Cenovus Second-Quarter Profit Falls on Lower Hedging Gains

Cenovus Energy Inc., the fourth-largest Canadian oil producer, said second-quarter profit fell 55 percent on higher currency losses and lower hedging gains.

Net income declined to C$179 million ($174 million), or 24 cents a share, from C$397 million, or 52 cents, a year earlier, the Calgary-based company said today in a statement. Excluding an exploration expense and loss from an asset sale, per-share profit missed the 49-cent average of 17 analysts’ estimates compiled by Bloomberg. Sales climbed 7.2 percent to C$4.52 billion.

Total oil production rose 10 percent to more than 171,000 barrels a day from a year earlier. Production from the company’s Christina Lake oil-sands project was curtailed for 11 days because of scheduled maintenance, reducing output by about 7,600 barrels. Cash flow was lower as the difference between U.S. benchmark oil prices and Western Canada Select prices narrowed.

“The impact of the turnaround at Christina Lake was larger than expected,” Randy Ollenberger, a Calgary-based analyst for Bank of Montreal, wrote in a note to clients today. Ollenberger lowered the target price to C$39 from C$40.27, keeping the equivalent of a buy rating on the stock.

Cenovus fell 5.5 percent to C$30.49 at the close in Toronto, the biggest decline since Sept. 9, 2011. The stock, which has fallen 8.4 percent this year, has 18 buy and six hold ratings from analysts.

Hedging Gain

Cenovus had a C$46 million gain in the quarter from financial contracts used to lock in commodity prices, down from C$285 million a year earlier. The company’s foreign exchange loss more than tripled to C$96 million. The drop in net income was partially offset by a decline in deferred tax expenses, the company said.

The company said it plans to expand its use of trains to ship oil. In the second quarter, Cenovus transported about 7,900 barrels a day to the East Coast and U.S. markets by rail. That figure will increase to about 10,000 this year and to as much as 30,000 by the end of 2014. The company said it participated in the open season for TransCanada Corp.’s Energy East pipeline project, to move more crude from Alberta oil sands to Eastern Canada.

Suncor Energy Inc., Imperial Oil Ltd. and Husky Energy Inc. are the three largest Canadian oil producers by sales, according to data compiled by Bloomberg.

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