CENOVUS ENERGY INC. (Toronto symbol CVE; www.cenovus.com) gets about 40% of its output from its oil sands projects in Alberta. Conventional oil and natural gas wells supply the other 60%.
U.S.-based ConocoPhillips (New York symbol COP) owns 50% of Cenovus’s main Foster Creek and Christina Lake oil sands projects in Alberta. These properties produce heavy bitumen, which Cenovus ships to its 50%-owned refineries in Illinois and Texas. Phillips 66 (New York symbol PSX) owns the other 50% of these refineries. In 2013, refining accounted for 66% of Cenovus’s revenue and 40% of its earnings.
Thanks to rising production and oil prices, Cenovus’s revenue increased 62.0%, from $11.5 billion in 2009 to $18.7 billion in 2013. Earnings gained 50.5%, from $1.09 a share (or a total of $818 million) in 2009 to $1.64 a share (or $1.2 billion) in 2011. A writedown cut profits to $1.14 a share (or $868 million) in 2012, but they rebounded to $1.55 a share (or $1.2 billion) in 2013.
Cash flow per share fell from $3.79 in 2009 to $3.20 in 2010, recovered to $4.80 in 2012, then slipped to $4.76 in 2013.
Energy stocks: Just-approved Grand Rapids project due to produce 180,000 barrels a day
The company continues to expand its oil sands properties. Regulators have now approved the development of its 100%-owned Grand Rapids project. It will start up in stages, but it should ultimately produce 180,000 barrels a day and last 40 years. This year, Cenovus also hopes to win approval for its 100%-owned Telephone Lake project, which could produce 300,000 barrels a day for 40 years. To put these projects in context, Cenovus produced 267,442 barrels a day in 2013.
In all, the company expects to spend $2.8 billion to $3.1 billion on upgrades in 2014, compared to $3.3 billion last year.
Part of that will go toward its Foster Creek property, which is now 13 years old. The project’s age and geology has forced Cenovus to use more steam to loosen the bitumen and improve its flow. That has raised the company’s operating costs and forced it to delay expanding Foster Creek.
The $1.065 dividend yields 3.3%.
In the latest edition of The Successful Investor, we look at the outlook for Cenovus’ expansion in light of its earnings forecast, balance sheet and the high costs of its Foster Creek project. We conclude with our clear buy-sell-hold advice on the stock.
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