* To develop 90,000 bpd bitumen project on its own * Would-be partners did not bring strategic advantages * Second quarter earnings lag estimates * Shares down 2.7 percent By Jeffrey Jones CALGARY, Alberta, July 25 (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. In the second quarter, the company's profit was held back by weaker oil and gas prices, which were only partly offset by higher production and strong results in its refining segment. Cenovus shares fell 85 Canadian cents, or 2.7 percent, to C$31.25 on the Toronto Stock Exchange. The market reaction was puzzling given neutral to slightly positive overall results, TD Securities analyst Menno Hulshof said. Despite weaker earnings, the company is on track to meet its annual cash flow forecast of C$900 million to C$1.2 billion ($883 million to $1.18 billion), Hulshof said in a note to clients. In the quarter, net earnings fell to C$396 million, or 52 Canadian cents a share, from year-earlier C$655 million, or 86 Canadian cents a share. Operating earnings, which exclude most one-time and unusual items, fell to C$283 million, or 37 Canadian cents, from C$395 million, or 52 Canadian cents a share. That lagged the average analyst forecast for the measure of 52 Canadian cents, according to Thomson Reuters I/B/E/S. Cenovus's cash flow, a key indicator of its ability to pay for new projects, fell about 2 percent to C$925 million, or C$1.22 a share, from C$939 million, or C$1.24 per share, a year earlier. Total oil production rose 28 percent to 155,566 barrels a day, and natural gas output fell 9 percent to 596 million cubic feet a day. Production from the company's Christina Lake and Foster Creek oil sands projects rose 38 percent to 80,317 barrels per day.