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Cenovus Energy (CVE)

Q2 2012 Earnings Call

July 25, 2012 11:00 am ET


Susan Grey - Former Manager Of Investor Relations

Brian C. Ferguson - Chief Executive Officer, President and Non-independent Director

John K. Brannan - Chief Operating Officer and Executive Vice-President

Ivor Melvin Ruste - Chief Financial Officer and Executive Vice President

Harbir S. Chhina - Executive Vice-President of Oil Sands

Donald T. Swystun - Executive Vice President of Refining, Marketing, Transportation and Development


Greg M. Pardy - RBC Capital Markets, LLC, Research Division

George Toriola - UBS Investment Bank, Research Division

Jeffrey Jones

Dan Healing



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Good day, ladies and gentlemen, and thank you for standing by. Welcome to Cenovus Energy's Second Quarter 2012 Financial and Operating Results. As a reminder, today's call is being recorded. [Operator Instructions] Please be advised that this conference call may not be recorded or rebroadcast without the expressed consent of Cenovus Energy.

I would now like to turn the conference call over to Susan Grey, Director of Investor Relations. Please go ahead, Ms. Grey.

Susan Grey

Thank you, operator, and welcome, everyone, to our second quarter 2012 results conference call. I would like to refer you to the advisories located at the end of today's news release. In particular, I draw your attention to the risk factors and assumptions. Additional information is available in our annual information form and quarterly report. Today's quarterly results have been presented in Canadian dollars and on a before-royalties basis.

Brian Ferguson, President and Chief Executive Officer, will begin with an overview of our results. John Brannan, Executive Vice President and Chief Operating Officer, will then discuss our operating performance; and Ivor Ruste, Executive Vice President and Chief Financial Officer, will discuss our financial performance. Brian will provide closing comments before we begin the Q&A portion of the call. Please go ahead, Brian.

Brian C. Ferguson

Thanks, Susan. Good morning. I'm pleased to report another solid quarter from the Cenovus team. We continue to deliver predictable, reliable oil growth and benefit from our integrated oil operations. We remain focused on building net asset value. This quarter we achieved a number of operational milestones. When you look at our second quarter results, you will see continued strong execution of our 10-year plan. In particular, you will note that despite substantially lower realized oil and gas prices in the quarter, our cash flow is essentially unchanged year-over-year. Our oil growth strategy is delivering, and this, combined with our downstream integration, is providing solid financial performance. John and Ivor will provide a more in-depth review of our operating and financial results, but I want to reiterate that our 2012 plans are unchanged. Our low-cost oil sands project, our strong balance sheet, our flexible conventional capital programs and our downstream integration allow us to be resilient in times of commodity price volatility.

Overall, we continued to deliver on our operating and financial objective and we remain on track with our development plans that we'll see expected oil production grow to 500,000 barrels per day net to Cenovus by the end of 2021.

I'll now turn the call over to our Chief Operating Officer, John Brannan.

John K. Brannan

Thank you, Brian, and good morning. I'm pleased to say that our momentum continued during the second quarter. Our oil sands operations posted strong production volumes with net production at Foster Creek and Christina Lake averaging more than 80,000 barrels per day at an average steam to oil ratio of 2.0. At Foster Creek, we safely completed our plant turnaround as planned, while maintaining the production impact to approximately 7,400 barrels net, or 14,800 barrels gross per day for the quarter.

Production volumes have ramped back up and we hit a new daily production record of just over 129,000 barrels per day gross in June. We expect production volumes at Foster Creek to be in line with our guidance for the year.

Construction on the expansion phases at Foster Creek continues. We are now just over 50% complete at Phase F, with offsite module assembly and facility construction progressing. At Phase G, mining [ph] work, offsite steel fabrication and major equipment procurement continues. And at Phase H, design engineering work is underway.

We have also started public consultation for an additional phase at Foster Creek. This 9th phase is anticipated to add approximately 50,000 barrels per day, bringing total expected gross production capacity to 295,000 barrels per day. With ongoing optimization work over time, we believe total gross production capacity at Foster Creek will reach 310,000 barrels per day. Gross production at Christina Lake averaged more than 57,000 per barrel -- 57,000 barrels per day in the quarter. We reached a new daily production record of just over 64,000 barrels per day in June, exceeding our nameplate capacity of 58,000 barrels per day. This demonstrates the high reservoir quality of our Christina Lake asset and our industry-leading startup processes.

Steam injection at Christina Lake Phase D began in June, approximately 3 months ahead of schedule. We have commissioned about 90% of Phase D and production ramp up is expected to begin in the third quarter. We will continue to move forward with the completion of Phases D and E and plan to further updates on those projects in the coming months

Phase E is currently more than 50% complete and all major equipment has arrived at site. With additional expansion phases and optimization work at Christina Lake, we believe total gross production capacity has a potential to reach 300,000 barrels per day.

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