* Q4 oper loss C$0.25/shr vs year-earlier profit C$0.44
* Plans to be main shipper on West-East oil pipeline
* Shares fall 2.5 percent in Toronto (New throughout with CEO comments, details, background)
By Jeffrey Jones
CALGARY, Alberta, Feb 14 (Reuters) - Cenovus Energy Inc sank into the red in the fourth quarter, missing analysts’ expectations on a hefty writedown of noncore natural gas properties and weaker refining results, prompting a 2.5 percent drop in the stock on Thursday.
Cenovus, Canada’s second-largest independent oil producer, also said it was making a series of moves to reduce the impact of deeply discounted heavy crude prices, including refining, hedging, shipping oil by rail, and committing to buy space on pipelines that are planned to Canada’s West Coast and to the U.S. Gulf Coast.
It also plans a big show of support for TransCanada Corp’s proposal to transport Alberta crude to Eastern Canada via a converted natural gas pipeline.
Canadian heavy crude prices have come under severe pressure due to a combination of surging production, a glut of supplies in traditional U.S. Midwest markets and limited export pipeline capacity.
Cenovus, best known for its Foster Creek and Christina Lake oil sands projects in northern Alberta, recorded a net loss of C$118 million ($117.7 million), or 16 Canadian cents a share, compared with a year-earlier profit of C$266 million, or 35 Canadian cents a share.
On an operating basis, the loss was C$189 million, or 25 Canadian cents a share, due mostly to a writedown of C$393 million of southeastern Alberta gas assets. Analysts, on average, had expected a profit of 38 Canadian cents a share, according to Thomson Reuters I/B/E/S.
It was a rare miss for Cenovus, which emerged from its 2009 spinoff from Encana Corp as the more profitable company because oil prices have far outpaced prices for natural gas, on which Encana had staked its future.
Quarterly production was in line with expectations, but cash flow was about 6 percent below, TD Securities analyst Menno Hulshof said in a note to clients.
The shares closed 81 Canadian cents lower at C$31.79 on the Toronto Stock Exchange. They had fallen 16 percent in the previous 52 weeks.
Chief Executive Brian Ferguson said the writedown was due to the impact of long-depressed gas prices on the company’s Suffield, Alberta, properties, once viewed as a major operating region before the breakup of Encana, and lowered cash flow expectations there.
“It’s not an economic issue. Natural gas has never been our strategy. I’ve been very clear on saying our strategy has been to optimize free cash flow and to restrict capital investment going into natural gas,” Ferguson said in an interview.
Besides the charge, the results were hit by weaker results at the company’s two joint-venture U.S. refineries as planned maintenance during the quarter prevented Cenovus from taking full advantage of the wide spread between Canadian heavy oil and wholesale fuel prices, he said.
Cenovus co-owns refineries in Wood River, Illinois, and Borger, Texas, with Phillips 66.
As it concentrates on the Alberta oil sands, including future projects such as Narrows Lake and Telephone Lake, and its conventional oil assets, Cenovus is putting its shale oil assets in the Lower Shaunavon and Bakken in Saskatchewan up for sale and hopes for a deal by the end of the year, it said.
Meanwhile, the company, which is waiting for several export pipeline proposals to move forward, expects to be a major shipper on TransCanada’s proposed West-East oil pipeline, which would move up to one million barrels a day to Quebec and possibly as far east as Saint John, New Brunswick.
TransCanada said this week it aims to hold an open season, or a call for capacity commitments, for the project soon. The proposal would involve shifting one of the lines on its natural gas mainline to oil use.
“Getting to Saint John, which is a deep-water, ice-free, year-round port, would be a huge advantage for Canadians and for Canadian oil getting to international markets,” Ferguson said.
“We will be nominating for a large volume. For competitive reasons, I can’t tell you what that number will be, but I expect we would be considered one of the anchor shippers,” he said.
Cenovus already has committed to shipping 175,000 barrels a day on the proposed Enbridge Inc Northern Gateway and on the Kinder Morgan Trans Mountain expansion projects to Canada’s West Coast. It has also committed 150,000 barrels a day to TransCanada Corp’s planned Keystone XL pipeline to the Gulf Coast and to Enbridge’s Gulf Coast projects.
The company’s fourth-quarter cash flow, a glimpse into its ability to fund its projects, fell 18 percent to C$697 million, or 92 Canadian cents a share.
Total oil production in the quarter rose 23 percent to 177,646 barrels a day.
For this year, it has locked in 49,200 barrels a day of heavy crude at $20.74 a barrel under benchmark West Texas Intermediate, which much richer than recent cash prices.
The company said its board has approved a dividend increase of 10 percent for the first quarter, resulting in a quarterly dividend of 24.2 Canadian cents per share.
$1=$1.00 Canadian Additional reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Peter Galloway