October 23, 2014 / 10:49 AM / 3 years ago

UPDATE 2-Encana deal spurs Cenovus to eye sale of freehold lands

3 Min Read

(Recasts with details and comments throughout; updates shares)

By Scott Haggett

CALGARY, Alberta, Oct 23 (Reuters) - Cenovus Energy Inc , Canada's No. 2 independent oil producer, said on Thursday it is mulling the future of its royalty-generating freehold oil and gas properties in Western Canada after competitor Encana Corp raised billions through the sale of similar properties.

Cenovus, whose shares rose 6 percent after it reported its third-quarter operating profit climbed by nearly a fifth, said it is looking at strategic alternatives for the lands, which currently produce about 8,000 barrels of oil equivalent per day.

It expects to announce its plans for the properties in the next three months, Brian Ferguson, the company's chief executive, said on a conference call.

"It is clear that there is more potential on these lands than we are currently realizing," Ferguson said. "We are assessing our options to maximize shareholder value and expect to announce a decision next quarter on what our plans will be."

Encana, the country's largest natural-gas producer, raised more than C$4 billion ($3.56 billion) through the sale of its freehold lands. Before the sale it had charged third-party oil and gas companies royalties to operate on the properties.

The popularity of Encana's offering has spurred other producers, including Canadian Natural Resources Ltd, to consider making similar moves.

Operating Profit Rise

Operating profit at Cenovus, which co-owns the Foster Creek and Christina Lake oil sands projects in northern Alberta with ConocoPhillips, rose 19 percent to C$372 million, or 49 Canadian cents a share.

The operating profit, which excludes most one-time items, surpassed the average analyst estimate for the measure of 42 Canadian cents, according to Thomson Reuters I/B/E/S.

The "beat stems from higher natural gas price realizations, lower operating costs at Foster Creek and slightly higher downstream cash flow," Arthur Grayfer, an analyst at CIBC World Markets, said in a research note.

Cenovus said its total oil production rose 13 percent to 199,089 barrels per day (bpd), driven by a 23 percent jump in oil sands production.

Cash flow, a key indicator of its ability to fund new projects, rose 6 percent to C$985 million, or C$1.30 a share. However cash flow from the two U.S refineries it co-owns with Phillips 66 fell 53 percent due to an unplanned coker outage at the Borger, Texas, refinery and to a scheduled turnaround at the Wood River refinery in Illinois.

Net income fell to C$354 million, or 47 Canadian cents a share, in the quarter, ended Sept. 30, from C$370 million, or 49 Canadian cents a share, a year earlier.

Cenovus shares were up C$1.57 at C$27.84 at midday on the Toronto Stock Exchange.

$1=$1.12 Canadian Additional reporting by Ashutosh Pandey in Bangalore; Editing by Joyjeet Das, Kirti Pandey and Peter Galloway

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