Cenovus reports record cash flow in the second quarter
Cenovus reported record cash flow for the second quarter, beating analysts' expectations. The company reported $1.2 billion in cash flow, an increase of 37% from the same quarter last year. Increased production from their oil sands operations and improved crude oil prices all contributed to the gains. Earnings per share in Q2 were $0.62, much higher than the expected $0.49/share consensus estimate.
The company provided the following updates on their oil sands operations:
- Production increased to 68,000 barrels per day, an increase of 77% from the same quarter last year.
- Much of the production increase is attributed to the ramp-up of phase E, which is now operating at design capacity.
- Phases C/D/E at Christina Lake are currently undergoing an optimization phase, with incremental production increases expected in 2015.
- Operating costs were reported at $12.08/barrel in Q2, 28% lower than Q2-2013. Higher fuel expenses and higher natural gas prices were offset by increased production rates.
- Phase F expansion is reported on schedule, on-budget and is currently about 57% complete. First oil for phase F is expected in 2016. Engineering and procurement has commenced for phase G.
- Production at Foster Creek averaged 57,000 barrels per day in Q2, up 3% from the same quarter last year. Phase F began steaming in May and is expected to reach design capacity 12 to 18 months after first oil.
- Operating costs at Foster Creek averaged $19.38/barrel, an increase of 20% from last year on higher input prices.
- Phase F main plant is reported 96% complete by the end of Q2. Phase G is 73% compete with initial production expected in 2015. Phase H is 48% complete and is expected to be brought online in 2016. The company reported an increase in capital costs for expansion phases F/G/H due to scope changes driven by lessons learned from the previous phases.
- Narrows Lake is the third oil sands expansion within the Christina Lake region.
- Phase A is 25% complete and is eventually expected to produce 45,000 barrels per day. Site preparation, engineering and construction are on-going at the property.
Cenovus is a technology leader in the field of steam-assisted gravity drainage (SAGD) bitumen extraction from the oil sands. Foster Creek, Christina Lake and Narrows Lake are joint ventures with ConocoPhillips 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.
- The Telephone Lake project is located in the Borealis Region of northern Alberta. The project is awaiting regulatory approval, which is expected in the second half of 2014.
- The company successfully completed a dewatering pilot project last year and is currently in a well-drilling phase.
In an effort to boost their crude-by-rail volumes, Cenovus has also added a Vice-President, Rail position to their management team. The company estimates it can achieve 30,000 barrels/day of rail loading capacity by the end of 2014. The company currently ships crude by rail to refineries in Canada's east coast and down to the US Gulf Coast.
In addition to their upstream operations, Cenovus is also a joint owner of two refineries in the US - Wood River Refinery in Illinois and Borger Refinery in Texas, both operated by Phillips 66. This integration allows Cenovus to benefit from the heavy oil discount, resulting in lower cost feedstock to their US refineries and improved profit margins on refined products. Cenovus is one of Canada's largest independent integrated oil companies.