UPDATE 2-Cenovus slows Foster Creek expansion; earnings disappoint
By Julie Gordon
Feb 13 (Reuters) - Cenovus Energy Inc said on Thursday it will take longer than expected to bring its Foster Creek oil sands project in Alberta to its full production rate as the company delayed optimization work until after an expansion is completed.
The Calgary-based energy company also reported fourth-quarter operating profit below analyst estimates, as higher output at its Christina Lake oil sands project was offset by a cut in production and higher costs at Foster Creek.
Foster Creek is Cenovus' largest oil sands asset, with five phases already producing and three more set to come online over the next two years.
Cenovus had originally planned to optimize phases F, G and H individually as soon as they were complete, which would have boosted output for the expansion project past its nameplate capacity of 90,000 barrels per day (bpd) to 125,000 bpd.
The company will now complete the three phases through 2016, and then spend another three years fine tuning all eight phases of the project.
"We're still confident in the 125,000 barrel a day increment over time, it's just a question of when we choose to do the optimization," Chief Executive Brian Ferguson said in an interview.
Cenovus' share of production at Foster Creek was 52,419 bpd in the fourth quarter, down 11 percent from the year-ago period. ConocoPhillips owns half of the Foster Creek and Christina Lake projects.
Cenovus is grappling with how to reach peak output at the project, which has been operating since 2002 and uses steam injected deep underground to liquefy tar-like bitumen trapped in sand.
"There's no question that there's some uncertainty around Foster Creek," said Lanny Pendill, a senior analyst with Edward Jones. "It's spooked the market, I think, given that it's going to take them a little bit longer to hit that 125,000 bpd."
While the company is building several new projects, Ferguson said Cenovus would not pursue growth for the sake of growth, but rather remain focused on shareholder returns. The company boosted its quarterly dividend by 10 percent to 26.6 Canadian cents per share.
"The strategy is to focus on dividend growth," said Ferguson. "Over time, we will look to pay out 20 to 25 percent of after-tax cash flow."
Cenovus shares closed down 87 Canadian cents at C$28.77 on the Toronto Stock Exchange on Thursday.
CHRISTINA LAKE SHINES
Cenovus's total share of production from Christina Lake and Foster Creek increased 13 percent to almost 114,000 bpd, boosted by a 47 percent increase in output at Christina Lake.
The company also operates conventional oil and natural gas projects in Canada, and holds a 50 percent stake in two refineries in the United States.
Cenovus's refining margins at the two U.S. refineries co-owned with Phillips 66 have taken a hit in the past few quarters, hurt by the narrowing price difference between crude oil and the petroleum products extracted from it.
Operating cash flow from refining fell 11 percent in 2013 to C$1.1 billion ($1 billion), hurt by the lower market crack spreads and a five-fold increase in costs to buy ethanol credits. Many refiners buy ethanol credits to comply with cleaner-fuel rules in the United States.
The company's net loss narrowed to C$58 million, or 8 Canadian cents per share, in the fourth quarter ended Dec. 31 from C$117 million, or 15 Canadian cents per share, a year earlier.
Operating profit, which excludes most one-time items, was C$212 million, or 28 Canadian cents per share, compared with a loss of C$188 million, or 25 Canadian cents per share, a year earlier. Analysts had expected an adjusted profit of 36 cents per share, according to Thomson Reuters I/B/E/S.
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