Cenovus sees declining revenues on lower oil prices
Cenovus reported record oil sands production in Q3, reaching 125,000 barrels per day (bpd), an increase of 23% from the same time last year. The company generated $1 billion in cash flow, up 6% from Q3-2013 but down from $1.2 billion in the previous quarter. Net income fell to $354 million on total revenue of $4.97 billion, down slightly from the same time last year. The drop in earnings was blamed on lower oil prices, despite the increased overall production. Cenovus realized an average price of $76.12 per barrel, including hedging benefits.
Total oil production held steady this quarter at 199,000 bpd; 125,000 bpd from the oil sands and 74,000 bpd from their conventional oil production. The company provided the following update on their oil sands operations:
- Production increased to 68,460 barrels per day, an increase of 30% from the same quarter last year and up slightly from the previous quarter. Phase E of the facility reached design capacity in the previous quarter. The facility experiences a short unplanned outage in Q3 caused by the ramp up of phase E. Steam-to-oil ratio (SOR) dropped to 1.7 from 1.9 during Q3-2013.
- Phases C/D/E at Christina Lake continue to undergo optimization; incremental production is expected in 2015.
- Operating costs fell to $10.40 per barrel, down from $12.08/barrel in Q2 and 9% lower than Q3-2013. The drop in operating costs was attributed to lower SOR, higher production and improved operating efficiency.
- Phase F expansion was reported on schedule and on-budget, with first oil expected in 2016. Engineering and procurement is on-going for phase G. The company spent a total of $198 million in the third quarter on the expansion of Christina Lake.
- Phase H of expansion is currently under regulatory review. Once fully operational, Christina Lake will have a total gross design capacity of 310,000 bpd.
- Production at Foster Creek averaged 56,630 barrels per day in Q3, up 15% from the same quarter last year but unchanged from the previous quarter. SOR was 2.8, up from 2.5 during Q3-2013. The increase in SOR was attributed to the ramp up of phases F/G/H.
- Operating costs at Foster Creek averaged $14.79/barrel, an decrease of 14% from last year. The lower operating costs were attributed to improved maintenance efficiencies.
- Phase F began processing oil in Q3 and will add another 30,000 bpd in oil production.
- The company continues to progress construction of phase G and H and has invested a total of $207 million in capital expenditures in Q3-2014. Once completed, Foster Creek will have a total production capacity of 295,000 bpd.
- Narrows Lake is the third oil sands expansion within the Christina Lake region. Cenovus has invested a total of $38 million in Q3 for this expansion which has a production capacity of 45,000 barrels per day.
- Once operational, Narrows Lake will be the first commercial scale facility to use a solvent aided process (in this case, butane) to extract oil from the oil sands.
Note that Foster Creek, Christina Lake and Narrows Lake are all 50/50 joint ventures with ConocoPhillips. The SAGD are all operated by Cenovus.
In addition to the Christina Lake properties, Cenovus is also progressing on two wholly-owned SAGD facilities:
- Cenovus is currently operating 2 production wells as part of a SAGD pilot project at Grand Rapids, located in the Greater Pelicans region. The project received regulatory approval in Q1-2014.
- Phase A of the project is currently underway and should produce 8,000 to 10,000 barrels/day once complete. Once all phases are fully operational, the Grand Rapids project is expected to produce up to 180,000 barrels/day.
- Capital investment for Grand Rapids was $20 million in Q3-2014.
- The Telephone Lake project is located in the Borealis Region of northern Alberta. The project is awaiting regulatory approval, which is expected before year end. The company will release more details on its development plan in December,
- Capital investment for Telephone Lake was $23 million in Q3-2014, spent mostly on drilling of test wells.
Cenovus currently has a $2 billion budget for 2015 capital expenditures, mostly earmarked for Christina Lake and Foster Creek. The company will announce any revisions to its 2015 budget during a webcast scheduled on December 11, 2014.