Cenovus Makes First China Oil Shipment Through Vancouver

Oilsands producer Cenovus Energy Inc. has sent its first shipment of crude oil to China, beating the opening of the controversial Northern Gateway pipeline by about five years.

President and chief executive Brian Ferguson revealed Wednesday in an interview with the Calgary Herald that the company had sent its first half-tankerload of oil - about 250,000 barrels - to an unspecified Chinese customer.

"We actually just sold our first cargo last week," he said after the company reported tripling fourth-quarter 2011 profits over the corresponding period in 2010.

"It's very significant because what it allows us to do is establish a relationship with refineries in terms of how they value and price Cenovus crude. So it's very significant strategically."

Cenovus is one of several producers that have pledged financial support for Enbridge Inc.'s controversial $5.5-billion Northern Gateway pipeline.

The 1,200-kilometre proposed pipeline from Bruderheim northeast of Edmonton to the coastal community of Kitimat, B.C., would move up to 525,000 barrels of oil per day, providing an export link to customers in Asia.

But it is being opposed by thousands of interveners who are to outline their concerns over the next two years. The earliest the pipeline could open is estimated to be 2017.

Ferguson was also building relationships in a more direct way recently by taking part in Prime Minister Stephen Harper's trade mission to China, although that was not connected to the oil sale, said Cenovus's Rhona DelFrari.

Last week's shipment was made possible by Cenovus gaining 12,000 barrels per day of firm service on the TransMountain Pipeline that runs from Edmonton to the Westridge Marine Terminal near Vancouver, Ferguson said.

Most of the oil shipped starting late last year has been bound for California customers and, although it's less than 10 per cent of overall company oil output, it has helped Cenovus's bottom line because it is fetching a premium over mid-continent oil by being priced in relation to Brent crude instead of West Texas Intermediate.

"It's allowing us to get tidewater pricing off Brent so there's a significant uplift per barrel in terms of price realization," Ferguson said.

Also Wednesday, Cenovus said it would extend its search for a joint venture partner on its Telephone Lake oilsands assets in northern Alberta because there has been a late surge of interest from international investors.

Ferguson later confirmed those potential partners are from Asia but he wouldn't answer when asked if Asian companies would be in a position to provide the strategic advantage he has previously said he's looking for, namely a hedging mechanism to offset volatility in the North American light-heavy oil price differential through refining and marketing or other means.

Analyst Phil Skolnick of Canac-cord Genuity said it's possible the oil exports to China and subsequent proving of the Cenovus product are connected, directly or indirectly, to the joint venture partner search.

He added that he believes Ferguson when he says that the delay in signing a partner is the result of too many suitors. "They could have pretty much anybody," he said. "It's not so much the asset as it is the operator. With Cenovus, you know they are the best at doing what they do with SAGD or in situ in general. You're going to learn a lot."

Ferguson said the company is building a dewatering pilot plant and continuing to drill delineation wells at Telephone Lake. It applied in December for regulatory approval for a 90,000-bpd steam-assisted gravity drainage project there.

Cenovus announced Wednesday it would increase its quarterly dividend by 10 per cent to 22 cents per share starting in the first quarter of 2012, with Ferguson noting on the call that the company will look at increasing the payouts as committed maintenance and expansion capital "tapers down" over the next three years to about $1 billion per year.

Cenovus stock rose early on but fell 48 cents to close at $38.12. So far this year, it's up nearly 13 per cent.

Andrew Potter, an energy analyst for CIBC World Markets, called Ceno-vus's Q4 report "mixed," meeting consensus on cash flow but falling short on operating earnings per share.

"Overall, stronger-than-expected downstream results were offset by weaker-than-forecast oilsands price realizations, higher G&A (general and administrative expenses) and slightly higher-than-forecast cash taxes," he wrote in a note to investors.

Ferguson said the company hired 627 new employees in 2011, taking the total complement to about 4,000 full-time staff.

Fourth-quarter profit rose to $266 million, or 35 cents a share, from $78 million, or 10 cents, a year ago. Excluding unusual items, the company earned 44 cents a share.

Cash flow, a glimpse into the company's ability to fund operations, rose about 32 per cent to $851 million, or $1.12 a share, from $645 million, or 85 cents a share.

Production rose about 11 per cent to average 144,273 barrels of oil and liquids a day, driven in part by a faster than expected startup at the Christina Lake Phase C thermal oilsands expansion.

Gas production fell four per cent to 660 million cubic feet per day.

Cenovus said its results were bolstered by favourable profit margins at the U.S. refining assets operated by its oilsands partner, ConocoPhillips.

The company kept its 2012 capital spending forecast of $3.1 billion to $3.4 billion, but said it may consider reducing investment in natural gas projects if prices for the fuel do not recover.