CENOVUS ENERGY $31.99 - Toronto symbol CVE

CENOVUS ENERGY $31.99 (Toronto symbol CVE; Shares outstanding: 754.7 million; Market cap: $24.1 billion; TSINetwork Rating: Extra Risk; Dividend yield: 2.8%; www.cenovus.com) operates three oil sands projects in Alberta and one in Saskatchewan. The company ships the heavy bitumen from these assets to refineries in Illinois and Texas. ConocoPhillips (New York symbol COP) owns 50% of these refineries and 50% of Cenovus’s two main oil sands projects. Cenovus also owns conventional oil and natural gas properties.

In the three months ended June 30, 2012, Cenovus’s cash flow per share fell 1.6%, to $1.22 from $1.24 a year earlier. Lower oil prices offset a 27.8% increase in production, to 155,566 barrels of oil per day from 121,762 barrels.

Cenovus has started producing oil at the fourth phase of its Christina Lake oil sands project in Alberta. The startup is three months ahead of schedule and within budget. ConocoPhillips owns 50% of Christina Lake.

It will take six to nine months for this phase to reach full capacity. At that time, it will produce 40,000 barrels a day (Cenovus is entitled to 20,000 barrels). To put that in context, Cenovus’s share of all of Christina Lake’s production in the latest quarter was 28,577 barrels a day.

The partners are now working on the fifth phase, which is 55% complete and should begin operating in the fourth quarter of 2013. The sixth phase will likely start up in 2016.

Cenovus is a buy.

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