unplanned
outage in 2013.
- Together, the two refineries processed an average of 221,000
bbls/d gross of heavy oil in the quarter, compared with 230,000
bbls/d gross in the same period of 2013.
- The refineries produced an average of 489,000 bbls/d gross of
refined products in the quarter, a 7% increase from the second
quarter of 2013.
Financial
Dividend
The Cenovus Board of Directors declared a third quarter dividend of
$0.2662 per share, payable on
September 30, 2014 to common
shareholders of record as of September 15,
2014. Based on the July 29,
2014 closing share price on the Toronto Stock Exchange of
$32.81, 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
- Cenovus generated almost $1.2
billion in cash flow in the second quarter, 37% higher than
the same period a year earlier due to increased oil production and
higher oil and natural gas prices, plus decreases in current tax,
financing costs and pre-exploration expense. Current tax was
$68 million lower than in the second
quarter of 2013 due to a favourable adjustment related to previous
years and lower U.S. cash flow. This was partially offset by higher
Canadian cash flow. Cenovus had a non-recurring pre-exploration
expense in the second quarter of 2013 that reduced cash flow.
- Operating cash flow was nearly $1.3
billion in the second quarter of 2014, a 15% increase from
the same period a year earlier.
- Operating cash flow from Cenovus's refineries was $219 million, a 32% decline from the same period
in 2013 due to increased heavy crude oil feedstock costs and lower
market crack spreads that reduced margins. The strong crude oil
prices benefited Cenovus's oil and natural gas producing assets,
which generated approximately $1.1
billion of operating cash flow, a 34% increase compared with
the second quarter of 2013.
- Operating cash flow in excess of capital invested was
$48 million from oil sands crude oil,
$239 million from conventional oil,
$157 million from natural gas and
$173 million from refining.
- Operating earnings were $473
million in the second quarter, an 85% increase when compared
with the same period a year earlier due to an increase in oil and
natural gas prices and oil production volumes and a decrease in
exploration expense. This was partially offset by an increase in
deferred income tax mainly because of higher Canadian income as
well as higher long-term incentive expense that is consistent with
a rise in the company's share price.
- Cenovus's net earnings for the quarter were $615 million, more than three times higher than
the same period a year earlier. The increase was primarily due to
higher operating earnings and a non-operating unrealized foreign
exchange gain of $177 million
compared with a loss of $97 million a
year ago. This was partially offset by an $11 million unrealized risk management loss
compared with a gain of $26 million
in 2013.
- Capital investment was $686
million in the second quarter, a 3% decline when compared
with the same period a year earlier, primarily due to planned
reduced spending at Pelican Lake and the company's other
conventional operations.
Risk management, G&A expenses and financial
ratios
- In the second quarter, Cenovus increased its fixed-price
Canadian dollar Brent crude hedge position, adding 14,500 bbls/d of
additional protection for expected 2015 oil production at an
average price of $113.64/bbl. This
increased fixed-price protection for expected 2015 oil production
to 18,000 bbls/d at an average price of $113.75.
- Cenovus also added Canadian dollar hedges for 10,000 bbls/d of
expected 2015 oil production using Brent collars, establishing a
floor price at an average of $105.25/bbl with an average ceiling price of
$123.57/bbl.
- Cenovus had a realized after-tax hedging loss of $41 million in the quarter. The company received
an average realized price, including hedging, of $78.39/bbl for its oil. The average realized
price for natural gas, including hedging, was $4.85/Mcf.
- General and administrative (G&A) expenses were $3.98 per barrel of oil equivalent (BOE) in the
second quarter, compared with $3.54/BOE in the second quarter of 2013 due to
higher long-term incentives resulting from an increase in the
company's share price versus a decline in the same period of
2013.
- Cenovus filed a new $1.5 billion
debt shelf prospectus and a new US$2
billion U.S. debt shelf prospectus to replace the previously
filed prospectuses. These filings are normal course of business and
were completed in order to provide flexibility and maintain
efficient access to the debt capital markets.
- Over the long term, Cenovus continues to target a debt to
capitalization ratio of between 30% and 40% and a debt to adjusted
earnings before interest, taxes, depreciation and amortization
(EBITDA) ratio of between 1.0 and 2.0 times. At June 30, 2014, the company's debt to
capitalization ratio was 33% and debt to adjusted EBITDA, on a
trailing 12-month basis, was 1.2 times.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings1 |
(for the period ended June 30)
($ millions, except per share amounts) |
|
|
2014
Q2 |
|
|
2013
Q2 |
Earnings, before income tax
Add back (deduct): |
|
|
824 |
|
|
280 |
|
Unrealized risk management (gains)
losses2 |
|
|
11 |
|
|
(26) |
|
Non-operating unrealized foreign exchange (gains)
losses3
(Gains) losses on divestiture of assets |
|
|
(177)
(20) |
|
|
97
- |
Operating earnings, before income
tax |
|
|
638 |
|
|
351 |
|
Income tax expense |
|
|
165 |
|
|
96 |
Operating earnings |
|
|
473 |
|
|
255 |
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, July 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 July 30 until 10 p.m. MT on August 6,
2014, by dialing 855-859-2056 or 416-849-0833 and entering password
57583698. A live audio webcast of the conference call will also be
available via cenovus.com. 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:
- Operating cash flow is defined as revenues, less purchased
product, transportation and blending, operating expenses,
production and mineral taxes plus realized gains, less realized
losses on risk management activities and is used to provide a
consistent measure of the cash generating performance of the
company's assets and for the comparability of Cenovus's underlying
financial performance between periods. Items within the Corporate
and Eliminations segment are excluded from the calculation of
operating cash flow.
- Cash flow is defined as cash from operating activities
excluding net change in other assets and liabilities and net change
in non-cash working capital, both of which are defined on the
Consolidated Statement of Cash Flows in Cenovus's interim and
annual consolidated financial statements.
- Free cash flow is defined as cash flow less capital
investment.
- Operating Earnings is used to provide a consistent measure of
the comparability of our underlying financial performance between
periods by removing non-operating items. Operating Earnings is
defined as Earnings Before Income Tax excluding gain (loss) on
discontinuance, gain on bargain purchase, unrealized risk
management gains (losses) on derivative instruments, unrealized
foreign exchange gains (losses) on translation of U.S. dollar
denominated notes issued from Canada and the Partnership Contribution
Receivable, foreign exchange gains (losses) on settlement of
intercompany transactions, gains (losses) on divestiture of assets,
less income taxes on operating earnings.
- Debt to capitalization and debt to adjusted EBITDA are two
ratios that management uses as measures of the company's overall
financial strength to steward the company's overall debt position.
Debt is defined as short-term borrowings and long-term debt,
including the current portion, excluding any amounts with respect
to the Partnership Contribution Payable or Receivable.
Capitalization is defined as Debt plus shareholders' equity.
Adjusted EBITDA is defined as earnings before finance costs,
interest income, income tax expense, depreciation, depletion and
amortization, asset impairments, unrealized gains or losses on risk
management, foreign exchange gains or losses, gains or losses on
divestiture of assets and other income and loss, calculated on a
trailing 12-month basis.
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
and 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.
Netbacks For the method of calculation, refer to
Cenovus's Annual Information Form (AIF) for the year ended
Decemeber 31, 2013. Netbacks reported in this news release are
calculated as set out in the AIF, using an updated quarterly cost
of condensate on a per barrel of unblended crude oil basis, as
follows: Christina Lake -
$49.30 and Foster Creek -
$47.28.
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, growing total shareholder return, forecast operating
and financial results, planned capital expenditures, expected
future production, including the timing, stability or growth
thereof, expected increase in production capacity through
optimization activity and debottlenecking, 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 $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/bbl-US$110.00/bbl; WTI of US$100.00-US$106.00/bbl; Western Canada Select of
US$81.00-US$91.00/bbl; NYMEX of
US$4.25-US$4.75/MMBtu; AECO of
$3.70-$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.
Find Cenovus on Facebook, Twitter, Linkedin and YouTube.
SOURCE Cenovus Energy Inc.
Video with caption: "Video: Cenovus's CEO discusses Q2 results".
Video available at:
http://stream1.newswire.ca/cgi-bin/playback.cgi?file=20140730_C8944_VIDEO_EN_42290.mp4&posterurl=http://photos.newswire.ca/images/20140730_C8944_PHOTO_EN_42290.jpg&clientName=Cenovus%20Energy%20Inc%2E&caption=Video%3A%20Cenovus%27s%20CEO%20discusses%20Q2%20results&title=CENOVUS%20ENERGY%20INC%2E%20%2D%20Cenovus%20Q2%20Results%20%2D%20HEADLINE%20TBA&headline=Cenovus%20oil%20sands%20production%20increases%2033%25
Image with caption: "Cenovus's Christina Lake project in northern
Alberta uses steam-assisted
gravity drainage (SAGD) to produce oil. The process involves
drilling into the reservoir and injecting steam at a low pressure
to soften the oil so it can be pumped to the surface. (CNW
Group/Cenovus Energy Inc.)". Image available at:
http://photos.newswire.ca/images/download/20140730_C8944_PHOTO_EN_42288.jpg
Image with caption: "Cenovus drills wells approximately 375
metres deep at one of its oil sands operations in northern
Alberta and then injects steam at
a low pressure to soften the oil to separate it from the sand in
the reservoir below the well pad. This process is called
steam-assisted gravity drainage (SAGD). (CNW Group/Cenovus Energy
Inc.)". Image available at:
http://photos.newswire.ca/images/download/20140730_C8944_PHOTO_EN_42293.jpg