Cenovus Energy Inc TSE:CVE, NYSE:CVE is a Canadian integrated oil company. Originally part of Encana, the company was spun off on November 30, 2009 when Encana decided to separate its pure play natural gas operations from those dealing with integrated oil. The division left Cenovus with a stake in 2 high quality refineries (Wood River near St. Louis and Borger in Borger, Texas) and major oil and natural gas projects in the Athabascan region of northern Alberta (Foster Creek, Christina Lake, Pelican Lake and other emerging projects) and Saskatchewan (Weyburn is also the world's largest CO2 sequestration project). Its 2 largest projects and refining businesses are run through subsidiaries FCCL, and WRB Refining which are jointly owned with ConocoPhillips. The partnership with ConocoPhillips was made in 2006 when Encana gave up half of its control of Foster Creek and Christina Lake in exchange for 50% interest in the 2 refineries. Production from its share of Alberta's oil sands is estimated to be 5 times higher in 2019 than in 2010 due to progress in phase developments. The company's commitment to developing SAGD (steam assisted gravity drainage) and associated technologies gives it an advantage over competitors in that it allows it to make increasing use of bitumin resources (56 billion barrels of 'discovered bitumen intitially in place'). In 2008 the company's production of natural gas and crude oil was 900 million cubic feet and 110,000 barrels of oil per day, respectively. It could amount to 230,000 in 2010. Cenovus Energy has also shown a lot of interest in patents. Recently Cenovus used patents as a bargainin tool in negotiations. December 2011 total proved reserves were 1.9 billion boe (up 17% yoy) and contingent resources 8.2 billion (up 34%). December 2010 total proved reserves were 1.7 billion boe (up 19% yoy) and contingent resources 6.1 billion (up 13%). Oil sands growth was funded using $1.3 billion in excess cash flow generated by conventional oil operations.
|Bitumen||heavy oil||light oil||nat.gas||total|
Cenovus has 2 divisions, Integrated Oil and Canadian Plains. Integrated oil operates the company's Athabascan natural gas assets as well as all operations shared with ConocoPhillips. Canadian Plains owns the 6.7 million acres of land in southern Alberta and Saskatchewan that encompass the Pelican Lake, Weyburn, and Suffield projects. Of its largest crude oil developments only oil sands operations Foster Creek and Christina Lake and those in Weyburn, Saskatchewan are currently producing.
2012 production forecast: To grow 21% in 2012 to the range of 255 and 271 thousand bpd. The increase is due to a boost in capex of 23% ($3.1-$3.4 billion). The company's low production costs can be credited to measures taken to improve efficiency such as using construction projects at older development phases to learn more about them and applying that knowledge to new ones, progressively increasing efficiency. It also assembles its own pipe rack nodules and other components. Production growth should be higher in 2010 due to high capital investment (cash and equivalents rose 164 % in just the first half of 2010) allowing for phase expansion of projects (the first quarter of 2009 saw bitumen production doubling at Foster Creek due to such expansion). Regulatory approvals at the Wood River refinery paved the way for a $1.8 billion expansion that will double heavy crude refining in 2011. Total Oil/Liquid Production (nat. gas not incl.)
|Canadian Plains||76-85,000||69,000||69,000||68,804||70,142||70,000||60,512||66,116||resource only|
|Other||incl||incl||incl||incl||incl||1,921||2,133||incl CdnPlains||resource only|
|Total||155-171,000||144,000||134,000||129,593||129,187||128,800||114,590||103,317||1.4 bil (1.7in'11)|
1.9 in '12
In 2011 Cenovus's net asset value per share increased 32% to $37, operating income +55% to $1.64/share, eps +37% to $1.95 ($1.478 billion, the last time profit was higher was 2008 $2.487 billion). Bitumen reserves up 26% to 1.5 billion barrels, total 2P reserves 1.9 billion barrels. capex was $2.7B $400M went to the Wood River Refiner, $900M to advancing Christina Lake where output averaged 12,000 bpd (+50% on the year, +150% in the 4Q). Oil sands output averaged 75,000 bpd in 4Q +14% vs 3Q. Natural Gas reserves down 13%, natural gas production down 10.99% to 109,000 boe/d (long term goal is to lower it to 67,000 boe/d).
2011 Christina Lake production of 12,000 bpd was slightly higher than the 3Q2011 estimate (11,000 bpd) due to 4Q output being much higher than anticipated (20,000 bpd). The $400M in capex spent on the Wood River refinery added 65,000 bpd in refining capacity at a part of the plant known as CORE.
11% of Foster Creek production (55,000 bpd 2011 avg down from 58,000 bpd avg in 1Q2011) came from 41 wells which utilize Wedge Well technology. The technology works around other wells already using SAGD; It lowers the steam to oil ratio (SOR) and increases the amount of oil recoverable by as much as 10%.
For the quarter Foster Creek and Pelican Lake production increased 13.8% to 66,000 bpd attibutable mostly to the startup of Christina Lake phase C and 12% production increase from Foster Creek (new wells at Foster Creek are utilizing Wedge WellTM Technology - 12% of all production (38 wells with 13 more coming on tap in the 4th qtr), horizontal SAGD well pairs which reach oil otherwise unreachable). Christina Lake production was up 28% in the qtr (phase D of CL is 65% complete, when phase D enters production Christina Lake will have a capacity of 98,000 bpd). Christina Lake + Foster Creek required $227M in capex 49% more than in 2010. Operating costs at CL and FC were 13% higher to $12.60/bbl. The company's other conventional oil assets in Southern Alberta & Saskatchewan produced 4.3% less oil (down to 67,000 bpd) due to wells at Weyburn temporarily shutdown (flooding); the shutdown affected 150 wells in the 2nd qtr but they were slow to recover and so that affected production into the 3Q. Lower Shaunavon: 2,600 bpd from 43 wells (42 horizontal, 1 vertical) in addtion 36 new wells were drilled. Bakken produced 1,441 bpd. Bakken + Shaunavon forecast production at 7,200 by December 2011 which is lower than anticipated (flooding). Operating costs for all operations outside of Pelican Lake rose 17% to $13.41/bbl (more trucking, workover activity + higher salaries).
Total Foster Creek production shared with Conoco Phillips reached 119,000 bbl/d in the third quarter.
|2011 9 Months Revenue Divisional Data||2010 9 Months Revenue Divisional Data|
(mil $ Cdn)
|oth upstrm||Refining (page 16)||mktg||Total 9M11|
|Canadian Plains (page 32)|
|Refining (page 28)||Total 9M10|
|Operating Cash Flow||867||635||589||9||735||8||2,321||570||49||4||805||779||18||(62)||2,163|
|Financial Statement key data|
(000,000 $ Canadian)
Cenovus Energy has about 135 billion barrels of bitumen, 96 times more than conventional oil (which is significant since its 2P reserves are near 1.4 billion barrels) and so it directly benefits when advancements are made regarding the methods of bitumen extraction and/or refining. Research and development by domestic competitor Petrobank Energy and Resources (over 80% of its total resource base comes from its HBU heavy oil division which has yet to be significantly utilized) which has 10 Toe to Heel Air Injection extraction technology related patents, and a Japanese group at Hokkaido University, have significantly improved on both the efficiency and costs associated with bitumen production and refining. The Japanese research team developed a cheap catalyst (formed by burning iron with oxides of metals like aluminum) that transforms bitumen into a lighter oil at an accelerated rate (by aiding in decomposition); though the catalyst is cheap and the 90% reduction of coke by product significantly reduces processing costs the cost associated with the vat required to process the bitumen in (at extreme temperature and pressure) remains a stumbling block. Petrobank's THAI technology already has the capability of extracting 17% more bitumen than steam assisted gravity drainage.
Because of the decreasing amount of conventional oil available to be found in Canada and abroad and because of a greater reliance by Canadian producers on heavy bitumen (synthetic oil) many of them have been shifting their focus over to the technological aspect of the industry. 10% (170 billion barrels) of Canada's oil sands crude is considered recoverable, that means 1.6 trillion barrels of oil could be added to the reserve base of companies that can develop improved extraction technologies, the patents also give the more innovative companies licensing value. So far Petrobank Energy and Resources has led the charge for that kind of technology but others such as Imperial Oil (steel wire rope lubricants), Suncor (conveyor belts and hand railings) and Schlumberger Canada have begun patenting industrial components.
On May 12, 2011 Tony Clement, Canada's industry leader stated his intention of bringing together key executives in the oil refining and retail sectors in Ottawa where they will be subjected to questions regarding gas prices and the method used to determine it. As one of Canada's major refiners Cenovus Energy will be one of the companies directly involved. One of the concerns raised by Tony Clement and other ministers of parliament (MP's) is that although the price of oil is 31% lower (May 2011) than it was the previous year gas prices haven't fallen (remain near or above the Cdn$1.3, $1.4/L level). Even though federal gas taxes are a key component of the price of gas the federal government wouldn't commit to a review of the tax.
Due to filled up pipelines and storage tanks in Canada and the USA Canadian produced crude oil has been selling at discount prices relative to crude sold abroad. Nearly all of Canada's two million barrels per day production goes to the United States and so when the supply chain there is overwhelmed Canadian companies lose out. To gain greater international exposure, Canadian petroleum companies must first gain access to infrastructure necessary to carry the oil to end terminals in British Columbia. In order to do that new pipeline systems have to be built something that has been put on hold due to opposition from environmentalists and Native Indian groups. Enbridge's recent proposal, the 728 mile Northern Gateway pipeline from Edmonton to Kitimat, British Columbia was filed with the National Energy Board in May 2011; That pipeline would start transporting oil in 2016.
Companies using Steam Assisted Gravity Drainage to recover in-situ crude have a recovery rate in excess of 60% meaning that oil sands reserves could be considered much higher than the 173 billion barrel 2007 estimate made by the province's energy board. Since then, other technologies such as Petrobank's Toe To Heel Air Injection method are more even more efficient (THAI 17% more than SAGD)
When production was 726,000 bpd in 2007 (60% as much as it was in 2008, 22% as much as it is expected to be by 2020) the oil sands released 1 billion ft3 daily of carbon through the burning of natural gas which is used in various stages of production/upgrading. That accounted for about 40% of Alberta's and 5-8% of Canada's greenhouse emissions. If production triples in the next decade those emissions consequently be higher and given Canada's commitment to the Kyoto Protocol, future oil sands projects could be at risk if a less tolerant government is elected (Canada's current opposition party (2011, NDP) is led by someone who has opposed the oil sands on environmental grounds). Canada ranked 7th in emissions in 2008 up from 8th for most of the previous decade but it only ranks 15th in per capita emissions (2008).