Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) expects to invest between $2.8 billion and $3.1 billion in 2014, a 13% decrease when compared with the previous year. The company is focusing its capital on oil projects that are anticipated to provide production growth over the next four years.
"Since our launch in late 2009, Cenovus has concentrated on gaining regulatory approvals for our robust inventory of oil sands opportunities while also growing oil reserves," said Brian Ferguson, Cenovus President & Chief Executive Officer. "In 2014, we will focus on investment that will achieve cash flow and earnings growth from our approved projects in order to create the greatest value possible for shareholders."
The company's business strategy, which plans for 525,000 barrels per day (bbls/d) of net oil production within the next decade, remains unchanged. Since its inception four years ago, Cenovus has grown oil production by approximately 50% and expects to deliver continued profitable oil production and reserves growth over the next year.
Production growth is primarily driven by added volumes from Christina Lake phase E and the planned start-up of Foster Creek phase F in the third quarter of 2014.
Cenovus anticipates its conventional oil, natural gas and refining operations will continue to generate strong operating cash flow to support the growth of its oil sands projects. The company's two producing oil sands operations, Christina Lake and Foster Creek, are also expected to generate operating cash flow in excess of capital investment in 2014. The company expects overall cash flow in 2014 to be between $3.0 billion and $3.7 billion.
"Cenovus is well-positioned as we head into our fifth year as a company," said Ferguson. "Our strong financial position allows us to continue our focus on delivering solid total shareholder return. That includes our plans to increase our dividend over time as the company grows."
Approximately two-thirds of Cenovus's capital investment is committed capital, which is used to support existing business operations and progress approved expansions at Christina Lake, Foster Creek and Narrows Lake. The remaining third is discretionary capital for activities that include further developing the company's tight oil opportunities, advancing future oil sands expansions through the regulatory process and investing in technology development. In 2014, Cenovus plans to use the flexibility of discretionary capital to maintain its disciplined approach of aligning capital investment with anticipated cash flow.
Cenovus expects to spend between $140 million and $160 million on its emerging oil sands assets over the next year, nearly a 40% decrease when compared with the previous year. The company anticipates receiving regulatory approval for its Grand Rapids oil sands project within the next few months, and approval for its Telephone Lake project in the second quarter of 2014.
"When we started out, I told investors we wanted to build a portfolio of regulator approved projects that would represent between 400,000 and 500,000 barrels per day net to Cenovus by the end of 2015," said Ferguson. "We're on track to achieve that. In 2014, we will be more focused on developing our existing portfolio of approved projects. We have a huge opportunity to create value in the oil sands over the next few years."
Cenovus's conventional oil and gas assets, including Pelican Lake, are expected to generate about $825 million in operating cash flow in excess of capital investment over the next year. Cenovus plans to invest between $230 million and $250 million at Pelican Lake in 2014, about 50% lower when compared with the previous year's forecast, due to the company's decision to align investment with the more moderate production ramp-up associated with the initial results of the polymer flood program.
Cenovus plans to spend between $540 million and $590 million on its other conventional oil assets in 2014, a 22% decrease when compared with the previous year as part of the company's continued efforts to align capital investment with expected cash flow in 2014.
Cenovus's refining operations are anticipated to continue generating significant operating cash flow in excess of capital investment in 2014, despite anticipated lower market crack spreads. The company plans to invest between $150 million and $160 million at its U.S. refineries, which are jointly owned with Phillips 66. This is a 41% increase when compared with 2013, mainly due to routine safety intiatives, meeting new low sulphur (Tier III) gasoline regulatory requirements, and additonal capital investments expected to enhance returns at the Wood River Refinery in Illinois. Cenovus expects to sanction a debottlenecking project at the Wood River Refinery in the first quarter of 2014.
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 $28 billion.
