* Planning on basis that U.S. will OK line by year-end
* Q2 EPS soars to C$0.86 vs C$0.24 last year
* Output down 5 percent on weather, wildfires
* Fat refining margins boost cash flow (New throughout with CEO, analyst comments; in U.S. dollars unless noted)
By Jeffrey Jones
CALGARY, Alberta, July 26 (Reuters) - Cenovus Energy Inc (CVE.TO), the Canadian oil sands producer, expects Washington to approve a $7 billion pipeline to Texas, but its refining operations are reaping big rewards from the fact that there is no such outlet now, its chief executive said on Tuesday.
Cenovus, which reported its profit more than tripled in the second quarter, has committed to shipping on TransCanada Corp's (TRP.TO) Keystone XL pipeline and is making its plans on the basis that the project gets a green light from the U.S. State Department before year-end, as scheduled.
If there are more regulatory setbacks, Cenovus will find other outlets for its growing production as major markets such as the U.S. Midwest get more saturated, further cutting returns for Canadian oil producers, Chief Executive Brian Ferguson said in an interview.
"If for some unforeseen reason it is delayed, then you'll see a lot of oil out of Western Canada, including Cenovus's, that will be moved to other markets, and supply and demand will set price," Ferguson said.
The company, best known for its Foster Creek and Christina Lake, Alberta, steam-driven oil sands developments, plans to boost production to 500,000 barrels a day by 2021 from 150,000 at the end of this year.
It currently uses a number of other pipelines to move its oil to market, including the Enbridge Inc (ENB.TO) system to the U.S. Midwest and Kinder Morgan Energy Partners' KMP.N Trans Mountain line to the West Coast.
Keystone XL faces opposition from environmental groups and some U.S. politicians who say it would bolster more oil sands development, increasing greenhouse gas emissions, as well as raise the risk of oil spills in the central U.S. states, site of a massive aquifer.
The State Department said last week it will issue a final environmental assessment on the project in August and then government agencies will have 90 days to comment on it.
Oil priced in the U.S. Midwest and midcontinent regions is being discounted heavily to a glut of supply, especially at the Cushing, Oklahoma, storage hub. Keystone XL is partly aimed at relieving that.
However, in the second quarter, Cenovus's results were boosted by strong returns from its refineries in Illinois and Texas, which it operates as part of a joint venture with ConocoPhillips (COP.N).
Refining margins more than doubled due to the discounted price of crude in those regions compared with world prices. In fact, Cenovus raised its full-year forecast for cash flow from refining to C$800 million-C$1 billion ($850 million-$1.06 billion) from an April target of C$550 million-C$750 million.
"If for some reason there is a delay in added take-away capacity, whether that's Keystone or other delays, then I would expect that refining margins would remain stronger for a longer period of time, which in terms of our shareholders means they would benefit on the refining side," Ferguson said.
In the second quarter, profit was also lifted by a higher overall oil price. Cenovus earned C$655 million, or 86 Canadian cents a share, up from C$183 million, or 24 Canadian cents a share, a year earlier.
Excluding an unrealized hedging gain, operating earnings were C$395 million, or 52 Canadian cents a share, beating analysts' average estimate of 44 Canadian cents a share, according to Thomson Reuters I/B/E/S.
Cenovus shares were up 1 Canadian cent at C$37.93 on the Toronto Stock Exchange, having climbed 14 percent this year.
The company is a beneficiary of its record of demonstrating predictable results against a backdrop of market volatility, Canaccord Genuity analyst Phil Skolnick said.
"In a flight to quality and safety, this is really a clean story right now," he said.
Second-quarter oil production fell 5 percent to 121,762 barrels per day, hampered by flooding in Saskatchewan and wildfires in Alberta in the spring. However, the company is still on track to meet its annual targets.
Cash flow, a glimpse into the company's ability to find its drilling, rose to C$939 million, or C$1.24 a share, from C$537 million, or 71 Canadian cents a share, a year ago.