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An Aerial Of Cenovus's Foster Creek Operation In Northern Alberta (Photo: Business Wire)

Strong potential at Telephone LakeCenovus’s 100%-owned Telephone Lake asset has shown tremendous potential since the company first began drilling test wells at the property. More recent drilling has only served to increase Cenovus’s confidence that the proposed oil sands project in northern Alberta may become another cornerstone asset, similar to Foster Creek or Christina Lake.

“Last year, we made a joint regulatory application for a 90,000 barrels per day project at Telephone Lake, but we believe that is just the beginning,” Ferguson said. “With future expansions, we anticipate Telephone Lake has the potential to support a project with production capacity of more than 300,000 barrels per day.”

Cenovus has recently completed a number of minor acquisitions to add complementary oil sands acreage to its Telephone Lake property. Late last year, the company purchased several small parcels of land located within the company’s broader Telephone Lake acreage to consolidate the property. Earlier this month, Cenovus also acquired the assets of Oilsands Quest, a bankrupt oil sands exploration company, for $10 million. The assets include three oil sands leases, covering approximately 59,000 hectares in Alberta and Saskatchewan, that are adjacent to Telephone Lake. Cenovus is assessing the potential incremental benefit of these acquisitions.

Recognition for corporate responsibilityIn September, Cenovus was named to the Dow Jones Sustainability World Index for the first time. Cenovus is the only Canadian integrated oil and gas company to make the World Index in 2012 and one of just 11 Canadian corporations overall. The Dow Jones Sustainability Indexes (DJSI) recognize companies around the world for leadership in corporate responsibility. Cenovus was also named to the DJSI North America Index for the third year in a row. As well, the company was recently named to the Carbon Disclosure Leadership Index for the third consecutive year for exceptional disclosure of greenhouse gas emissions.

Guidance updatedCenovus has updated its 2012 full-year guidance to reflect actual numbers for the first nine months of the year and the company’s estimates for the fourth quarter. Of note, Cenovus has increased its midpoint guidance for expected full-year cash flow by 11%. Total 2012 cash flow is now expected to be 22% higher than last year. Updated guidance can be found at www.cenovus.com under “Invest in us”.

 

IMPORTANT NOTE: 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). See the Advisory for definitions of non-GAAP measures used in this news release.

 

Oil Projects

 

(Before royalties)

(Mbbls/d)

  Daily Production 1
2012     2011     2010
YTD  

Q3

  Q2   Q1 Full Year   Q4   Q3   Q2   Q1 Full Year
Oil sands                    
Foster Creek 57 63 52 57 55 55 56 50 58 51
Christina Lake 29 32 29 25 12 20 10 8 9 8
Oil sands total 86 96 80 82 67 75 66 58 67 59
Conventional oil                    
Pelican Lake 22 24 22 21 20 21 20 19 21 23
Weyburn 16 16 16 17 16 17 16 15 17 17
Other oil 2 37 36 36 38 31 32 31 29 32 31
Conventional total 75 76 75 75 68 70 67 64 71 70
Total oil 161 171 156 157 134 144 133 122 137 129

1 Totals may not add due to rounding. 2 Includes NGLs production.

Oil sands

Foster Creek and Christina LakeCenovus’s oil sands properties in northern Alberta offer opportunities for substantial production growth. The Foster Creek and Christina Lake assets, which are operated by Cenovus and jointly owned with ConocoPhillips, use steam-assisted gravity drainage (SAGD) to drill and pump the oil to the surface.

Production

  • Production at Foster Creek and Christina Lake increased 44% in the third quarter from the same period a year earlier.
  • Christina Lake production averaged 32,380 bbls/d in the quarter, a more than three-fold increase from the same period a year earlier. The substantial increase is due to the industry-leading start-up and continued strong performance of phase C since late last year and the commissioning of phase D in July. Phase C reached full capacity during the first quarter while phase D continues to ramp up.
  • Cenovus continues to sell most of its oil from Christina Lake as Christina Dilbit Blend (CDB). This blend is gaining acceptance from a wider base of refining customers, including the company’s jointly owned Wood River Refinery. As a result, the pricing discount for CDB has narrowed, in line with expectations.
  • Foster Creek production averaged 63,245 bbls/d in the quarter, a 12% increase compared with 2011, mainly due to improved well performance and plant optimization.
  • About 12% of current production at Foster Creek comes from 48 wells using Cenovus’s Wedge Well™ technology. These single horizontal wells, drilled between existing SAGD well pairs, have the potential to increase overall recovery from the reservoir by as much as 10% to 15%, while reducing the steam to oil ratio ( SOR). Ten additional wells using this technology are expected to have steam stimulation completed and be online before the end of 2012. Christina Lake is also beginning to see positive results from four wells using this technology, currently producing about 1,100 bbls/d.

Expansions

  • Phase D at Christina Lake achieved first production in late July and is expected to reach its full design capacity of 40,000 bbls/d in the second quarter of 2013.
  • Overall construction of Christina Lake phase E is approximately 60% complete, while the central plant is approximately 81% complete. First production is anticipated in the fourth quarter of 2013. Initial site preparation and the purchase of equipment continue at phase F and engineering and design work are underway for phase G.
  • At Foster Creek, overall construction of the combined F, G and H expansion is approximately 33% complete, while the phase F plant is more than 60% complete. Initial production from phase F is expected in 2014. Facility construction, offsite fabrication and equipment purchasing are underway at phase G and engineering is underway for phase H.

Operating costs and royalties

  • Operating costs at Christina Lake were $13.59/bbl in the third quarter, a 41% decrease from $23.01/bbl in the same period a year earlier due to the significant increase in production. Operating costs at Christina Lake are expected to be lower than initially anticipated and the company has adjusted its full-year guidance to $12.70/bbl. Non-fuel operating costs at Christina Lake were $11.03/bbl in the quarter, a 43% decrease from $19.44/bbl in the third quarter of 2011.
  • Operating costs at Foster Creek averaged $11.50/bbl in the third quarter, a 4% increase from $11.11/bbl in the same period last year. The increase is primarily due to higher staffing levels in preparation for the phase F expansion and increased well workovers. The company expects operating costs at Foster Creek to average $12.05/bbl for the full year, which is within the company's original guidance range. Non-fuel operating costs at Foster Creek were $9.76/bbl in the third quarter compared with $8.86/bbl in the same period a year earlier, a 10% increase.
  • Christina Lake’s average royalty rate in the quarter was 5.3%, compared with an average royalty rate of 5.7% for the same period a year earlier. The rate drop was primarily due to a decrease in the average WTI price used by the Alberta government to calculate royalties.
  • Foster Creek’s average royalty rate was 19.1% in the third quarter of 2012, a decline from 20.6% in the same period in 2011. Royalties were lower due to higher capital investment.
  • Royalty calculations for Cenovus’s oil sands projects differ between properties. Pre-payout royalties at Christina Lake are a function of the monthly Canadian dollar WTI benchmark price and volumes. Foster Creek is a post-payout project for royalty purposes so its royalties are impacted by volumes, an estimated annualized price, adjusted quarterly, and allowable operating and capital costs.

Steam to oil ratios

  • Cenovus continues to achieve some of the best SORs in the industry with a third quarter average ratio of about 1.9 at Christina Lake and about 2.1 at Foster Creek for a combined SOR of about 2.
  • An SOR of 2 means approximately two barrels of steam are needed for every barrel of oil produced. A lower SOR requires less steam, which means less natural gas is used. This results in reduced capital and operating costs, fewer emissions and lower water usage.

Future projectsCenovus has an enormous opportunity to deliver increased shareholder value through production growth from its oil sands assets in the Athabasca region of northern Alberta, most of which are undeveloped. The company has identified 10 emerging projects and continues to assess its resources to prioritize development plans and support regulatory applications.

  • On September 25, Cenovus broke ground on its Narrows Lake project, which is jointly owned with ConocoPhillips. Narrows Lake is expected to have gross production capacity of 130,000 bbls/d and be developed in three phases. Project sanctioning for the first phase is expected from Cenovus and ConocoPhillips by the end of this year.
  • The Narrows Lake regulatory approval included the option to use a combination of SAGD and solvent aided process ( SAP) for oil production. Based on test results at other locations, Cenovus expects SAP to improve the SOR and oil production rate by as much as 30% compared to SAGD alone. Cenovus also expects SAP to increase total oil recovery by as much as 15%.
  • The joint regulatory application and environmental impact assessment for a commercial SAGD project at Cenovus’s wholly owned Grand Rapids asset in the Greater Pelican Region is being reviewed by the regulators. The company believes Grand Rapids has the potential to reach production capacity of 180,000 bbls/d.
  • Cenovus is continuing to develop a pilot project in the Grand Rapids area. Construction for the installation of a third mobile steam generator is progressing and steam injection has started on the second well pair.
  • The revised joint regulatory application and environmental impact assessment for the 100%-owned Telephone Lake project in the Borealis Region is also being reviewed by the regulators. The application updates the expected production capacity for the initial phase at Telephone Lake to 90,000 bbls/d from the original 35,000 bbls/d application that was filed in 2007. With future expansion phases, Cenovus believes Telephone Lake has the potential to support production capacity of more than 300,000 bbls/d.

Conventional oil

Pelican LakeCenovus produces heavy oil from the Wabiskaw formation at its wholly-owned Pelican Lake operation in the Greater Pelican Region, about 300 kilometres north of Edmonton. While this property produces conventional heavy oil, it’s managed as part of Cenovus’s oil sands segment. Since 2006, polymer has been injected along with a waterflood to enhance production from the reservoir. Based on reservoir performance of the polymer flood, the company has initiated a multi-year growth plan for Pelican Lake with production expected to reach 55,000 bbls/d.

  • Production averaged more than 23,500 bbls/d in the third quarter, a 16% increase from the same period in 2011. Cenovus continues to be encouraged by results from its infill drilling program to expand the polymer flood. Production increases continue to be partially offset by reduced operating pressures related to temporary well shut-ins required to complete infill drilling between existing wells. The company expects Pelican Lake production for the full year to be at the lower end of its original guidance range.
  • Cenovus plans to continue expanding Pelican Lake by drilling approximately 1,000 additional production and injection wells over the next five to seven years to increase the polymer flood. The company is also planning to build a new battery to support the expansion, with construction slated to begin in 2013.
  • Operating costs at Pelican Lake averaged $17.47/bbl in the quarter, a 22% increase from $14.31/bbl in the third quarter of 2011 due to higher workovers, repairs and maintenance, additional staffing and increased polymer costs associated with the expansion of the polymer flood. Cenovus has adjusted its full-year guidance for operating costs at Pelican Lake to $16.65/bbl, slightly above the top end of its original guidance range.
  • Pelican Lake’s average royalty rate was 6.6% in the third quarter of 2012 compared with 12.7% in the same period of 2011. The reduction was primarily due to increased capital investment to expand the polymer flood.

Other conventional oilIn addition to Pelican Lake, Cenovus has extensive oil operations in Alberta and Saskatchewan. These include the established Weyburn operation that uses carbon dioxide (CO 2) to enhance oil recovery, the Bakken and Lower Shaunavon tight oil assets in southern Saskatchewan, and established properties in southern Alberta. By the end of 2016, Cenovus is targeting oil production from these properties between 65,000 bbls/d and 75,000 bbls/d.

  • Third quarter production from the company’s conventional oil assets in Alberta increased 10% over the same period in 2011 to nearly 30,000 bbls/d, primarily due to successful drilling programs and effective management of natural declines.
  • The Weyburn operation produced about 16,000 bbls/d net in the third quarter. This is a 3% increase compared with the same period a year earlier, when wet weather affected production.
  • Lower Shaunavon production averaged approximately 4,550 bbls/d in the third quarter, a 77% increase compared with the same period a year earlier, due to additional development drilling. Cenovus has 118 horizontal wells producing in the Lower Shaunavon.
  • In the third quarter of 2012, Cenovus completed construction of the Lower Shaunavon battery.
  • The company’s Bakken operation had average oil production of more than 1,700 bbls/d in the quarter, including royalty interest volumes, an 18% increase compared with the same period a year earlier, due to additional drilling. Cenovus had 27 producing wells in the Bakken area at the end of the third quarter.
  • Operating costs for Cenovus’s conventional oil operations, excluding Pelican Lake, increased 19% to $16.33/bbl in the third quarter compared with the same period a year earlier. This was due to higher costs for repairs and maintenance, electricity, trucking and waste handling and labour.

Natural Gas

(Before royalties)

(MMcf/d)

  Daily Production
2012     2011     2010
YTD   Q3   Q2   Q1 Full Year   Q4   Q3   Q2   Q1 Full Year
Natural Gas 1 602 577 596 636 656 660 656 654 652 737

1 Reflects production from the sale of non-core assets in the third quarter of 2010 and the first quarter of 2012.





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