Cenovus kicks off oilpatch earnings with big miss and 7% cut to output forecast

Cenovus Energy on Wednesday cut its 2019 oil sands production guidance by 7 per cent and posted quarterly earnings well below analysts’ estimates, the first signs of the impact of a government ordered reduction in oil production.

Last December, Alberta’s government ordered Canadian producers to reduce output by 325,000 barrels per day (bpd) to deal with a pipeline bottleneck that led to a glut of crude in storage and deep price discounts.

Cenovus, the first of the country’s major producers to report results, said the significant improvement in local prices resulting from the government’s curtailment program more than offset the impact of reduced production and increased operating costs during the first quarter.

“It should now be crystal clear that the government’s temporary curtailment program is doing what it was intended to do and has had an immediate, positive impact not only for our industry, but for all Albertans, in the form of improved royalty revenue,” said Alex Pourbaix, Cenovus president and chief executive officer.

“To put it in context, when price differentials reached record highs in the fourth quarter of 2018 due to a lack of takeaway capacity, our company was in a royalty credit position withthe provincial government. Over the last three months, we paid nearly $200 million, and we only account for ab out 10% of Alberta’s total oil production. This has been a big win for Alberta.”

The company now expects total oilsands production to average between 350,000 and 370,000 barrels per day (bpd) in 2019, below the 377,000 and 395,000 bpd range it forecast in December.

Net income for the quarter was $110 million, or 9 cents per share, compared with a loss of $914 million, or 74 cents per share, a year earlier.

Operating earnings from continuing operations came in at 6 cents per share, well below analysts’ estimate of 23 cents per share, according to IBES data from Refinitiv.

Total production from continuing operations fell to 447,270 barrels of oil equivalent per day (boepd) from 487,464 boepd in the quarter ended March 31.

The company expects to cut its capital investment by 40 per cent to $317 million, compared to last year.

Cenovus, which bought Canadian assets of U.S. company ConocoPhillips for $17.7 billion in 2017, has been struggling with high debt levels. The company said its net debt stood at $8.1 billion by the end of the first quarter, compared to $8.4 billion at the start of the year.

“If commodity prices remain at current levels, Cenovus expects to be in a position to make significant progress this year towards its long-term target of reducing net debt to approximately $5 billion,” the company said.

© Thomson Reuters 2019

With a file from Financial Post Staff

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