Cenovus hangs up search for Telephone Lake oil partner

Wed Jul 25, 2012 1:47pm EDT
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - Cenovus Energy Inc has called off its search for a partner to help develop the Telephone Lake oil sands project in Alberta, saying none of the would-be co-venturers had the right combination of assets and patience for a long-term development.

Cenovus, which reported a steeper-than-expected 40 percent drop in second-quarter profit on Wednesday, has decided after a nearly nine-month search to push forward with the 90,000 barrel a day steam-driven project on its own.

The 1.3 billion barrel Telephone Lake lease has the potential to become one of its main money-generators, it said.

Calgary-based Cenovus is best known for its Foster Creek and Christina Lake oil sands developments, which it operates in a 50-50 joint venture with ConocoPhillips. It also co-owns refineries in Illinois and Texas with Phillips 66, Conoco's recent spin-off.

The partner hunt for Telephone Lake was never about just looking for cash to help to foot the bill, chief executive Brian Ferguson said. Instead, Cenovus wanted a player that offered ways to deal with the often-deep price discount on extra-heavy bitumen versus benchmark light oil, such as refining capacity.

"We did receive several expressions of interest, bids, but overall when we look at the combination of cash and what I would describe as strategic advantage, there wasn't what I would view, given the truly world-class nature of this asset, what I would perceive to be compelling value," Ferguson said during a conference call to discuss the second-quarter results.

In addition, recent joint-venture deals in Canadian oil sands and natural gas have shown prospective partners are seeking short-term cash flow, which Telephone Lake would not provide. Cenovus has yet to start the regulatory approval process for the project and it is not currently in its 10-year production plan. Construction could start in 2014.

Its next big development is called Narrows Lake, and the company expects to sanction the development later this year, with first production of 35,000 barrels a day expected by 2017. Eventual output is expected to be 130,000 bpd.   Continued...