More than a year after it was first proposed, Cenovus Energy Inc. takes its first step as its own corporate entity today. Its new leader is no stranger to its operations: Brian Ferguson served as chief financial officer to EnCana Corp., which split off its oil assets into Cenovus, to be traded as CVE-T. He is now chief executive officer of Cenovus, and spoke with The Globe and Mail about his plans for the new company.
What were your expectations for the shareholder vote on the corporate split?
We knew that we were going to have strong support. But I've been involved in many transactions and many shareholder votes, and I've never seen 99.54 per cent in favour of anything before. That's as close to 100 as you can get.
By splitting the company, you're giving up the balance EnCana had with a portfolio containing both natural gas and oil. Why do this?
What you weigh is the benefits of some diversification versus all of the benefits of more focus.
And one of the things that we have learned very clearly at EnCana is the more that we have focused, the more opportunities that we generate and the better we do.
Will your approach to developing the oil sands change much from what it was under EnCana?
The principles will remain the same: thoughtful, measured development and focus on costs. Be the low-cost producer, use technology to leverage the recovery and reduce the impact.
One hundred per cent of our assets are SAGD [steam-assisted gravity, which uses wells rather than mines to recover bitumen]and SAGD is definitely in my opinion the way of the future for bitumen production.
Do the oil sands stand a chance at shaking this image of "dirty oil" - and does that need to happen?
What we as an industry need to do is to focus on communicating the facts.
I'll use Cenovus as an example here: The use of technology and the things that we are doing to reduce impact on the environment - our land footprint is very small compared with other operations.
And we think you should be in a position to reward performance for those corporations that are able to achieve significant improvements and have lesser impacts.
That's something that should be taken into account when governments are looking at approval of a project.
Do you have any worries that in three or five years we will find ourselves back in a mad scramble for the oil sands?
In 2006, '07 and the early part of '08, EnCana was able to bring on the phases at Foster Creek basically on budget and within two months of schedule, and with the lowest capital intensity in industry at $15,000 per flowing barrel.
And that's really what we need to be focused on as a company - how we distinguish ourselves and how we control our destiny as opposed to being reactive.
What we do is we develop our assets in 30,000- and 40,000-barrel-per day increments, where we bring on a new project, which is every 18 to 24 months. It allows us to get smarter each time we do something.
We don't do mega projects. We're not trying to bring on 100,000 or 200,000 barrels per day in one fell swoop.
Can you maintain $15,000 per flowing barrel?
We're really comfortable that both Foster Creek and Christina Lake we'll be able to develop and bring in under $20,000 per flowing barrel.
You intend to sell some shallow gas assets in the next two years. Is that package out already? And what kind of interest have you seen?
We are expecting to take our first group of assets out to market by the end of January, and we'll have a second package ready a little bit later in the spring.
How satisfied are you with your oil sands land position?
I'm very excited about it. We have, literally, a 40-billion barrel opportunity on existing Cenovus lands, and that's what we're going to get after as we go forward.
What price of oil will you need to support your projects going forward?
Foster Creek has a $40 (U.S.) WTI-equivalent supply cost and Christina Lake is about $48 a barrel.
Narrows Lake, because it is greenfield and a startup, will be a little bit higher than that - low $50s.
We believe, because of the application of additional new technology, we can reduce our costs by another $10 a barrel over the next few years.