October 28, 2010 / 11:49 AM / 8 years ago

UPDATE 2-Cenovus profit sags on refining woes, natural gas

* Cash flow down 45 pct

* Cuts FY natural gas production view

* Cuts FY cash-flow view (Recasts to add details and comment; updates shares.)

CALGARY, Alberta, Oct 28 (Reuters) - Cenovus Energy Inc (CVE.TO), the oil sands concern spun off by Encana Corp (ECA.TO), said on Thursday its third-quarter operating profit plunged by nearly two-thirds on a poor results from its refining business and lower oil and natural gas prices.

Cenovus also lowered its targets for full year cash flow and natural gas production.

Cenovus, Canada’s No.2 independent oil producer, said its operating profit fell 63 percent to C$159 million ($156 million), or 21 Canadian cents per share, from C$427 million, or 57 Canadian cents, in the third quarter of 2009.

The operating results lagged forecasts for earnings of 28 Canadian cents a share, according to the average of analysts’ estimates compiled by Thomson Reuters I/B/E/S.

“Weak natural gas markets, lower realized heavy oil prices due to pipeline outages, as well as disappointing refinery performance led to lower than expected results,” Brian Ferguson, the company’s chief executive, said on a conference call.

Ferguson said the shutdown of two Enbridge Inc (ENB.TO) pipelines in the United States during the quarter cut oil prices in Canada, while Cenovus’s profit from natural gas sales was hit as lucrative hedging contracts expired.

However, lower output from two U.S. refineries Cenovus owns in a joint venture with ConocoPhillips (COP.N) was the largest factor contributing to the weak result.

Output from the refineries in Wood River, Illinois, and Borger, Texas, fell 9 percent from the year-prior quarter because of planned and unplanned maintenance shutdowns, while higher crude costs cut profit.

Cenovus said its cash flow, a key measure of its ability to pay for new projects, dropped 45 percent to C$509 million, or 68 Canadian cents a share, from C$924 million, or C$1.23 a share.

It now expects full year cash flow to be between C$2.2 billion to C$2.4 billion , down from its previous outlook of C$2.4 billion to C$2.8 billion.

It also cut its natural gas production target to the lower range of its previous outlook of 740-760 million cubic feet per day.

The company said its share of production from its two oil sands projects co-owned with ConocoPhillips rose 23 percent to 58,000 barrels per day.

Conventional oil output dropped 13 percent to 70,000 bpd while natural gas output fell 11 percent to 739 million cubic feet per day.

Cenovus said net income more than doubled because of hedging gains to C$223 million, or 30 Canadian cents, from C$101 million, or 13 Canadian cents.

Revenue rose 4.6 percent to C$3.22 billion.

Cenovus shares fell 42 Canadian cents to C$28.67 on the Toronto Stock Exchange. (Reporting by Scott Haggett, additional reporting by Gowri Jayakumar; editing by Rob Wilson)

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