Cenovus announces 2016 capital budget; Focus remains on capital discipline and balance sheet strength

Press Release

Calgary, Alberta (December 10, 2015) – Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) expects to invest between $1.4 billion and $1.6 billion in 2016. While allowing for the planned completion of well-advanced oil sands growth projects in 2016, the budget represents a 19% decrease in capital spending compared with total forecast spending for 2015.

“We expect to meet or exceed all of the operating, cost reduction and financial targets we set for ourselves in 2015, leaving us well-positioned for what we anticipate will be another volatile year ahead,” said Brian Ferguson, Cenovus President & Chief Executive Officer.

“We’re financially resilient, we have one of the strongest balance sheets in the industry and we will continue to focus on safe operations, capital discipline and cost control. Even if Brent crude prices remain in the US$40 per barrel range through 2016, we believe we can continue to fund our sustaining capital program, growth projects that are nearing completion and our current dividend level.”

Cenovus’s financial resilience is demonstrated by a net debt to capitalization ratio of 13% and net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of 0.8 times, on a trailing 12-month basis, as of September 30, 2015.

Capital investment

Cenovus expects approximately 80% of its 2016 budget to be directed towards sustaining capital investments, with the remaining 20% expected to be allocated predominantly to oil sands growth projects.

Capital investment by asset ($ millions)

	2016 Budget		2015 Guidance		% change2
Foster Creek	350	– 400	415	– 435	-12
Christina Lake	425	– 475	685	– 705	-35
Narrows Lake	15	– 25	45	– 50	-58
Emerging oil sands assets3	60	– 70	70	– 80	-13
Conventional oil4	175	– 225	250	– 270	-23
Natural gas	25	– 35	15	– 20	71
Refining5	230	– 270	220	– 250	6
Total capital investment6	1,400	– 1,600	1,800	– 1,900	-19

• Based on Brent of US$52.75/bbl, WTI of US$49.00/bbl, a WTI/WCS differential of US$14.50/bbl, NYMEX gas of US$2.50/MMBtu, US$/C$ exchange rate at $0.75 and a Chicago 3-2-1 crack spread of US$12.00/bbl.
• Percentage change based on the midpoint of the ranges.
• Includes Grand Rapids, Telephone Lake and other emerging assets.
• Includes Pelican Lake as well as oil assets in Alberta and Saskatchewan.
• Refining capital investment is reported in C$ but incurred in US$ and, as such, will be impacted by foreign exchange.
• Total capital investment includes additional investment not represented above.

With the Christina Lake optimization project completed on time and below budget during the fourth quarter of 2015, Cenovus is now concentrating on delivering its two oil sands growth projects that are already far along in the construction process. The Foster Creek phase G and Christina Lake phase F expansions are on track with first oil from both projects anticipated in the third quarter of 2016.

At Cenovus’s conventional oil operations, the bulk of planned 2016 capital spending is expected to go towards maintaining and optimizing current oil production volumes. Minimal capital spending is anticipated at the company’s heavy oil operations at Pelican Lake.

Cenovus also continues to invest in its refining business, as integration is an important part of the company’s overall strategy. The 2016 budget for Cenovus’s Wood River Refinery and Borger Refinery in the U.S., which are jointly owned with the operator, Phillips 66, includes capital for the debottlenecking project at Wood River. This project is expected to be completed in the third quarter, increasing heavy oil processing capacity by approximately 18,000 barrels per day (bbls/d) gross.

Future growth

Cenovus continues to evaluate opportunities to direct capital towards future upstream growth projects, including those deferred earlier this year. The timing of project reactivation will depend on the company’s ongoing success in achieving cost reductions as well as additional fiscal and regulatory certainty.

The company is encouraged by the Government of Alberta’s recently announced climate change plan, which includes a carbon pricing regime and an overall emissions limit for the oil sands. Importantly, the plan directs revenue generated from the price on carbon towards the development of potentially game-changing technologies that could help oil sands producers reduce their greenhouse gas (GHG) emissions even further.

“These measures are a good first step in providing some of the fiscal and regulatory certainty we need,” said Ferguson. “With our rich portfolio of oil sands assets, I believe we have significant opportunity to increase shareholder value in the years ahead. We’ll make decisions about moving forward with additional growth opportunities when the timing is right.”

As part of its growth plans, the company has a regulatory application pending for a phase H expansion at Christina Lake. Cenovus anticipates approval of this additional oil sands growth project soon.

Cost reductions

Cenovus has already realized substantial reductions of 22% in its operating and general and administrative (G&A) costs in 2015. Additional savings have also been realized in capital costs. These savings include improved drilling efficiency and optimized scheduling and prioritization of repair and maintenance activities as well as reduced chemical costs and better oil sands waste disposal and handling processes. In 2016, the company will continue to focus on achieving additional cost reductions. This includes plans to move to a redesign of production facilities for new oil sands well pads. Building on lessons learned from operating commercial steam-assisted gravity drainage (SAGD) oil sands projects for nearly 15 years, Cenovus expects this innovative design approach will significantly reduce the

scope and cost of infrastructure required for new well pads. The company’s 2016 budget incorporates cost savings achieved to date.

Read More: http://www.cenovus.com/news/news-releases/2015/12-10-2016-capital-budget-announced.pdf

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