One-time expenses cut profit and cash flow at Cenovus Energy Inc., even as oil production ramped up at the Canadian energy giant.
Cenovus saw a 10-per-cent drop in its operating profit compared with the same quarter in 2012, and a 6-per-cent drop in its cash flow. It earned $179-million, or 24 cents a share diluted in the second quarter, down from $397-million or 52 cents, in the same period the previous year.
While the company's shares had been riding high for the past few weeks on improved oil prices, the stock dropped more than 5 per cent Wednesday on the Toronto Stock Exchange after its results were released.
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The results were surprising, given the 10-per-cent rise in total oil production and the narrowing of the price gap between Western Canadian Select (WCS) and West Texas intermediate (WTI). Although the Calgary-based company benefited from higher prices for its crude, its Wood River Refinery in Illinois and Borger Refinery in Texas, which it co-owns with operator Phillips 66, faced higher costs for feedstock.
Cenovus chief financial officer Ivor Ruste said while the tighter differential helped boost Cenovus profit on the production side, "this also had a negative impact on our refining results, as heavy oil feedstock was more expensive and contributed to lower refining margins."
Operating costs rose slightly at the company's Foster Creek and Christina Lake oil sands mines as well as at its conventional Pelican Lake site, and electricity costs increased across the company's operations.
Mr. Ruste said operating profit came in below consensus expectations mainly as a result of three factors: The $63-million pre-exploration expense for a conventional oil opportunity, a $57-million impairment from the sale of a Shaunavon asset, and a $46-million exploration expense on a tight oil play in Saskatchewan.
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The company would not provide any further details on the one-time costs, but Cenovus chief executive officer Brian Ferguson said the company has taken "a conservative approach and we have taken the full charge in the quarter – and there are no more charges to come."