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Cenovus delivers strong second quarter performance27.07.2017 | 12:00 Uhr | GlobeNewswire
CALGARY, Alberta, July 27, 2017 (GLOBE NEWSWIRE) -- Cenovus Energy Inc. (TSX:CVE) (NYSE:CVE) had a strong second quarter that reflected 45 days of results from the assets recently acquired from ConocoPhillips. The acquisition gives Cenovus 100% ownership of its oil sands operations and a new production platform in the liquids-rich Deep Basin. Integration of the Deep Basin assets is on track. To further optimize its portfolio and deleverage its balance sheet, the company is pursuing the sale of its legacy conventional oil and natural gas assets, and the sale processes are proceeding well. Cenovus continues to target between $4 billion and $5 billion in announced asset sale agreements during 2017.
Photos accompanying this announcement are available at http://www.globenewswire.com/NewsRoom/AttachmentNg/5546848d-09ca-4f95-a185-597d8eb5396a http://www.globenewswire.com/NewsRoom/AttachmentNg/0bce3de6-e947-488b-abd1-a897e88b0c1b Key highlights
1 Financial information includes results from discontinued operations. Per share amounts include the impact of the bought-deal offering of common shares, which closed April 6, 2017, and consideration shares issued to ConocoPhillips as part of the acquisition purchase price. Overview In the second quarter of 2017, Cenovus began to see the benefits of its acquisition of western Canadian assets from ConocoPhillips. The acquisition closed on May 17 and included taking full ownership of Cenovus’s best-in-class oil sands assets in northern Alberta and adding a new production platform in the Deep Basin. With 45 days of contribution from the acquired assets, the company increased adjusted funds flow by 80%, free funds flow by 128% and total production by 65% compared with the second quarter of 2016. “These results demonstrate that we’re solidly on track with our updated strategy to focus on increasing funds flows through disciplined capital allocation to our two production platforms,” said Brian Ferguson, Cenovus President & Chief Executive Officer. “With our increased size and scale and continued commitment to deleverage our balance sheet – our number one near-term priority – I believe the new Cenovus is well positioned to deliver significant value to shareholders in the years ahead.” Planned asset divestitures “While they are no longer core to Cenovus, these are high-quality assets that continued to deliver solid cash flows and safe and reliable performance in the second quarter,” said Ferguson. “We anticipate announcing sale agreements for both Pelican Lake and Suffield later in the third quarter and for Palliser and Weyburn in the fourth quarter. With the successful completion of these divestitures we expect to make substantial progress towards our target of between $4 billion and $5 billion in announced asset sale agreements during 2017.” Financial performance Cenovus’s average liquids sales price rose 22% to $41.35/bbl in the second quarter, largely in line with improved crude oil benchmark prices during the period. Including realized hedges, Cenovus had a company-wide netback of $19.02 per barrel of oil equivalent (BOE) on its liquids and natural gas production in the second quarter, compared with $13.43/BOE in the year earlier period. Cenovus had second quarter free funds flow of $465 million compared with $204 million in the same period of 2016. Operating margin net of capital investment from the company’s upstream oil and natural gas operations was $480 million in the second quarter, including the 45 days of contribution from the Deep Basin assets. Hedging
Continued cost leadership & capital discipline To reflect the expected ongoing cost savings and efficiency improvements in its base business as well as the company’s continued focus on capital discipline, Cenovus has further updated its capital spending guidance for 2017. Compared with the company’s June 20, 2017 guidance, total planned capital expenditures this year have been reduced by approximately $200 million at the midpoint of the range, with no expected impact to forecast production volumes for the year. The reduced capital spending is largely due to continued improvements in drilling performance, development planning and optimized scheduling of well startups at Cenovus’s oil sands operations as well as the company’s decision to suspend its drilling program at Palliser for the remainder of the year. Cenovus will continue to evaluate additional opportunities to reduce capital spending across its business. Updated guidance is available at cenovus.com under Investors. CEO succession plan “Brian has provided Cenovus with strong leadership through the best and worst of the commodity price cycle, and with our recent acquisition, he has left the company well positioned for the future,” said Patrick Daniel, Chair of the Cenovus Board. “As we look for a suitable successor, the Board will consider candidates who have the experience and dynamism to advance and execute the company’s strategy.” Oil sands production Deep Basin production “We brought over an experienced, talented and engaged team from ConocoPhillips,” said Ferguson. “They’re focused on the safe and reliable delivery of our Deep Basin program, and I’m confident that the wealth of experience they bring will help drive significant value from these high-quality assets.” Second quarter details Financial
Oil sands Foster Creek
Christina Lake
Deep Basin
Downstream
Other developments
ADVISORY Basis of Presentation Oil and Gas Information Drilling Locations Cenovus’s ability to drill and develop these locations and opportunities and the drilling locations on which Cenovus actually drills wells depend on a number of uncertainties and factors, including, but not limited to, the availability of capital, equipment and personnel, oil and natural gas prices, capital and operating costs, inclement weather, seasonal restrictions, drilling results, additional geological, geophysical and reservoir information that is obtained, production rate recovery, gathering system and transportation constraints, net price received for commodities produced, regulatory approvals and regulatory changes. As a result of these uncertainties, there can be no assurance that the potential future drilling locations and opportunities Cenovus has identified will ever be drilled or if Cenovus will be able to produce oil, NGL or natural gas from these or any other potential drilling locations or opportunities. As such, Cenovus’s actual drilling activities may differ materially from those presently identified, which could adversely affect Cenovus’s business. While certain of the identified unbooked drilling opportunities have been de-risked by drilling existing wells in relatively close proximity to such unbooked drilling opportunities, some of the other unbooked drilling opportunities are farther away from existing wells where Cenovus management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled and, if drilled, there is further uncertainty that such wells will result in additional proved or probable reserves or production. Non-GAAP Measures and Additional Subtotal Adjusted Funds Flow is used in the oil and gas industry to assist in measuring a company’s ability to finance its capital programs and meet its financial obligations. Adjusted Funds Flow is defined as Cash from Operating Activities excluding net change in other assets and liabilities and net change in non-cash working capital. Net change in other assets and liabilities is composed of site restoration costs and pension funding. Non-cash working capital is composed of current assets and current liabilities, excluding cash and cash equivalents, risk management, the contingent payment and asset liabilities held for sale. Free Funds Flow is defined as Adjusted Funds Flow less capital investment. Operating Earnings (Loss) is a non-GAAP measure used to provide a consistent measure of the comparability of Cenovus's underlying financial performance between periods by removing non-operating items. Operating Earnings (Loss) is defined as Earnings (Loss) Before Income Tax excluding gain (loss) on discontinuance, revaluation gain, gain on bargain purchase, unrealized risk management gains (losses) on derivative instruments, unrealized foreign exchange gains (losses) on translation of U.S. dollar denominated notes issued from Canada, foreign exchange gains (losses) on settlement of intercompany transactions, gains (losses) on divestiture of assets, less income taxes on Operating Earnings (Loss) before tax, excluding the effect of changes in statutory income tax rates and the recognition of an increase in U.S. tax basis. Debt is defined as short-term borrowings and long-term debt, including the current portion. Net debt is defined as debt net of cash and cash equivalents. Operating Margin is an additional subtotal found in Note 1 and Note 8 of the Consolidated Financial Statements and is used to provide a consistent measure of the cash generating performance of Cenovus’s assets for comparability of its underlying financial performance between periods. Operating Margin 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. Items within the Corporate and Eliminations segment are excluded from the calculation of Operating Margin. FORWARD-LOOKING INFORMATION This news release contains certain forward-looking statements and forward-looking information (collectively referred to as "forward-looking information") within the meaning of applicable securities legislation, including the United States Private Securities Litigation Reform Act of 1995, about Cenovus's current expectations, estimates and projections about the future, based on certain assumptions made by the company in light of its experience and perception of historical trends. Although Cenovus believes that the expectations represented by such forward-looking information are reasonable, there can be no assurance that such expectations will prove to be correct. Forward-looking information in this document is identified by words such as “anticipate”, “believe”, “expect”, “estimate", “plan”, “forecast”, “future”, “target”, “position”, “project”, “committed”, “can be”, “pursue”, “capacity”, “could”, “should”, “will”, “focus”, “outlook”, “potential”, “priority”, “may”, “strategy”, “forward”, or similar expressions and includes suggestions of future outcomes, including statements about: strategy and related milestones and schedules, including expected timing for oil sands expansion phases and associated expected production capacities; projections for 2017 and future years and the company’s plans and strategies to realize such projections; forecast exchange rates and trends; future opportunities for oil development; forecast operating and financial results, including forecast sales prices, costs and cash flows; Cenovus’s ability to satisfy payment obligations as they become due; priorities for capital investment decisions; planned capital expenditures, including the amount, timing and financing thereof; expected future production, including the timing, stability or growth thereof; capacities, including for projects, transportation and refining; Cenovus’s ability to preserve its financial resilience and various plans and strategies with respect thereto; forecast cost savings and sustainability thereof; expected impacts of the acquisition; planned and potential asset sales, including expected timelines, targeted sales values and anticipated use of sales proceeds; the strength of Cenovus's positioning for the future, including with the recent acquisition and upcoming retirement of Brian Ferguson; and projected shareholder value. Readers are cautioned not to place undue reliance on forward-looking information as actual results may differ materially from those expressed or implied. 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: forecast oil and natural gas prices and other assumptions inherent in Cenovus’s 2017 guidance, available at cenovus.com under Investors; projected capital investment levels, the flexibility of Cenovus’s capital spending plans and the associated source of funding; the achievement of further cost reductions and sustainability thereof; expected condensate prices; estimates of quantities of oil, bitumen, natural gas and liquids from properties and other sources not currently classified as proved; future use and development of technology; Cenovus’s ability to obtain necessary regulatory and partner approvals; the successful and timely implementation of capital projects or stages thereof; Cenovus’s ability to generate sufficient cash flow to meet its current and future obligations; estimated abandonment and reclamation costs, including associated levies and regulations; achievement of expected impacts of the acquisition; successful integration of the Deep Basin assets; Cenovus’s ability to obtain and retain qualified staff and equipment in a timely and cost-efficient manner; Cenovus’s ability to access sufficient capital to pursue its development plans; Cenovus’s ability to complete planned and potential asset sales, including with desired transaction metrics and within the timelines it expects; forecast crude oil and natural gas prices, forecast inflation and other assumptions inherent in current guidance set out below; expected impacts of the contingent payment to ConocoPhillips, including alignment of realized Western Canadian Select (WCS) prices and WCS prices used to calculate the contingent payment; Cenovus’s projected capital investment levels, the flexibility of capital spending plans and the associated sources of funding; sustainability of achieved cost reductions, achievement of further cost reductions and sustainability thereof; Cenovus’s ability to access and implement all technology necessary to achieve expected future results; Cenovus’s ability to implement capital projects or stages thereof in a successful and timely manner; and other risks and uncertainties described from time to time in the filings we make with securities regulatory authorities. 2017 guidance, as updated July 26, 2017, assumes: Brent prices of US$51.00/bbl, WTI prices of US$48.50/bbl; WCS of US$36.25/bbl; NYMEX natural gas prices of US$3.15/MMBtu; AECO natural gas prices of $2.70/GJ; Chicago 3-2-1 crack spread of US$13.00/bbl; and an exchange rate of $0.76 US$/C$. Unless otherwise specifically stated or the context dictates otherwise, the financial outlook and forward-looking metrics in this news release, in addition to the generally applicable assumptions described above, do not include or account for the effects or impacts of planned asset sales. The risk factors and uncertainties that could cause actual results to differ materially, include: possible failure by Cenovus to realize the anticipated benefits of and synergies from the acquisition; possible failure to access or implement some or all of the technology necessary to efficiently and effectively operate Cenovus’s assets and achieve expected future results; volatility of and other assumptions regarding commodity prices; the effectiveness of Cenovus’s risk management program, including the impact of derivative financial instruments, the success of hedging strategies and the sufficiency of Cenovus’s liquidity position; the accuracy of cost estimates; commodity prices, currency and interest rates; possible lack of alignment of realized WCS prices and WCS prices used to calculate the contingent payment to ConocoPhillips; product supply and demand; market competition, including from alternative energy sources; risks inherent in marketing operations, including credit risks; exposure to counterparties and partners, including ability and willingness of such parties to satisfy contractual obligations in a timely manner; risks inherent in the operation of Cenovus’s crude-by-rail terminal, including health, safety and environmental risks; maintaining desirable ratios of Debt (and Net Debt) to Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) as well as Debt (and Net Debt) to Capitalization; Cenovus’s ability to access various sources of debt and equity capital, generally, and on terms acceptable to Cenovus; ability to finance growth and sustaining capital expenditures; changes in credit ratings applicable to Cenovus or any of its securities; changes to Cenovus’s dividend plans or strategy, including the dividend reinvestment plan; accuracy of reserves, resources, future production and future net revenue estimates; Cenovus’s ability to replace and expand oil and gas reserves; Cenovus’s ability to maintain its relationship with its partners and to successfully manage and operate its integrated business; reliability of Cenovus’s assets including in order to meet production targets; potential disruption or unexpected technical difficulties in developing new products and manufacturing processes; the occurrence of unexpected events such as fires, severe weather conditions, explosions, blow-outs, equipment failures, transportation incidents and other accidents or similar events; refining and marketing margins; inflationary pressures on operating costs, including labour, natural gas and other energy sources used in oil sands processes; potential failure of products to achieve or maintain acceptance in the market; risks associated with fossil fuel industry reputation; 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 and its application to Cenovus’s business; risks associated with climate change; the timing and the costs of well and pipeline construction; Cenovus’s ability to secure adequate and cost-effective product transportation including sufficient pipeline, crude-by-rail, marine or alternate transportation, including to address any gaps caused by constraints in the pipeline system; availability of, and Cenovus’s ability to attract and retain, critical talent; possible failure to obtain and retain qualified staff and equipment in a timely and cost-efficient manner; changes in labour relationships; changes in the regulatory framework in any of the locations in which Cenovus operates, including changes to the regulatory approval process and land-use designations, royalty, tax, environmental, greenhouse gas, carbon, climate change 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 Cenovus’s business, financial results and consolidated financial statements; changes in general economic, market and business conditions; the political and economic conditions in the countries in which Cenovus operates or supplies; 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 Cenovus. Readers are cautioned that the foregoing lists are not exhaustive and are made as at the date hereof. Events or circumstances could cause actual results to differ materially from those estimated or projected and expressed in, or implied by, the forward looking information. For a full discussion of material risk factors, see “Risk Factors” in Cenovus’s Annual Information Form (AIF) or Form 40-F for the period ended December 31, 2016, available on SEDAR at sedar.com, on EDGAR at sec.gov and on Cenovus’s website at cenovus.com, and the updates under “Risk Management” in Cenovus’s most recently filed Management’s Discussion and Analysis (MD&A). Cenovus Energy Inc. Find Cenovus on Facebook, Twitter, LinkedIn, YouTube and Instagram.
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