Cenovus Energy Inc. (TSX, NYSE: CVE) plans to make a significant investment in its oil assets next year as it continues to focus on growing production. The company expects to invest between $3.2 billion and $3.6 billion in 2013, building on its successful 2012 capital program.
|2013 budget||2012 guidance||% change3|
|Cash flow1,2 ($ billions)||3.1 – 4.0||3.7||-3|
|Per share diluted ($/share)||4.05 – 5.20||4.90|
|Operating cash flow1,2 ($ billions)||4.1 – 5.0||4.5||-|
|Total capital investment ($ billions)||3.2 – 3.6||3.3 – 3.4||1|
|Total oil and NGLs production (Mbbls/d)||180 – 196||165||14|
|Average production forecast|
|2013 budget||2012 guidance||% change1|
|Foster Creek (Mbbls/d)||55 – 60||58||-|
|Christina Lake (Mbbls/d)||47 – 52||31||60|
|Total oil sands (Mbbls/d)||102 – 112||89||20|
|Pelican Lake (Mbbls/d)||26 – 28||23||17|
|Other conventional oil and NGLs (Mbbls/d)||52 – 56||53||2|
|Total oil and NGLs (Mbbls/d)||180 – 196||165||14|
|Natural gas (MMcf/d)||485 – 540||590||-13|
|Capital investment by asset ($ millions)|
|2013 budget||2012 guidance||% change|
|Foster Creek||790 – 870||710 – 730||15|
|Christina Lake||570 – 630||575 – 590||3|
|Narrows Lake||140 – 160||–||–|
|Emerging oil sands assets1||270 – 300||370 – 380||-24|
|Pelican Lake||560 – 620||520 – 540||11|
|Other conventional oil||670 – 740||770 – 790||-10|
|Natural gas||25 – 30||50 – 55||-48|
|Refining||100 – 125||120 – 130||-10|
- drilling 350 to 400 gross stratigraphic test wells and assessing results
- submitting regulatory applications for Foster Creek phase J and Christina Lake phase H expansions
- achieving first production in the third quarter at Christina Lake phase E (previously fourth quarter)
- beginning facility construction at Narrows Lake phase A
- initiating construction of an additional oil battery at Pelican Lake
- receiving regulatory approval for Grand Rapids in the fourth quarter
- further evaluating tight oil and other oil opportunities
- growing reserves and contingent resources
- almost doubling rail shipping capacity for oil to approximately 10,000 bbls/d
- evaluating debottlenecking opportunities at the Wood River Refinery.
“Our integrated approach captures value from both the producing and refining sides of the business and reduces our exposure to price volatility, helping to ensure we have the cash flow needed to support our dividend and future investment plans,” Ferguson said. “We remain committed to protecting and enhancing that cash flow through integration, expansion of market access for our product and the continuation of our price-hedging program. Our integrated strategy has been a significant contributor to our success so far.”Based on the wider light-heavy oil price differentials experienced in the fourth quarter of 2012, Cenovus anticipates strong first quarter 2013 operating cash flow from its refining operations. Building a solid workforceCenovus continues to recruit new employees to fill positions created by its growth. The company expanded its workforce by about 20% in 2012 by hiring approximately 575 employees. There are plans to hire between 450 and 500 people in 2013 and future years will continue to see additional workforce growth as we expand our oil production. Cenovus’s reputation as an innovative company with a culture that prioritizes safety and environmental stewardship has assisted it in attracting new employees and retaining current ones. Doubling net asset valueCenovus continues to work toward its goal of doubling net asset value (NAV) between 2010 and the end of 2015 and established a baseline NAV of $28.00 per share at December 2009. Cenovus calculated its 2011 year-end NAV to be $37.00 per share, a 32% increase in the company’s first two years of operation. Cenovus is scheduled to release its 2012 year-end NAV in February. Divestiture opportunitiesAlthough Cenovus’s 2013 normal-course divestiture plans aren’t reflected in the 2013 budget, the company believes it’s important to maintain an ongoing divestiture program as a form of capital discipline. Cenovus may seek opportunities in the coming year to sell assets that the company determines to be non-core to its operations. Oil sands projects advancingCenovus is continually assessing the timelines and capacities associated with each growth phase at its oil sands projects. Christina Lake phase E is now expected to begin producing in the third quarter of 2013 instead of the fourth quarter.
|Oil sands project schedule|
|Project phase||Regulatory status||First production target||Expected production capacity (bbls/d) gross|
|Foster Creek1 A – E||120,000|
|Christina Lake1 A - D||98,000|
|Grand Rapids||Submitted Q4-2011||2017F||180,000|
|Telephone Lake4||Submitted Q4-2011||TBD||90,000|
2013 Budget Webcast Today 9 a.m. Mountain Time (11 a.m. Eastern Time)Cenovus will host a webcast and conference call today, December 12, 2012, starting at 9 a.m. MT (11 a.m. ET). To participate, please dial 888-231-8191 (toll-free in North America) or 403-451-9838 approximately 10 minutes prior to the conference call. An archived recording of the call will be available from approximately 10 a.m. MT on December 12 until 10 p.m. MT on December 19, 2012 by dialing 855-859-2056 or 403-451-9481 and entering conference pass code: 98831812. Links to the webcast and presentation slides will be available at www.cenovus.com, or via the URL: http://event.on24.com/r.htm?e=534595&s=1&k=012B2A1CDD49308A94481F3113721029 ADVISORYBASIS 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).
- Operating cash flow is defined as revenues, less purchased product, transportation and blending, operating expenses, production and mineral taxes plus realized gains, less realized losses on risk management activities and is used to provide a consistent measure of the cash generating performance of the company’s assets and improves the comparability of Cenovus’s underlying financial performance between periods.
- Cash flow is defined as cash from operating activities excluding net change in other assets and liabilities and net change in non-cash working capital, both of which are defined on the Consolidated Statement of Cash Flows in Cenovus’s interim and annual consolidated financial statements.
- Operating earnings is defined as net earnings excluding non-operating items such as the after-tax impacts of a gain/loss on discontinuance, the gain on asset acquisition, the after-tax gain/loss of unrealized mark-to-market accounting for derivative instruments, the after-tax unrealized gain/loss on translation of U.S. dollar denominated notes issued from Canada and the partnership contribution receivable, the after-tax foreign exchange gain/loss on settlement of intercompany transactions, after-tax gains or losses on divestiture of assets, deferred income tax on foreign exchange related to U.S. dollar intercompany debt recognized for tax purposes only and the effect of changes in statutory income tax rates. Management views operating earnings as a better measure of performance than net earnings because the excluded items reduce the comparability of the company’s underlying financial performance between periods. The majority of the U.S. dollar debt issued from Canada has maturity dates in excess of five years.
- Free cash flow is defined as cash flow in excess of capital investment, excluding net acquisitions and divestitures, and is used to determine the funds available for other investing and/or financing activities.
- Debt to capitalization and debt to adjusted EBITDA are two ratios that management uses to steward the company’s overall debt position as measures of the company’s overall financial strength. Debt is defined as short-term borrowings and long-term debt, including the current portion, excluding any amounts with respect to the partnership contribution payable and receivable. Capitalization is a non-GAAP measure defined as debt plus shareholders’ equity. Adjusted EBITDA is defined as adjusted earnings before interest income, finance costs, income taxes, depreciation, depletion and amortization, exploration expense, unrealized gain or loss on risk management, foreign exchange gains or losses, gains or losses on divestiture of assets and other income and loss, calculated on a trailing 12-month basis.
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: the assumptions underlying our current guidance, available at www.cenovus.com; our projected capital investment levels, the flexibility of 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; our ability to obtain necessary regulatory and partner approvals within forecasted timelines; the successful and timely implementation of capital projects; our ability to generate sufficient cash flow from operations to meet our current and future obligations; and other risks and uncertainties described from time to time in the filings we make with securities regulatory authorities. The risk factors and uncertainties that could cause our actual results to differ materially, include: the volatility of and assumptions regarding oil and gas prices; the effectiveness of our risk management program, including the impact of derivative financial instruments and the success of our hedging strategies; 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 our marketing operations, including credit risks; maintaining desirable ratios of debt to adjusted EBITDA as well as debt to capitalization; our ability to access various sources of debt and equity capital; success of hedging strategies; accuracy of our reserves, resources and future production estimates; our ability to replace and expand oil and gas reserves; our ability to maintain our relationship with our partners and to successfully manage and operate our integrated heavy oil business; reliability of our 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, its implementation and its application to our business; the timing and the costs of well and pipeline construction; our ability to secure adequate product transportation; changes in the regulatory framework in any of the locations in which we operate, 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 our business, our financial results and our consolidated financial statements; changes in the general economic, market and business conditions; the political and economic conditions in the countries in which we operate; 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 us.
Readers are cautioned that the foregoing lists are not exhaustive and are made as at the date hereof. For a full discussion of our material risk factors, see “Risk Factors” in our most recent annual information form, Form 40-F, available at www.cenovus.com. Readers should also refer to “Risk Management” in our annual MD&A for the year ended December 31, 2011, our current MD&A and to the risk factors described in other documents we file from time to time with securities regulatory authorities, available at www.sedar.com, www.sec.gov and www.cenovus.com.NET ASSET VALUEWith respect to the particular year being valued, the net asset value (NAV) disclosed herein is based on the number of issued and outstanding Cenovus shares adjusted for the dilutive effect of stock options or other contracts as at December 31. We calculate NAV as an average of (i) our average trading price for the month of December, (ii) an average of net asset values published by external analysts in December following the announcement of our budget forecast, and (iii) an average of two net asset values based primarily on discounted cash flows of independently evaluated reserves, resources and downstream data and using internal corporate costs, with one based on constant prices and costs and one based on forecast prices and costs. Wedge Well™ is a registered 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 $30 billion. For more information, visit www.cenovus.com. Find Cenovus on Facebook, Twitter, Linkedin and YouTube.