UPDATE 3-Cenovus says output to rise but warns on cash flow

Wed Dec 12, 2012 1:35pm EST

* Forecasts 2013 net oil production of 180,000-196,000 bpd

* Expects 2013 capital budget of C$3.2 bln to C$3.6 bln

* Sees phase 4 of Christina Lake project at full capacity in Q2

* Warns that Q4 cash flow will be lower

* Shares down 1.7 pct

CALGARY, Alberta, Dec 12 (Reuters) - Cenovus Energy Inc , Canada's second-largest independent oil producer, said on Wednesday it will boost spending in 2013 and raise production by 14 percent as it ramps up output at its northern Alberta oil sands projects.

It warned, however, that fourth-quarter cash flow will fall short of targets.

The company forecast net production of 180,000 to 196,000 barrels per day (bpd) of oil in 2013, up from an expected 165,000 bpd this year. It also said it would spend between C$3.2 billion ($3.25 billion) and C$3.6 billion next year, up from about C$3.35 billion in 2012.

Cenovus warned, however, that recent low prices for heavy oil from the oil sands would cut into fourth-quarter cash flow, which it estimated at about C$700 million, or about C$400 million below its previous estimate. It said the lower cash flow estimate was also a result of higher taxes and longer than expected turnarounds at the two U.S. refineries it co-owns with Phillips 66.

"While we find the big reduction to (fourth-quarter cash flow) disappointing, it is not a complete surprise given recent pricing," Andrew Potter, an analyst at CIBC World Markets, said in a research note. "Additionally, we note that operations continue to perform well and there is no impact to our ... outlook."

Cenovus shares were down 58 Canadian cents at C$33.13 by midday on Wednesday on the Toronto Stock Exchange

NEW PRODUCTION

Cenovus said it expects its Christina Lake oil sands project to reach production capacity of 98,000 bpd when its fourth phase become fully operational in the second quarter of 2013. The fifth phase, starting in the third quarter could add 40,000 bpd more.

The company expects its share of production from the project to be between 47,000 and 52,000 bpd net in 2013, up 60 percent from its average forecast for this year.

"The anticipated increase in oil production for next year keeps us on track to reach our target of 500,000 barrels per day of net oil production by the end of 2021," said Chief Operating Officer John Brannan.

Output from conventional oil projects is also expected to contribute to higher volumes in 2013, the company said.

Cenovus operates the Foster Creek and Christina Lake oil sands developments in northern Alberta in a 50-50 joint venture with ConocoPhillips. The two refineries it co-owns with Phillips 66 are in Illinois and Texas.

The company's share of Foster Creek production is expected to be flat at about 58,000 bpd next year.

More than half Cenovus's total spending will be focused on the company's oil sands assets, mainly to expand Foster Creek and Christina Lake, on test drilling, and to develop its Narrows Lake project.

Canadian Natural Resources Ltd, Canada's biggest independent petroleum producer, said last week that it also plans to boost spending to raise output as it sees strong demand for Canadian crude in the U.S. market.

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