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Cenovus Energy operating earnings fall, miss estimates in second quarter.

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(Globalpost/GlobalPost)

CALGARY - Cenovus Energy Inc. (TSX:CVE) said Wednesday it remained committed to shipping an increasing amount of oil by rail, saying it's convinced it can move the liquid safely despite the train disaster in Quebec that claimed dozens of lives.

"We continue to believe that crude oil can be moved very safely by rail and what it does is give us access to a variety of niche markets that will help us to be able to optimize our overall realized pricing," chief executive Brian Ferguson said in a call with analysts after releasing disappointing second-quarter results.

"There is an ongoing investigation into the root cause of the accident and why it was so catastrophic."

Ferguson, who called the deadly train derailment in Lac-Megantic, Que., earlier this month "truly a very tragic situation," but said Cenovus still aims to finish 2013 shipping 10,000 barrels per day by rail and increase that to 30,000 barrels a year later, as the fates of contentious pipeline projects remain undecided.

"Safety in all of our operations of paramount importance to Cenovus, and we will continue to make sure that we do absolutely everything that we can to ensure that every barrel that we produce and every barrel that we transport is done in a very safe fashion."

The Calgary-based oil producer posted lower second-quarter profits on Wednesday as it recorded a couple of usual items related to its light oil assets and to a hit to its refining operations because of higher crude costs.

Its shares fell five per cent or $1.66 per share on the Toronto stock market to $30.59.

Cenovus had $255 million or 34 cents per share in operating earnings and a $179-million net profit in the second quarter, both down from a year earlier and well below analyst expectations.

The operating earnings were 14 cents below a consensus estimate of 48 cents. In the second quarter of 2012, Cenovus had $284 million or 37 cents per share of operating earnings and $397 million of net profit.

The company said its second quarter upstream results benefited from stable production, rising oil prices and a narrow light-heavy differential compared with first quarter.

Cenovus also posted strong results from its refining operations, it said, adding that it anticipated the rest of the year will continue to experience volatile oil prices, but is confident its reliable oil growth, downstream integration and flexible conventional programs will prop up financial performance.

The impact from the Calgary flooding was "very minor" for Cenovus' operations, chief operating officer John Brannan said, and resulted in a loss of about a thousand barrels a day for the quarter.

"The impact was limited to some temporary shut-ins in southern Alberta and a few interruptions at our oil sands assets," said on the call.

Cenovus said its total oil output was up 10 per cent from a year ago but it recorded a $57-million expense related to the sale of its Shaunavon light oil assets, announced late in the quarter and completed in July.

The company also incurred a $46 million exploration expense related to another light oil play in Saskatchewan, and recognized a one-time $63 million pre-exploration expense related to an early-stage farm-in opportunity within its conventional business.

Ferguson declined to provide details of the $63-million writedown, saying only that it related to a farm-in on its conventional oil operations.

"Due to the contractual nature of the farm-in, I am not at liberty to give any additional details on it. I can tell you, and you have my assurances, that there is nothing else to come on this," he said.

"We decided to take a conservative approach, we have fully written off in the quarter the entire obligation."

The company also announced updated guidance for operating costs at its oilsands operations, which produce a heavy type of crude. The new range is between $3 and $3.30 per barrel, up from between $2.70 and $3 in the previous guidance.

It's also planning a maintenance shutdown at its Foster Creek development in September.

Cenovus was created in 2009 when Encana Corp. (TSX:ECA) spun off its oil and refinery assets from its natural gas business.

Most of Cenovus' production comes from the oilsands, where steam is used to extract the bitumen from deep underground.

Its Christina Lake and Foster Creek developments are part of a 50-50 joint venture with Houston energy giant ConocoPhillips.

http://www.globalpost.com/dispatch/news/the-canadian-press/130724/cenovus-energy-operating-earnings-fall-miss-estimates-second