CENOVUS ENERGY INC. $28 - New York symbol CVE

CENOVUS ENERGY INC. $28 (New York symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 755.8 million; Market cap: $21.2 billion; Priceto- sales ratio: 1.2; Dividend yield: 3.2%; TSINetwork Rating: Average; www.cenovus.com) gets 60% of its production from its three heavy oil projects in Alberta and one in Saskatchewan. Conventional oil and natural gas wells supply the remaining 40%.

U.S.-based ConocoPhillips (New York symbol COP) owns 50% of Cenovus’s main Foster Creek and Christina Lake oil sands projects in Alberta. Cenovus ships the bitumen from these fields to its 50%-owned refineries in Illinois and Texas. Phillips 66 (New York symbol PSX) owns the other 50% of these refineries.

The company expects lower cash flow in 2014, partly due to rising operating costs at its oil sands projects. It’s now working on making these operations more efficient.

The cash flow decline is also prompting Cenovus to cut its capital spending by 13% in 2014, to $2.8 billion to $3.1 billion. As a result, it expects its conventional oil output to fall 4% in 2014. Gas production will decline 10%.

Cenovus will earmark about 70% of these funds for its existing oil sands projects. That will help it increase its oil sands production by 18% in 2014, to 116,000 to 128,000 barrels a day. However, it will spend 40% less on its riskier development projects.

The company will spend the remaining 30% on its refineries and conventional oil and gas properties.

Even with the lower spending, Cenovus aims to increase its overall oil production to 525,000 barrels a day within 10 years, up from a projected 199,000 in 2014.

Cash flow per share will probably fall 5.7%, from $4.70 (Canadian) in 2013 to $4.43 in 2014. The stock trades at just 6.7 times the 2014 estimate. The $0.97 dividend yields 3.2%.

Cenovus is a buy.

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