Cenovus Energy has put on the back burner an anticipated approval of two new Alberta oil sands facilities of combined capacity 75,000 b/d, as it steps up efforts to get a better grip on the balance sheet, CEO Brian Ferguson said Tuesday.
The year so far has brought with it both opportunities and challenges, Ferguson said on a webcast of the company's Investor Day in Toronto.
While the first six months of the year has been difficult, with commodity price volatility still raging, Cenovus would now focus on generating free cash flows from its oil sands rather than greenlighting new investments, he said.
His statements came after Cenovus said in February it would unveil this summer capital costs and timelines to develop its 30,000 b/d Foster Creek Phase H and the 40,000 b/d Narrows Lake Phase A projects in the province.
"Reducing debt is our number one priority and we will remain disciplined," Ferguson said Tuesday.
A prime reason for the company's debt is the need to pay off a C$3.6 billion loan that it took to buy 50% stake held by its previous joint venture partner ConocoPhillips in the Christina Lake and Foster Creek facilities in Alberta.
"We paid a fair price for the top quality assets and the deal is now closed," Ferguson said, in response to a query that Cenovus' share prices have been under performing since the deal.
The deal was worth C$17.7 billion ($13 billion) and besides the two oil sands assets also gave Cenovus 100% ownership of NGL and natural gas acreages held by ConocoPhillips in the Deep Basin.
"This is still a company that is focused on growth," said Travis Whalen, an analyst with Platts Analytics' Bentek Energy. "They have a handful of larger high-priority projects, but they have other options as well, particularly the potential implementation of the first commercial-scale use of solvents."
Foster Creek and Christina Lake are already among the best in terms of SOR and the full implementation of solvents would only improve that further, Whalen said.
SOR, or steam-oil ratio, is the volume of steam needed to produce a barrel of raw bitumen and is an indicator of energy intensity and capital cost in the oil sands industry.
Cenovus can afford to put these projects on the back burner, if the money just does not seem right, Whalen said.
"Leaving timing aside, they seem to have a clear focus on their core growth of further innovation and development of the oil sands resources," Whalen said.
ASSET SALE BY END 2017
To pay off its debt, Cenovus now plans to raise C$4 billion-C$5 billion by selling its conventional crude oil assets in Alberta and Saskatchewan by the year end, Ferguson said.
While the process is already underway for the Pelican Lake and Suffield assets, the company is preparing the data rooms for the Palliser and Weyburn assets, he said.
"We are not giving library cards to those who get access to our data rooms. Rather we are looking for those with capital," Ferguson said.
The four legacy assets are targeted to produce 51,000 b/d-56,000 b/d of conventional crude by end 2017 at operating costs of C$15/b-C$17/b, according to a slide presentation on the webcast.
By second-half 2019, the company remains on track to produce first oil from its Christina Lake Phase H project of production capacity 50,000 b/d, Ferguson said.
"With a installed capacity [now] of 390,000 b/d and near-term growth potential of 155,000 b/d, we have sufficient running room for oil sands that can be produced at a cost of C$16,000-C$29,000/flowing barrel," he said.
Flowing barrel includes construction costs, sustaining capital and operating expenditure.
Keiron McFayden, the company's president for upstream oil and gas, said Cenovus could likely start up the stalled Narrows Lake Phase A and Foster Creek Phase H around 2021. But the company's focus would first be on further reducing operating costs.
"[Operating] costs are down 30% relative to 2014 due to work force efficiencies and optimizing maintenance and repairs," McFayden said.
Cenovus' target now is to bring down costs further by C$2 billion by 2021 that will result in total savings of about C$1 billion by then, McFayden said.
The company is targeting an operating cost of C$10.75/b-C$12.25/b for its Foster Creek and C$6.5/b-C$8/b for its Christina Lake facilities in the current year.
Separately, Cenovus has adopted a robust crude hedging strategy, to further shore up its balance sheet, with 143,000 b/d of output hedged at a floor price of $51/b for the remainder of 2017, Chief Financial Officer Ivor Ruste said on the webcast.
Also, 50,000 b/d of production for 2018 is hedged at $49.70/b for first-half 2018, Ruste said.
