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Cenovus not waiting on oil price recovery to revive oilsands projects

CALGARY – If Cenovus Energy decides to revive shelved oilsands projects in the coming year, it won’t necessarily be because of a recovery in oil prices.

“I’m not in any way looking for a price signal,” CEO Brian Ferguson said on a conference call with analysts Thursday to discuss the company’s 2016 spending plans.

Rather, he said the deciding factors will be clarity over government policy changes — like the impending outcome of the Alberta royalty review — and assurances that cost savings will be sustainable.

Cenovus has deferred its Narrows Lake oilsands project as well as future expansions at Foster Creek and Christina Lake because of the prolonged downturn in oil prices.

The Calgary-based company is basing its assumptions for 2016 on U.S. benchmark oil prices of US$49 a barrel. West Texas Intermediate crude is now hovering around US$37 a barrel.

In an interview, Ferguson said Cenovus is in strong enough financial shape that it can invest in projects even if oil prices stay low — provided it has certainty over the regulatory and cost factors.

“These are 30-year investment decisions,” he said.

The downturn in activity in northeastern Alberta has made materials and labour more affordable than they were during the boom times. Cenovus and its peers are looking to ensure at least some of those cost savings stick when oil prices eventually rise.

Cenovus has set a 2016 capital budget of between $1.4 billion and $1.6 billion — about 19 per cent below this year’s level.

There’s the flexibility to lower that range by $100 to $200 million should oil prices “weaken significantly,” said Ferguson.

About 20 per cent of next year’s capital budget will be for growth projects, mostly at two Alberta oilsands operations, and 80 per cent will be used to sustain previous investments, including at two U.S. refineries that Cenovus jointly owns.

The two biggest budget items are between $350 million and $400 million for its Foster Creek oilsands project and between $425 million and $475 million for the Christina Lake operation. Another $230 million to $270 million is for the refining business.

Cenovus expects to complete expansion phases at the two oilsands operations by the third quarter of 2016.

It also expects total oilsands production next year will be about seven per cent higher than this year’s anticipated level, to between 144,000 and 157,000 barrels per day. Production from conventional oil is forecast to drop to between 55,000 and 59,000 barrels per day, down 15 per cent from this year.

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