Cenovus announces second quarter results, additional measures to build shareholder value

Press Releases

• Combined oil sands production up 5% compared with second quarter of 2014
• Oil sands per-unit operating cost improvement of 30% from second quarter of 2014
• Gross cash proceeds of $3.3 billion from royalty and fee land business sale, received in July
• Second quarter cash flow of $0.89 per share, excluding the impact of a one-time cash tax charge of $0.31 per share

Production & financial summary

(For the period ended June 30)	2015	2014	% change
Production (before royalties)	Q2	Q2
Oil sands (bbls/d)	130,734	124,827	5
Conventional oil1 (bbls/d)	69,220	76,861	-10
Total oil (bbls/d)	199,954	201,688	-1
Natural gas (MMcf/d)	450	507	-11
Financial
($ millions, except per share amounts)
Cash flow2	477	1,189	-60
Per share diluted	0.58	1.57
Operating earnings2	151	473	-68
Per share diluted	0.18	0.62
Net earnings	126	615	-80
Per share diluted	0.15	0.81
Capital investment	357	686	-48

• Includes natural gas liquids (NGLs).

• Cash flow and operating earnings are non-GAAP measures as defined in the Advisory. See also the earnings reconciliation summary in the operating earnings table.

Strategic update highlights

• On track to achieve approximately $280 million in 2015 cost reductions, 40% greater than initially targeted

• Targeting between 300 and 400 job reductions in Calgary in second half of 2015

• Third quarter dividend reduction of 40%; temporary discount on Dividend Reinvestment Plan (DRIP) discontinued

• Priority focus on expanding existing oil sands projects but at a more moderate pace of growth than in the past

• Investment in deferred oil sands expansions being considered for 2016

“We are planning for West Texas Intermediate oil prices to be approximately $65 per barrel through 2017,” said Brian Ferguson, Cenovus President & Chief Executive Officer. “But even at $50 per barrel, we believe we are well positioned to be able to internally fund our reduced dividend as well as our sustaining and growth capital without compromising our balance sheet.”

Strategic update

Calgary, Alberta (July 30, 2015) – Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) continues to deliver strong operational performance, with dependable oil sands production growth and meaningful cost reductions. The company has undertaken a number of significant initiatives to strengthen its financial resilience and is now taking further steps intended to enhance value for shareholders during this extended period of low oil prices and market volatility. The company’s actions are aimed at maintaining its balance sheet and helping to ensure Cenovus is operating with the greatest efficiency. In addition, Cenovus has adjusted its previous capital investment strategy and plans to take a more moderate approach to the growth of its oil sands assets.

Cenovus has already delivered on a number of its 2015 commitments, including reducing capital and discretionary spending, achieving meaningful improvements in its operating, capital and general and administrative (G&A) costs, making initial workforce reductions, and crystallizing significant value for shareholders by selling its royalty and fee land business at an attractive price. Today, Cenovus is announcing further measures, including an adjustment to its dividend and additional cost-cutting initiatives, to further align the company with the economic realities facing the oil and gas industry and help ensure it can remain competitive with oil production across North America.

“We’ve taken a number of decisive steps to help ensure financial resilience during a prolonged period of lower oil prices,” said Ferguson. “As a result of these initiatives and the operational progress the company has made, we are now in an even stronger position to remain cost competitive and potentially resume investing in high-return growth projects.”

Dividend update

With the expectation of a prolonged period of low oil prices and the cash flow impact from the sale of its royalty and fee land business, Cenovus is reducing its dividend by 40%. The Board of Directors has declared a third quarter dividend of $0.16 per share, payable on September 30, 2015 to common shareholders of record as of September 15, 2015. Based on the July 29, 2015 closing share price on the Toronto Stock Exchange of $18.61, this represents an annualized yield of about 3.4%. Declaration of dividends is at the sole discretion of the Board and will continue to be evaluated on a quarterly basis. Over the long term, Cenovus intends to target a dividend payout ratio of 20% to 25% of after-tax cash flows. With this dividend reduction, the company is on track to be within its target range for 2015.

Cenovus has discontinued the temporary discount on its Dividend Reinvestment Plan (DRIP). The discount, which allowed shareholders to reinvest their dividends in Cenovus common shares at 3% below current market prices, was designed to conserve cash. Cenovus now believes it has adequate liquidity to manage through the low oil price environment, and the discount on the DRIP is no longer required. While the DRIP will remain in place, in future, common shares acquired under the DRIP will be purchased in the open market, eliminating the dilution caused by the issuance of shares from Treasury.

Read More: http://www.cenovus.com/news/news-releases/2015/07-30-q2-results-announced.pdf