Cenovus posts $914 million loss, considers slowing new oilsands project

CALGARY _ Cenovus Energy Inc. says it will consider slowing development of a 50,000-barrel-per-day oilsands expansion project that it started building early last year if there isn’t meaningful progress on increasing pipeline capacity out of Alberta.

The vow came as the Calgary-based company blamed clogged export pipelines for its worst heavy oil price discounts in five years during the first three months of 2018, contributing to a higher-than-expected $914-million net loss in the first quarter.

Constraints in existing pipelines, slow response by railroads to supply locomotives to move oil, and oilsands output increases from new projects conspired in the first quarter to prevent the price of Western Canadian Select heavy crude from keeping pace with improvements in New York benchmark oil prices.

Cenovus said the difference between WCS and West Texas Intermediate widened to US$24.28 per barrel, 67 per cent higher than in the same period last year.

Drew Zieglgansberger, executive vice-president for upstream, told analysts on a conference call that construction on the Christina Lake G expansion is going well and it is expected to start producing in the middle of next year.

But he said Cenovus may slow commissioning of the $675-million project or decide to delay full production from it.

CEO Alex Pourbaix said the company isn’t interested in any new spending at the moment.

“We will not be considering any material new additions until we see clear line of sight to increased pipeline capacity out of the province,” he said on the conference call.

Pourbaix’s comments follow years of delays and uncertainty surrounding several major pipeline projects from Alberta’s oilsands to export markets. The Keystone XL project to Texas has been delayed, work on the Energy East line to Quebec and New Brunswick is halted and the future of an expanded Trans Mountain line to Vancouver is in doubt.

Crude-by-rail shipments are expected to ramp up in the second half of this year and into the first half of next year to “very material volumes of oil,” Pourbaix said, adding price discounts will improve but will likely remain higher than usual because rail costs more than pipeline transport.

Cenovus slowed oilsands production in February and March but has returned to normal levels.

Weak pricing was the biggest reason that Cenovus missed on most forecasts, said analyst Travis Wood of National Bank Financial Markets.

Oil pricing led to the company posting $469 million in risk management losses and poor natural gas prices forced it to record a non-cash $100-million asset impairment charge for its Clearwater assets.

Wood said major maintenance turnarounds at the two U.S. refineries Cenovus owns with partner Phillips 66 prevented its downstream operations from realizing the benefit of good profit margins in that business.

Cenovus reported one-time severance costs of $43 million as it cut its staff count by 15 per cent in the first quarter, and a $59-million non-cash expense for Calgary office space that exceeds current needs.

On the call, Pourbaix said the cuts are finished and he doesn’t expect any more large-scale layoffs.

Cenovus’s net loss amounted to 74 cents per share, compared with a year earlier profit of $211 million or 25 cents per share.

Its operating loss from continuing operations was $752 million, or 61 cents per share, compared with a $39-million loss last year.

Revenue was $4.61 billion, up from $3.54 billion a year ago and above analyst estimates, as oilsands volumes nearly doubled as a result of Cenovus buying out its 50 per cent partner, ConocoPhillips, in May of last year.

Analysts had estimated a net loss of 12 cents per share with $4.2 billion of revenue, according to Thomson Reuters data.