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Cenovus earnings drop but cash flow soars above expectations

A view of oil production pipes at the Cenovus Foster Creek SAGD oil sands operations near Cold Lake, Alberta, July 9, 2012.


Cenovus Energy Inc. has released a mixed financial report for its third quarter, with net profit down sharply due to its risk-management hedging activity but cash flow far stronger than expected.

The Calgary-based oil producer and refiner says its net income fell by 43 per cent from a year ago to $289-million or 38 cents per share before adjustments – missing analyst estimates by a wide margin.

The reduced net income was attributed to an unrealized risk-management loss of $218-million in the latest quarter, in contrast to an unrealized risk-management gain of $283-million a year earlier.

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The net income also included a $60-million unrealized foreign exchange gain in the three months ended Sept. 30, compared with a $63-million unrealized foreign exchange loss in the third quarter of 2011.

Because these are unrealized gains and losses, they have little impact on operations.

But Cenovus's cash flow, a more closely watched metric in the energy sector, rose by 41 per cent to $1.12-billion or $1.47 per share.

That was 25 cents per share ahead of a consensus estimate of $1.22 per share of cash flow compiled by Thomson Reuters.

Cenovus also said it now expects 2012 cash flow will be 22 per cent higher than it was last year – double the increase it predicted in previous guidance.

In the third quarter of 2011, Cenovus had $510-million or 67 cents of net income and $793-million or $1.05 of cash flow.

Operating earnings improved to $432-million or 57 cents per share in the third quarter, up from $303-million or 40 cents per share a year earlier.

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Analysts polled by Thomson Reuters were on average were expecting earnings adjusted earnings of 53 cents per share, net earnings of 52 cents per share and revenue of more than $4-billion.

The company has a number of oil sands operations in Alberta as well as a refining operation in the United States and other operations.

"Cenovus continues to deliver predictable, reliable performance and is on track for another great year, both operationally and financially," said Brian Ferguson, Cenovus president and chief executive officer.

"Our integrated strategy is clearly paying off. Increased oil sands production combined with strong margins at our refining business contributed to record cash flow and solid operating earnings in the third quarter."

Cenovus is a relatively new name in the oil patch, having split off from natural gas producer Encana Corp. in late 2009.

Its Christina Lake and Foster Creek developments are part of a 50-50 joint venture with Houston energy giant ConocoPhillips. The partnership also includes interests in two U.S. refineries.

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All Cenovus oil sands developments use steam to liquefy the sticky bitumen deep underground so it can be more easily drawn to the surface.

Earlier this month, Cenovus inked a deal to buy the remaining assets of struggling oil sands developer Oilsands Quest for $10-million.

Oilsands Quest, which has been operating under the Companies' Creditors Arrangement Act, has been selling off its assets over the last year.

The deal includes three oil sands leases, covering approximately 59,000 hectares in Alberta and Saskatchewan that are adjacent to Cenovus's Telephone Lake oil sands project in northern Alberta.

The acquisition also includes a 34,000 hectare oil shale lease in east-central Saskatchewan.

Cenovus has filed a joint regulatory application and environmental impact assessment for a 90,000-barrel-per-day project at Telephone Lake.

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