Cenovus Swings to Quarterly Loss on Gas Asset Impairment

Cenovus Energy Inc., the Canadian oil producer planning to triple production within a decade, swung to a loss in the fourth quarter after taking a charge on its Suffield assets in southeast Alberta.

The net loss of C$118 million ($118 million), or 16 cents a share, compared with profit of C$266 million, or 35 cents, a year earlier, the Calgary-based company said in a statement today. Cenovus recorded a C$393 million impairment related to its Suffield assets, mainly due to estimated declines in future natural gas prices.

“Cenovus reported fourth-quarter financial results that fell short of already reduced expectations,” Randy Ollenberger, an analyst at BMO Capital Markets in Calgary, wrote in a note today.

Cenovus has been able to offset declining prices for its Alberta bitumen by taking advantage of the discount at its refineries and expanding non-pipeline transportation. The price of Canadian heavy crude, produced at oil-sands operations such as Cenovus’s Christina Lake site, fell 25 percent to an average of $61.32 a barrel in the fourth quarter from a year earlier, according to data compiled by Bloomberg.

The shares dropped 2.5 percent to C$31.79 at the close in Toronto after falling as much as 3.9 percent earlier, the biggest intraday decline in three months. The stock has 19 buy and six hold ratings from analysts.

Diversifying Transportation

The company’s strategy of diversifying its transportation will help it through the coming years of pipeline constraints, said Chief Executive Officer Brian Ferguson during a conference call with analysts today. The company is already shipping about 40,000 barrels a day of oil to North American coastal regions, where the price for Canadian heavy oil is higher.

The company has also hedged about 49,200 barrels a day of Western Canada Select heavy oil at a discount of $20.74 a barrel to West Texas Intermediate, said Don Swystun, vice president of refining and marketing, during the call.

Cenovus’s downstream segment includes a refinery in Borger, Texas, and another at Roxana, Illinois, it co-owns with Phillips 66. The facilities together can process the equivalent of almost 500,000 barrels of oil a day, according to its website.

Cenovus’s downstream business was “weak” in the quarter because of an extension of maintenance at the Borger refinery and partial work at Wood River, Phil Skolnick, a New York-based analyst for Canaccord Genuity, wrote in a research note today. He rates the shares buy.

Its board of directors approved a dividend increase of 10 percent for the first quarter of 2013.

Before it's here, it's on the Bloomberg Terminal.