Cenovus posts first-quarter loss on lower crude price, but says costs improving

CALGARY – Cenovus Energy Inc. posted a $668-million first-quarter loss as the price of crude fell by more than half — and its CEO said the industry may not be out of the woods yet.

“I think there’s continuing risk here in the second quarter, because the of the potential for storage congestion, that we might see even weaker prices,” Brian Ferguson said in an interview.

In North America, oil is being stored in tanks in the hopes that it will sell at a better price down the road. There have been concerns that as those tanks fill up, prices could deteriorate.

“One of the things we’re very closely monitoring is supply and we’ve seen clearly a big drop in the rig count,” said Ferguson. “That has not translated to a drop in supply yet in the U.S. I think we’ll have more information, a clearer view in the direction of oil prices perhaps in the third quarter.”

It’s not all bad news. The Calgary-based company (TSX:CVE) said operating expenses at its two big oilsands projects are down 31 per cent and suppliers are cutting their costs by between five and 10 per cent.

Cenovus is expecting a total of $200 million in savings this year, about half of which would still be achievable should there be a rebound in oil prices.

Cenovus expects to be near the low end of its projections for 2015 operating expenses.

Despite the fact that Canadian heavy oil prices were 55 per cent lower in the first quarter compared with a year earlier, Cenovus increased output from its flagship Christina Lake and Foster Creek projects in northeastern Alberta by 20 per cent to a combined 144,000 barrels a day.

The company’s operating loss, which strips out unusual one-time items like foreign exchange swings, was $88 million.

A year earlier, Cenovus had an operating profit of $378 million.

Cenovus said it has taken steps to cut costs, including a previously announced 15 per cent reduction of its workforce and a $700-million reduction in its 2015 capital budget, which will be about 40 per cent below last year’s levels.

Executive and employee salary increases have been deferred this year. Discretionary spending on things like travel, conferences, off site meetings and information technology upgrades are also being reduced.

In recent weeks, crude prices have been improving, with the U.S. benchmark settling at US$58.58 a barrel on Wednesday. If current conditions hold up, Cenovus said it expects to “essentially cover” its capital spending and current dividend for the rest of the year.

Shareholders were able to reinvest their dividends at a three per cent discount to market prices. During the first quarter, more than a third of shareholders opted for the discounted Dividend Reinvestment Plan, resulting in cash savings of about $81 million.

Cenovus has been looking to sell or take public its royalty lands in Alberta. On those properties, other companies pay Cenovus a royalty to drill.

Ferguson told analysts on a conference call the company has seen “substantive interest from substantive parties.” But it will only make a move “when the timing presents itself and the valuation meets our expectation.”

In the interview, he said a transaction is expected in 2015.

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