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

Cenovus has a solid base of established, reliable natural gas properties in Alberta. These assets are an important component of the company’s financial foundation, generating operating cash flow well in excess of 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 in the third quarter was approximately 577 million cubic feet per day (MMcf/d), a 12% decline from the same period in the previous year. The decrease is mainly due to expected natural declines and to the divestiture of a non-core property early in the first quarter of 2012.
  • Cenovus’s average realized sales price for natural gas, including hedges, was $3.54 per thousand cubic feet (Mcf) in the quarter compared with $4.48 per Mcf in the same period a year earlier.
  • As a result of the efficient, low-cost nature of its natural gas assets, Cenovus generated third quarter natural gas operating cash flow of $118 million in excess of capital invested in those properties.
  • Cenovus anticipates managing an annual decline rate of 10% to 15% for its natural gas production, targeting a long-term production level of between 400 MMcf/d and 500 MMcf/d to match Cenovus’s future anticipated internal consumption at its oil sands and refining facilities.


Cenovus’s refining operations include the Wood River Refinery in Illinois and the Borger Refinery in Texas, which are jointly owned with the operator, Phillips 66.
  • The two refineries produced approximately 463,000 bbls/d gross of refined products in the third quarter, an increase of approximately 37,000 bbls/d compared with the same period a year ago primarily due to higher throughput and increased yields as a result of the Wood River Refinery’s Coker and Refinery Expansion (CORE) project.
  • Combined crude oil consumption at the Wood River Refinery and Borger Refinery averaged 442,000 bbls/d gross for the quarter, an increase of 7% compared with the same period a year earlier.
  • Canadian heavy crude processed at the Wood River Refinery in the quarter continued to average approximately 200,000 bbls/d gross, including almost 28,000 bbls/d of CDB. Total processing capability of heavy Canadian crudes will be dependent upon the quality of available crudes and will be managed to maximize economic benefit.
  • Third quarter operating cash flow from refining operations was $530 million, an increase of $297 million compared with the same period last year. This was primarily due to increased throughput of heavy crude oil, favourable discounts on inland crudes and higher market crack spreads.
  • Cenovus's 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 refining operating cash flow in the third quarter would have been $6 million lower than under FIFO, compared with $69 million higher in 2011.
  • Cenovus invested $37 million in its refining operations in the quarter, resulting in $493 million of operating cash flow in excess of the capital spent on the refineries.
  • Scheduled maintenance turnarounds at the Wood River and Borger refineries are currently underway and are proceeding as planned, with return to full operations expected in November. The resulting reductions in crude oil processing are reflected in the company’s revised refining operating cash flow guidance.
  • Cenovus has increased its 2012 full-year guidance for operating cash flow from its refining operations by 38%. Updated guidance can be found at under “Invest in us”.


DividendThe Cenovus Board of Directors declared a fourth quarter dividend of $0.22 per share, payable on December 31, 2012 to common shareholders of record as of December 14, 2012. Based on the October 24, 2012 closing share price on the Toronto Stock Exchange of $34.00, this represents an annualized yield of about 2.6%. Declaration of dividends is at the sole discretion of the Board. Cenovus’s continued commitment to a meaningful dividend is an important aspect of the company’s strategy to focus on increasing total shareholder return.

Hedging StrategyThe natural gas and crude oil hedging strategy helps Cenovus achieve more predictability around cash flow and safeguard its capital program. The strategy allows the company to financially hedge up to 75% of expected natural gas production in 2012 and 2013, net of internal fuel use, and up to 50% and 25%, respectively, in the two following years. The company has Board approval for fixed price hedges on as much as 50% of net liquids production for 2012 and 2013 and 25% of net liquids production for each of the following two years.

In addition to financial hedges, Cenovus benefits from a natural hedge with its natural gas production. About 125 MMcf/d of natural gas is currently consumed at the company’s SAGD and refinery operations, which is offset by the natural gas Cenovus produces. The company's financial hedging positions are determined after considering this natural hedge.

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