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A butane steam aided process (SAP) pad is seen at Cenovus's Christina Lake operation south of Fort McMurray, Ab. Aug. 30, 2010. (Kevin Van Paassen/Kevin Van Paassen/The Globe and)
A butane steam aided process (SAP) pad is seen at Cenovus's Christina Lake operation south of Fort McMurray, Ab. Aug. 30, 2010. (Kevin Van Paassen/Kevin Van Paassen/The Globe and)

Cenovus sees possible upside in an economic downturn Add to ...

Amid the renewed rush to develop new resources in Canada’s oil sands, Cenovus Energy Inc. says another economic downturn would provide an opportunity to accelerate growth.

Calgary-based Cenovus has been one of the most rapidly developing names in the oil patch. On Thursday, it reported a 14-per-cent rise in oil sands production compared with the same period in 2010. Its cash flow climbed by 56 per cent, and it announced plans to pour slightly more money into some of its expanding operations.

In an interview, the company’s chief executive officer said financial turmoil could provide a window to speed ahead.

“We were actually able in 2009 to take advantage of the downturn,” Brian Ferguson said, citing the third phase of Cenovus’s Christina Lake project, in northeastern Alberta, which it completed under budget.

Another slowdown would provide a similar opportunity for the company to move ahead with “less competition for most of what we would be purchasing and investing in, and labour and staff and all those things,” he said.

“If you have the strength to be counter-cyclical, that’s where you can really create additional value for your shareholders.”

Cenovus is pulling in strong profits from its refineries, and says a nearly completed $3.8-billion (U.S.) expansion to its half-owned refinery in Wood River, Ill., stands to add $300-million a year in new cash flow, if current market conditions persist.

Mr. Ferguson acknowledged, however, that refining margins are likely to decline once the company adds about 130,000 barrels a day of heavy oil processing capabilities at both Wood River and another refinery in Borger, Texas.

Those additions are likely, however, to boost demand for heavy oil, which should help returns at Cenovus’s oil sands operations.

Cenovus has been among the strongest names in the Canadian energy sector. Despite a summer of unstable crude prices, its shares sit at roughly the same level as they were in May. Others have fared more poorly.

“Over the last four months, Cenovus has held its ground where every other large cap has taken a 30-per-cent haircut,” said Justin Bouchard, an analyst at Raymond James.

But the company traded flat amid a surge in crude prices Thursday, after slightly missing expectations on earnings and cash flow. Mr. Bouchard said the company’s results – per-share earnings of 40 cents, an overall gain in crude production of 4 per cent compared with a year ago, and an 11-per-cent tumble in gas output – show Cenovus proceeding comfortably along the path it has set for itself.

The company is pushing ahead on a series of projects that will see it boost its current 66,000 barrels per day in oil sands output in a steady pattern, with a new 35,000 to 40,000 barrel-a-day project coming into service every 12 to 18 months. Each of those projects is half-owned by Houston-based ConocoPhillips Co.

“They have a 10-year forecast on their growth plans, and what we’re looking for is to make sure nothing has changed in terms of that,” Mr. Bouchard said. “Certainly nothing this quarter would make us believe that.”

Cenovus said it has had strong interest in its plan to sell part of its oil sands holdings – a transaction that analysts say could be worth $1-billion to $3-billion – but warned that it may take until early 2012 to complete.

Cenovus is also building its non-oil sands oil output, including from the rapidly growing light-oil plays in the Bakken and Lower Shaunovan. In little more than a year, it expects those to have come from a standing start to 7,200 barrels a day.

More is coming, Mr. Ferguson said. “We’ve added additional tight oil lands that we’re currently drilling in other areas which we haven’t yet publicly described.”

Cenovus (CVE)

Close: $36.23, up 2¢

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