Cenovus increases second quarter oil sands production by 42%.

Business Wire › July 29, 2010

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Cenovus increases second quarter oil sands production by 42%.

Operational and financial performance on track

CALGARY, Alberta -- Cenovus Energy Inc. (TSX, NYSE: CVE):

* Production from the Foster Creek and Christina Lake oil sands projects increased 42% in the second quarter of 2010 compared with the same period in 2009.

* Cenovus's established conventional oil and gas properties generated about $400 million of operating cash flow in excess of capital expenditures in the second quarter.

* Second quarter cash flow remained strong and in line with company guidance, despite weaker realized natural gas prices and lower downstream operating cash flow.

* The Board approved a 10 year business plan detailing how the company expects to achieve oil sands production of 300,000 barrels per day (bbls/d) by the end of 2019, a five-fold increase from current production.

* An application was submitted to Alberta Environment and the Energy Resources Conservation Board (ERCB) for the Narrows Lake oil sands project. The ERCB approved a Grand Rapids pilot in the Greater Pelican Region.

"Our second quarter has delivered strong operational and financial results," said Brian Ferguson, President & Chief Executive Officer of Cenovus. "We are on track to meet guidance targets we've established for production and cash flow for the year. We continue to take steps that are expected to lead to a doubling of the company's net asset value within the next five years.

"We have top quality reservoirs, experienced and knowledgeable staff, a track record of being a low cost operator and a commitment to continuously advance our technologies and reduce our environmental impact," Ferguson said. "These elements, combined with reliable cash flow from our conventional oil and gas assets and a solid dividend, are expected to deliver strong total shareholder return over the long term."

Financial & Production Summary1

(for the period ended June 30) (C$ millions, except per share amounts)

2010 Q2

2009 Q2

% change

2010 6 months

2009 6 months

% change

Cash flow2

537

945

-43

1,258

1,686

-25

Per share diluted

0.71

1.26

1.67

2.25

Operating earnings2

142

512

-72

495

926

-47

Per share diluted

0.19

0.68

0.66

1.23

Capital investment

430

488

-12

923

1,140

-19

Production (before royalties)

Foster Creek (bbls/d)

51,010

34,729

51,067

31,658

Christina Lake (bbls/d)

7,716

6,530

7,569

6,582

Foster Creek & Christina Lake Total (bbls/d)

58,726

41,259

58,636

38,240

Other Oil and NGLs (bbls/d)

69,840

76,010

-8

70,915

77,434

-8

Natural gas (MMcf/d)

751

856

-12

762

861

-11

1 Effective Jan. 1, 2010, Cenovus changed its reporting currency to Canadian dollars and started presenting production volumes on a before royalties basis.

2 Cash flow and operating earnings are non-GAAP measures as defined in the Advisory. See also the Earnings Reconciliation Summary on page 9.

Cenovus Energy Inc. (TSX, NYSE: CVE) continued to deliver strong production growth from its oil sands operations with a 42% production increase at Foster Creek and Christina Lake in the second quarter of 2010 compared with the same period last year. Operating performance exceeded the company's expectations with production ahead of guidance and the company's operating and capital expenditures below what was anticipated for half way through the year.

Cenovus's conventional oil and natural gas properties remain a reliable source of cash flow with solid returns from modest capital expenditures. In the second quarter, these established assets delivered about $400 million of operating cash flow above the capital invested in them.

Overall cash flow for the second quarter was $537 million, in line with the company's guidance although $408 million less compared with the same period last year. This 43% decrease was due to weaker realized natural gas prices, higher oil sands royalties and lower downstream operating cash flow.

Cenovus's realized natural gas price in the second quarter of 2010 was $5.00 per thousand cubic feet (Mcf) compared with $8.13/Mcf in the second quarter of 2009. That resulted from a $182 million lower realized after-tax hedging gain in the second quarter of 2010 compared to the same period in 2009. Expected declines in natural gas production also had an impact on cash flow, as did higher royalty payments at Foster Creek due to the operation reaching payout in February. In the second quarter of 2010, Foster Creek royalties, net to Cenovus, were $45 million compared with $2 million in the same period of 2009.

Downstream operating cash flow was $202 million lower in the second quarter of 2010 compared with the same period of 2009. Approximately $180 million of that decrease is attributed to additional crude costs determined using first in, first out inventory valuation method. The refineries also experienced lower crude utilization in the second quarter of 2010 due to planned turnarounds and refinery optimization, which resulted in an...

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