Second quarter highlights
| Production & financial summary |
|||||||||||
| (For the period ended June 30) Production (before royalties) |
2015 Q2 |
2014 Q2 |
% change |
||||||||
| Oil sands (bbls/d) |
130,734 |
124,827 |
5 |
||||||||
| Conventional oil1 (bbls/d) |
69,220 |
76,861 |
-10 |
||||||||
| Total oil (bbls/d) |
199,954 |
201,688 |
-1 |
||||||||
| Natural gas (MMcf/d) |
450 |
507 |
-11 |
||||||||
| Financial ($ millions, except per share amounts) |
|||||||||||
| Cash flow2 |
477 |
1,189 |
-60 |
||||||||
| Per share diluted |
0.58 |
1.57 |
|||||||||
| Operating earnings2 |
151 |
473 |
-68 |
||||||||
| Per share diluted |
0.18 |
0.62 |
|||||||||
| Net earnings |
126 |
615 |
-80 |
||||||||
| Per share diluted |
0.15 |
0.81 |
|||||||||
| Capital investment |
357 |
686 |
-48 |
||||||||
| 1 Includes natural gas liquids (NGLs). |
| 2 Cash flow and operating earnings are non-GAAP measures as defined in the Advisory. See also the earnings |
Strategic update highlights
"We are planning for West Texas Intermediate oil prices to be approximately $65 per barrel through 2017," said Brian Ferguson, Cenovus President & Chief Executive Officer. "But even at $50 per barrel, we believe we are well positioned to be able to internally fund our reduced dividend as well as our sustaining and growth capital without compromising our balance sheet."
Strategic update
CALGARY, July 30, 2015 /CNW/ - Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) continues to deliver strong operational performance, with dependable oil sands production growth and meaningful cost reductions. The company has undertaken a number of significant initiatives to strengthen its financial resilience and is now taking further steps intended to enhance value for shareholders during this extended period of low oil prices and market volatility. The company's actions are aimed at maintaining its balance sheet and helping to ensure Cenovus is operating with the greatest efficiency. In addition, Cenovus has adjusted its previous capital investment strategy and plans to take a more moderate approach to the growth of its oil sands assets.
Cenovus has already delivered on a number of its 2015 commitments, including reducing capital and discretionary spending, achieving meaningful improvements in its operating, capital and general and administrative (G&A) costs, making initial workforce reductions, and crystallizing significant value for shareholders by selling its royalty and fee land business at an attractive price. Today, Cenovus is announcing further measures, including an adjustment to its dividend and additional cost-cutting initiatives, to further align the company with the economic realities facing the oil and gas industry and help ensure it can remain competitive with oil production across North America.
"We've taken a number of decisive steps to help ensure financial resilience during a prolonged period of lower oil prices," said Ferguson. "As a result of these initiatives and the operational progress the company has made, we are now in an even stronger position to remain cost competitive and potentially resume investing in high-return growth projects."
Dividend update
With the expectation of a prolonged period of low oil prices and the cash flow impact from the sale of its royalty and fee land business, Cenovus is reducing its dividend by 40%. The Board of Directors has declared a third quarter dividend of $0.16 per share, payable on September 30, 2015 to common shareholders of record as of September 15, 2015. Based on the July 29, 2015 closing share price on the Toronto Stock Exchange of $18.61, this represents an annualized yield of about 3.4%. Declaration of dividends is at the sole discretion of the Board and will continue to be evaluated on a quarterly basis. Over the long term, Cenovus intends to target a dividend payout ratio of 20% to 25% of after-tax cash flows. With this dividend reduction, the company is on track to be within its target range for 2015.
Cenovus has discontinued the temporary discount on its Dividend Reinvestment Plan (DRIP). The discount, which allowed shareholders to reinvest their dividends in Cenovus common shares at 3% below current market prices, was designed to conserve cash. Cenovus now believes it has adequate liquidity to manage through the low oil price environment, and the discount on the DRIP is no longer required. While the DRIP will remain in place, in future, common shares acquired under the DRIP will be purchased in the open market, eliminating the dilution caused by the issuance of shares from Treasury.
Cost reductions
Cenovus continues to make solid progress attacking cost structures across the entire company to reduce its spend and create sustainable cost improvements. The company previously announced a target of $200 million in upstream operating, capital and G&A cost savings for 2015, which were largely achieved within the first six months of the year. As a result, the company is increasing its cost-cutting expectation for 2015 to approximately $280 million, 40% higher than its initial target.
Part of the company's cost-cutting efforts has focused on workforce. In February, Cenovus announced initial plans to reduce its workforce by approximately 800 positions to align with capital budget reductions for the year. The company has since identified 300 to 400 positions at its Calgary offices that are expected to be eliminated before the end of 2015. These positions are no longer required because of a decrease in work due to the continued low oil price environment. Cenovus also intends to review the company's compensation, benefits and time-off practices to ensure they align with current and anticipated market conditions. The cost savings associated with these additional workforce efficiencies are expected to be at least $100 million annually. Because the full impact of these workforce savings is still being finalized and will likely be more evident in 2016, they have not been included in the company's $280 million overall cost-reduction target for this year.
Cenovus is also planning for additional staff reductions at its field operations in early 2016, as the company continues to identify even greater workforce efficiencies. Details of these additional reductions will be provided at a later date.
"Reducing the size of our talented workforce was not an easy decision, but it's the right one," said Ferguson. "The new economic reality for our industry includes low oil prices and competition from light tight oil in the U.S. To help ensure our continued success, we must adapt by reducing all of our costs and becoming as efficient as possible."
Specific examples of cost savings already achieved or underway this year include:
Of the company's targeted 2015 savings, about two-thirds are expected to come from operating cost improvements with the remainder related to reduced capital spending as well as lower G&A expenses. Cenovus anticipates about half of these savings will be sustainable over the long term.
More efficient organizational model
Cenovus also continues to make substantive progress with its transition to a new organizational model, which will help the company optimize its workflows, better utilize its people and expertise and achieve efficiencies that will lead to sustainable reductions in its overall cost structures. Under the new model, teams are being organized by function and aligned with the company's value chain as opposed to specific assets. Cenovus plans to have its functional model structure in place by the end of the year. The move is expected to result in additional workforce efficiencies.
Cenovus is also realigning the structure of its Leadership Team to better fit with the functional model. The planned retirements of four Executive Vice-Presidents announced this May are proceeding as expected. To minimize disruption to Cenovus's business and ensure the transitions are orderly and managed, the retiring executives will continue in varying capacities until the end of the first quarter of 2016. As a result of Cenovus's strong focus on internal succession planning, three of the vacancies on the Leadership Team are being filled by internal candidates who are being promoted to newly-restructured portfolios. In addition, an external search is well underway for a President, Upstream Oil & Gas, who will be responsible for the company's oil sands and conventional operations. Cenovus expects to have that candidate identified by September.
Disciplined capital allocation
Cenovus continues to focus on capital discipline, with its oil sands assets remaining its top priority for capital allocation. The company anticipates that 2015 capital spending will remain within its previously announced guidance of $1.8 billion to $2.0 billion.
In its first five years of operations, the company generated a compound annual production growth rate of 24% from its jointly owned Foster Creek and Christina Lake oil sands projects. In response to the company's expectations for a continued low oil-price environment, Cenovus is taking a more moderate and staged approach to expanding these assets. Rather than pursuing multiple major construction projects at the same time, the company will consider expanding existing projects and developing emerging opportunities only when it believes it can do so with the greatest efficiency and cost savings, while generating the greatest potential return for shareholders. The company is no longer targeting to achieve 500,000 barrels per day (bbls/d) of net oil production by 2021.
For the remainder of 2015, Cenovus's capital investment priorities are:
These projects remain on schedule and are expected to add approximately 100,000 bbls/d of incremental gross production capacity (50,000 bbls/d net) by the end of 2016, an increase of about 25% to the company's current total crude oil production volumes once the phases are at full operational capacity.
For 2016, Cenovus is considering investing capital in additional expansion projects that were deferred earlier this year. With considerable strength on its balance sheet and the sustained reductions already achieved, the company has the financial capability to resume those projects when it feels the timing is right. Those investment decisions would be based on oil price stability, continued balance sheet strength, the company's ongoing cost-cutting success as well as fiscal and regulatory certainty. Cenovus is allocating between $25 million and $30 million for the remainder of 2015 to prepare for the possibility of construction resuming on some of these projects next year.
Once a decision is made to proceed, Cenovus's priority would be to allocate capital to re-start construction at its deferred Christina Lake phase G and Foster Creek phase H expansions. The next priority would be to resume work at the Narrows Lake oil sands project. These projects have the ability to provide top-tier returns.
As with its oil sands operations, Cenovus is also taking a more moderate approach to investing in its conventional oil opportunities, with a focus on drilling projects that are considered to be relatively low risk, with short production cycle times and expected returns well in excess of the company's internal hurdle rate of 15%. As part of this strategy, Cenovus is currently directing capital to resume drilling at the company's tight oil projects in southeast Alberta, where it has experienced success in recent years, and at its Weyburn enhanced oil recovery project in Saskatchewan, which benefits from strong netbacks and returns at current prices. Cenovus has allocated $70 million, activating three rigs, to resume its conventional drilling program in the third quarter. The company has no plans to allocate additional capital to its Pelican Lake or other conventional projects this year.
Cenovus continues to believe in the long-term potential of its emerging projects, including Telephone Lake and Grand Rapids. At this time though, plans for development of these projects have been deferred, as the company continues to work on new technology and process improvements that are expected to further reduce capital and operating costs for those assets.
The company expects to provide further clarity around its capital investment plans when it releases its 2016 budget in December.
Value creation & portfolio management
During the quarter, Cenovus announced an agreement to sell Heritage Royalty Limited Partnership (HRP), a wholly owned subsidiary holding the company's royalty and fee land business. Included in the agreement were associated royalties on third-party interest volumes and on Cenovus's working interest production as well as a Gross Overriding Royalty (GORR) on the company's Pelican Lake and Weyburn production. The sale, which closed on July 29, 2015, generated gross cash proceeds of $3.3 billion, with an expected after-tax gain of approximately $1.9 billion, to be recorded in the third quarter. The proceeds further supplement Cenovus's strong balance sheet and ongoing prudent management of its finances. On a pro forma basis, including the proceeds from the sale of its royalty and fee land business, Cenovus would have had a second quarter net debt to capitalization ratio of 7%, with net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of 0.3 times. The transaction provides the company with the flexibility to invest in projects that offer the greatest returns for shareholders over the near- and medium-term, when oil prices are expected to remain low. At current oil and gas prices, the transaction is expected to reduce Cenovus's future cash flow by approximately $120 million annually.
On June 4, 2015, Cenovus announced an agreement to purchase a crude-by-rail trans-loading facility located in Bruderheim, Alberta for approximately $75 million. The purchase supports the company's strategy of increasing transportation options to maximize access to global markets where it expects to capture higher prices for its oil. The transaction is expected to close August 31, 2015, subject to certain conditions.
Cenovus maintains an active portfolio management program, continuously assessing both acquisition and divestiture opportunities. As part of its strategy to add shareholder value, the company continues to look for opportunities to crystallize additional value from its conventional portfolio, as it did with the HRP sale. Cenovus's conventional oil and natural gas assets have historically provided reliable cash flow, well in excess of their capital investment requirements, to fund the company's oil sands expansions. As production from the oil sands assets grows and they contribute increasing free cash flow, the strategic value of some of its conventional assets has become less important than in previous years.
While Cenovus continues to believe in the value of its integrated strategy, which includes its refineries, the company has no pending plans to invest in additional downstream assets. It would consider a downstream acquisition only if it offers compelling value and strategic fit, as was identified with the recent Bruderheim rail facility transaction.
Guidance updated
Cenovus has updated its 2015 full-year guidance to reflect actual results for the first six months of the year and the company's estimates for the third and fourth quarter. The updated guidance, available at cenovus.com under "Investors," reflects Cenovus's expectations for continued strong oil sands production, as well as its improved outlook for upstream operating and G&A expenses compared with the company's previous guidance. The outlook for cash flow is also significantly improved, largely as a result of higher anticipated oil prices, partially offset by the cash flow impact from the sale of the company's royalty and fee land business. The company's 2015 capital budget remains unchanged at $1.8 billion to $2.0 billion.
Second quarter results
Cenovus continued to deliver strong operating performance in the second quarter, with incremental growth in its oil sands production. The company also continues to benefit from its integrated strategy, with operating cash flow from its jointly owned U.S. refineries up by more than one-third compared with the second quarter of 2014. In addition, the company continued to build on its efforts to cut costs, achieving significantly lower operating expenses compared with the second quarter of 2014. Cash flow in the second quarter was lower than in the same period a year earlier, largely as a result of the sharp drop in crude oil and natural gas prices. Cash flow was also negatively impacted by an acceleration of current tax payable in response to an increase in Alberta's corporate income tax rate.
Foster Creek and Christina Lake are operating very well, with average combined oil sands production of nearly 131,000 bbls/d net in the second quarter, a 5% increase from the same period a year earlier. In July, combined production averaged almost 150,000 bbls/d net, which is above the original design capacity for both operations.
Foster Creek production grew to more than 58,000 bbls/d net in the second quarter, a 3% increase from the same period of 2014, despite a shutdown of the project in the latter half of the quarter. In late May, a decision was made to undertake the precautionary evacuation and orderly shutdown of operations at both the Foster Creek and Athabasca natural gas properties due to a forest fire that caused the closure of the only access road to the projects. While the fire resulted in no damage to the Foster Creek facilities, the 11-day outage reduced second quarter oil sands production by approximately 10,500 bbls/d net (about 2,600 bbls/d net on an annualized basis). Following the restart of operations at Foster Creek, flush production contributed to record daily volumes, which has helped offset some of the production losses related to the shutdown. The flush production is expected to taper off, and the company continues to expect full-year production at Foster Creek will remain within its previously announced guidance of 62,000 bbls/d to 68,000 bbls/d net.
At Christina Lake, second quarter production averaged more than 72,000 bbls/d net, up 6% from the same period in 2014. Compared with the first quarter of 2015, production declined approximately 4,000 bbls/d net due to unplanned downtime, primarily because of a power outage. Cenovus expects full-year production volumes at Christina Lake to be above the midpoint of its previously announced guidance of 67,000 bbls/d to 74,000 bbls/d net.
Oil sands operating expenses for the quarter declined $4.64 per barrel (bbl), or 30%, compared with the same period in 2014. Non-fuel per-unit operating costs decreased due to higher production volumes, reduced workover activity (primarily due to lower-cost electric submersible pump changes) and lower repair and maintenance costs resulting from improved scheduling of work. Foster Creek's second quarter non-fuel operating expenses included approximately $2.6 million net, or $0.49/bbl, of incremental costs related to the shutdown and restart of the facility due to the forest fire. Fuel costs at Foster Creek and Christina Lake declined as a result of reduced natural gas prices and lower fuel consumption per barrel of production.
Impact of commodity prices and taxes
While crude oil benchmark prices strengthened compared with the first quarter of 2015, they remain significantly weaker than a year ago. In the second quarter, sales prices for Cenovus's crude oil and natural gas were approximately 38% lower compared with the same period in 2014. This contributed to a 42% decrease in upstream operating cash flow, which was partially offset by a 36% increase in operating cash flow from refining and marketing. Total operating cash flow declined 28% to $928 million compared with the second quarter of 2014.
Cash flow was $477 million in the second quarter, 60% lower than in the same period in 2014. In addition to lower crude oil and natural gas prices, cash flow was negatively impacted by higher than planned current income tax expense of $315 million compared with a tax recovery of $7 million in the same period a year earlier. The higher tax expense was primarily due to the acceleration in timing of income tax payable in response to the recent increase in the Alberta corporate income tax rate from 10% to 12%, effective July 1, 2015.
After investing $357 million in the second quarter, Cenovus had free cash flow of $120 million, down from $503 million in the same period a year earlier.
| Oil Projects |
||||||||||||||||
| Daily production1 |
||||||||||||||||
| (Before royalties) (Mbbls/d) |
2015 |
2014 |
2013 |
|||||||||||||
| Q2 |
Q1 |
Full Year |
Q4 |
Q3 |
Q2 |
Q1 |
Full Year |
|||||||||
| Oil sands |
||||||||||||||||
| Christina Lake |
72 |
76 |
69 |
74 |
68 |
68 |
66 |
49 |
||||||||
| Foster Creek |
58 |
68 |
59 |
68 |
57 |
57 |
55 |
53 |
||||||||
| Oil sands total |
131 |
144 |
128 |
142 |
125 |
125 |
120 |
103 |
||||||||
| Conventional oil2 |
69 |
74 |
75 |
74 |
74 |
77 |
76 |
77 |
||||||||
| Total oil |
200 |
218 |
203 |
216 |
199 |
202 |
197 |
179 |
||||||||
| 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 value creation. The two operations currently producing, Christina Lake and Foster Creek, 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 has approval for a third major oil sands project at Narrows Lake. These projects are operated by Cenovus and jointly owned with ConocoPhillips. Cenovus also has a significant opportunity to deliver increased shareholder value over the long term through production growth from several identified emerging projects and additional future developments.
Christina Lake
Production
Expansions
Foster Creek
Production
Expansions
Narrows Lake
Emerging projects
Grand Rapids
Telephone Lake
Conventional oil
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. Cenovus also produces conventional heavy oil from the Wabiskaw formation using polymer and water floods at its 100%-owned Pelican Lake operation in northern Alberta.
| Natural Gas |
||||||||||||||||||
| Daily production |
||||||||||||||||||
| (Before royalties) (MMcf/d) |
2015 |
2014 |
2013 |
|||||||||||||||
| Q2 |
Q1 |
Full Year |
Q4 |
Q3 |
Q2 |
Q1 |
Full Year |
|||||||||||
| Natural gas |
450 |
462 |
488 |
479 |
489 |
507 |
476 |
529 |
||||||||||
Cenovus has a solid base of established, reliable natural gas properties in Alberta. The company has been managing these properties as financial assets, rather than production assets, due to their ability to generate operating cash flow well in excess of their ongoing capital investment requirements.
Downstream
To capture the highest value for its oil, Cenovus takes an integrated approach to production, transportation, marketing and refining. The company is focused on finding new customers in North America and around the world where it expects to receive the best prices, and on ensuring it has the ability to move oil to those customers. Cenovus is also working to create a variety of oil blends that it expects will help maximize its transportation and refining options.
Cenovus has ownership in the Wood River Refinery in Illinois and the Borger Refinery in Texas. These refineries, which are jointly-owned with the operator, Phillips 66, produce high-quality end products like diesel, gasoline and jet fuel. On an integrated basis, Cenovus's refining business provides an economic hedge against heavy crude oil discounts to West Texas Intermediate (WTI).
The company continues to support proposed pipelines to Canada's east and west coasts as well as to the U.S. to help secure additional shipping capacity for its expected production growth. To complement this approach and access markets not served by pipeline, the company has also been pursuing a strategy to expand its capacity to transport oil by rail.
Refining and marketing
Operations
Financial
Market access
Financial
Cash flow, earnings, capital investment, G&A and debt ratios
Commodity price hedging
| Operating earnings1 |
||||||||
| (For the period ended June 30) ($ millions, except per share amounts) |
2015 Q2 |
2014 Q2 |
||||||
| Earnings (loss) before income tax |
||||||||
| Add back (deduct): |
180 |
824 |
||||||
| Unrealized risk management (gains) losses2 |
151 |
11 |
||||||
| Non-operating unrealized foreign exchange (gains) losses3 |
(99) |
(177) |
||||||
| (Gains) losses on divestiture of assets |
- |
(20) |
||||||
| Operating earnings (loss), before income tax |
232 |
638 |
||||||
| Income tax expense (recovery) |
81 |
165 |
||||||
| Operating earnings (loss) |
151 |
473 |
||||||
| 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 |
| 3 Includes unrealized foreign exchange (gains) losses on translation of U.S. dollar denominated notes issued |
Achievements and recognitions
Cenovus had its best safety performance ever during the first six months of 2015, with a total recordable injury frequency (TRIF) of 0.37, down 57% from the same period in 2014. In the second quarter, the TRIF was down 67% from the same period the previous year.
In June 2015, Cenovus was named one of the Top 50 Socially Responsible Corporations in Canada by Maclean's magazine and Sustainalytics for the fourth year in a row. The company was also recognized by Corporate Knights magazine as one of the 2015 Best 50 Corporate Citizens in Canada for the fifth consecutive year. In addition, Cenovus was included in the Euronext Vigeo World 120 Index for the second year. The index recognizes the top 120 companies globally for their high degree of control of corporate responsibility risk and contributions to sustainable development. Cenovus released its 2014 corporate responsibility report in June, which can be found on cenovus.com.
| Conference Call Today 9 a.m. Mountain Time (11 a.m. Eastern Time) Cenovus will host a conference call today, July 30, 2015, 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. 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:
These measures do not have a standardized meaning as prescribed by International Financial Reporting Standards (IFRS) and therefore are considered non-GAAP measures. These measures may not be comparable to similar measures presented by other issuers. 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. This information should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. For further information, refer to Cenovus's second quarter 2015 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 barrel (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. Given that the value ratio based on the current price of crude oil compared to natural gas is significantly different from the energy equivalency conversion ratio of 6:1, utilizing a conversion on a 6:1 basis is not an accurate reflection of value.
Netbacks reported in this news release are calculated as set out in the Annual Information Form (AIF). Heavy oil prices and transportation and blending costs exclude the costs of purchased condensate, which is blended with heavy oil. For the second quarter of 2015, the cost of condensate on a per barrel of unblended crude oil basis was as follows: Christina Lake - $32.90 and Foster Creek - $29.82.
FORWARD-LOOKING INFORMATION
This document contains certain forward-looking statements and other information (collectively "forward-looking information") about Cenovus's current expectations, estimates and projections, made in light of the company's 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", "future", "could", "should", "focus", "proposed", "schedule", "potential", "capacity", "may", "strategy", "priority", "outlook" or similar expressions and includes suggestions of future outcomes, including statements about: the strength of the company's position to support future investment and delivery of value under various potential conditions; adequacy of the company's liquidity to manage through the current low-price environment; growth strategy and related schedules, including priorities and focus; projections contained in the company's updated 2015 guidance; forecast operating and financial results; planned capital expenditures, capital investment priorities and expected conditions for future capital investments; project capacities; expected future production, including the timing, stability or growth thereof; improving cost structures, including relative to cost reduction targets, the expected timing, sustainability and potential impacts of anticipated cost savings and potential outcomes of the company's assessment of its workforce and G&A requirements; the expected timing and potential impacts of the transition to a new functional model; the long-term potential of the company's emerging projects; expected impacts of the disposition of Heritage Royalty Limited Partnership; expected impacts and timeline for closing of the crude-by-rail trans-loading facility acquisition; acquisition and disposition strategy; forecast natural gas use at operations; expected SOR; expected increase in production capacity through optimization activity; potential for optimization of engineering and execution strategy, including related impacts on capital efficiencies; operating cash flow relative to ongoing capital investment requirements for properties; expected future refining capacity; expected pipeline capacity; broadening market access; the company's work on a variety of oil blends, including potential related impact on transportation and refining options; dividend plans and dividend strategy, including with respect to the dividend reinvestment plan; anticipated timelines for future regulatory, partner or internal approvals; forecasted commodity prices; future use and development of technology; targeted future debt to capitalization ratio and debt to adjusted EBITDA; and projected shareholder value and total shareholder return. Readers are cautioned not to place undue reliance on forward-looking information as the company's 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 Cenovus's current guidance, available at cenovus.com; the company's projected capital investment levels, the flexibility of the company's 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; the company's ability to obtain necessary regulatory and partner approvals and closing of the crude-by-rail trans-loading facility acquisition; the successful and timely implementation of capital projects or stages thereof; the company's ability to generate sufficient cash flow to meet its current and future obligations; and other risks and uncertainties described from time to time in the filings we make with securities regulatory authorities.
2015 guidance is based on an average diluted number of shares outstanding of approximately 819 million. It assumes: Brent of US$62.25/bbl, WTI of US$56.75/bbl; WCS of US$44.00/bbl; NYMEX of US$2.85/MMBtu; AECO of $2.65/GJ; Chicago 3-2-1 crack spread of US$18.50/bbl; and an exchange rate of $0.81 US$/C$.
The risk factors and uncertainties that could cause Cenovus's actual results to differ materially include: risks inherent to completion of the company's crude-by-rail trans-loading facility acquisition, including obtaining any necessary regulatory or other third-party approvals and satisfying other closing conditions in connection therewith; volatility of and assumptions regarding oil and natural gas prices; the effectiveness of the company's risk management program, including the impact of derivative financial instruments, the success of the company's hedging strategies and the sufficiency of its liquidity position; 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 Cenovus's marketing operations, including credit risks; maintaining desirable ratios of debt to adjusted EBITDA, net debt to adjusted EBITDA, debt to capitalization and net debt to capitalization; ability to access various sources of debt and equity capital, generally, and on terms acceptable to Cenovus; changes in credit ratings applicable to Cenovus or any of its securities; changes to Cenovus's dividend plans or strategy, including the dividend reinvestment plan; accuracy of Cenovus's reserves, resources and future production estimates; ability to replace and expand oil and gas reserves; ability to maintain the company's relationships with its partners and to successfully manage and operate its integrated heavy oil business; reliability of the company's 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 Cenovus's business; the timing and the costs of well and pipeline construction; the company's 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 Cenovus operates, 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 Cenovus's business, its financial results and its consolidated financial statements; changes in the general economic, market and business conditions; the political and economic conditions in the countries in which Cenovus operates; 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 Cenovus.
Readers are cautioned that the foregoing lists are not exhaustive and are made as at the date hereof. For a full discussion of Cenovus's material risk factors, see "Risk Factors" in our AIF or Form 40-F for the year ended December 31, 2014 and "Risk Management" in our current and annual Management's Discussion and Analysis (MD&A), available on SEDAR at sedar.com, EDGAR at sec.gov and on the company's 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 $20 billion. For more information, visit cenovus.com.
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SOURCE Cenovus Energy Inc.
Image with caption: "Steam generators at Cenovus's Foster Creek project in northern Alberta. The project uses a process called steam-assisted gravity drainage (SAGD) to produce oil, which 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/20150730_C8842_PHOTO_EN_461972.jpg
Image with caption: "Cenovus's Christina Lake project in northern Alberta uses steam-assisted gravity drainage (SAGD) technology 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/20150730_C8842_PHOTO_EN_461974.jpg
CENOVUS CONTACTS: Investor Relations: Kam Sandhar, Director, Investor Relations, 403-766-5883; Graham Ingram, Manager, Investor Relations, 403-766-2849; Anna Kozicky, Senior Analyst, Investor Relations, 403-766-4277; Steve Murray, Senior Analyst, Investor Relations, 403-766-3382; Media: Brett Harris, Media Lead, 403-766-3420; Sonja Franklin, Media Advisor, 403-766-7264; General media line: 403-766-7751
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