Cenovus sees 14 per cent production bump in 2013, to miss 2012 cash flow targets

CALGARY – Cenovus Energy Inc. expects to grow oil production by 14 per cent next year, mainly thanks to expansion at its Christina Lake oilsands project in northern Alberta.

Output is expected to range between 180,000 and 196,000 barrels of oil equivalent per day, compared with the rate of 165,000 Cenovus expects to end 2012 producing.

Capital spending next year is expected to be between $3.2 billion and $3.6 billion, largely steady with what Cenovus expects to have spent in 2012.

Meanwhile, this year’s cash flow is now forecast to come in lower than Cenovus (TSX:CVE) had previously anticipated because of lower crude prices, longer than expected maintenance downtime at U.S. refineries and a one-time cash tax expense.

Cenovus shares were off about three per cent to $32.91 in midday trading Wednesday on the Toronto Stock Exchange.

For all of 2012, cash flow is expected to be $3.7 billion, missing the range of $3.9 billion to $4.1 billion Cenovus forecast in October.

“As we’ve moved through the fourth quarter, we have seen shifting market fundamentals,” CEO Brian Ferguson said on a conference call Wednesday.

The widening gap between light oil and heavy oil, like that produced in the oilsands, shaved about $200 million off of Cenovus’ cash flow expectations this year, Ferguson said.

But chief operating officer John Brannan said over 90 per cent of its exposure to light-heavy differentials will be mitigated in 2013.

The two U.S. heavy oil refineries Cenovus jointly owns with Phillps 66 help cushion some of the blow, as do hedging programs and marketing arrangements that lock in a set selling price for its crude.

The company also makes sure it has multiple options on the table to get its crude to market, Brannan added.

“In 2013, we will continue to support major pipeline initiatives to a variety of markets. Specifically, we are supportive of pipelines to the U.S. Gulf Coast and the West Coast of Canada. We will be looking at East Coast projects to determine how each may fit into our marketing strategy,” he said.

“Rail has also provided some flexibility on the transportation side. We are currently railing approximately 6,000 barrels per day of light oil and look to expand that to about 10,000 barrels per day in 2013. This helps us reach markets not currently available to us by pipeline.”

In the refining business, cash flow was reduced by about $130 million as maintenance work took longer than expected and feedstock costs were volatile. For the full year, that segment is expected to bring in more than $1.3 billion in cash flow.

Ferguson said next year, the refining business should be in good shape.

“Refiners are now back up to full rates, which will benefit our refining performance in 2013 as cheaper feedstock purchased in the fourth quarter this year is going to be processed through the refineries next quarter.”

Cenovus booked a $60 million tax charge during the quarter, but Ferguson said that move should lead to savings in the future.

The company says the fourth phase of its steam-driven Christina Lake operation should hit full capacity around the middle of next year, when the project is expected to be producing 98,000 barrels per day. Later in the year, another expansion is expected to add an additional 40,000 barrels of daily output.

Operational costs next year are expected to be slightly higher, as prices of natural gas, electricity and chemicals are expected to rise.