Energy giant Cenovus reported on Wednesday a third-quarter loss of $242 million compared with net earnings of $275 million in the third quarter of 2017.
The Calgary-based company also said capital investment fell to $271 million in the quarter, which was down from $438 million a year ago.
It said it generated more than $700 million of free funds flow and nearly $1 billion in adjusted funds flow in the third quarter, “driven by exceptional operating performance in its oil sands and refining and marketing businesses.”
“Oil sands production exceeded 376,000 barrels per day (bbls/d) with record-low operating costs for the second straight quarter. Cenovus’s 50-per-cent-owned refineries, operated by Phillips 66, processed record oil volumes for the quarter. The company also benefited from a year-over-year increase in the price of Western Canadian Select (WCS), even as the price differential between WCS and West Texas Intermediate (WTI) more than doubled,” said Cenovus.
“While the wider differential impacted upstream cash generation, it created a feedstock cost advantage for the refining business which contributed strong operating margin. Cash from operations, together with $625 million in proceeds from the sale of Cenovus’s Pipestone Partnership, helped reduce net debt to below $8.0 billion, down about $1.6 billion from the end of the second quarter. Cenovus also signed deals to move significant quantities of oil by rail over the next three years. Due to strong operational performance and efficient use of capital, the company has reduced forecast 2018 capital spending by about $250 million with essentially no change to its production guidance.”
The company said it expects the wide differentials western Canadian oil producers have been experiencing will begin to ease in the coming months with major North American refineries returning to normal operations following scheduled maintenance, the planned ramp-up of Canadian oil-by-rail activity and the anticipated start-up next year of Enbridge’s Line 3 Replacement project.
“The company has been positioning itself to generate significant free funds flow as market conditions improve and price differentials return to more historic levels,” it said.
“We continue to make excellent progress on the commitments we’ve made to shareholders,” said Alex Pourbaix, Cenovus President & Chief Executive Officer, in a news release. “In the third quarter, we further reduced our net debt and took a significant step forward in streamlining our Deep Basin business while advancing our market access objectives through strategic rail commitments. We also continued to lower our cost structure, which has substantially improved over the past three years.
“With our rail contracts, pipeline commitments and existing refining capacity, our long-term market access position is strong. In the short term, as takeaway capacity out of Alberta remains constrained, Canadian producers will continue to be disproportionately exposed to WCS pricing. To further mitigate the impact of wider differentials and improve long-term shareholder value, we’re taking action on a number of fronts to optimize the margin on every barrel of oil we produce.”
Mario Toneguzzi is a veteran Calgary-based journalist who worked for 35 years for the Calgary Herald, including 12 years as a senior business writer.