Vertex Resource Group Ltd. reports its financial and operational results for the fourth quarter and year ending December 31, 2018. The results for the three months and year ending December 31, 2018 were highlighted by improvements in revenue, gross profit, EBITDA and net income as compared to the corresponding periods of 2017. Net income increased as a result of improved EBITDA and the bargain purchase gain from the three acquisitions completed in 2018 (which are discussed in more details in the MD&A and the Company's Annual Information Form filed on SEDAR at www.sedar.com), offset by increases in amortization and finance costs.
Cenovus reports exceptional third-quarter performance
Net debt down $1.6 billion from previous quarter
Cenovus Energy Inc. generated more than $700 million of free funds flow and nearly $1 billion in adjusted funds flow in the third quarter, driven by exceptional operating performance in its oil sands and refining and marketing businesses. Oil sands production exceeded 376,000 barrels per day (bbls/d) with record-low operating costs for the second straight quarter. Cenovus's 50%-owned refineries, operated by Phillips 66, processed record oil volumes for the quarter. The company also benefited from a year-over-year increase in the price of Western Canadian Select (WCS), even as the price differential between WCS and West Texas Intermediate (WTI) more than doubled. While the wider differential impacted upstream cash generation, it created a feedstock cost advantage for the refining business which contributed strong operating margin. Cash from operations, together with $625 million in proceeds from the sale of Cenovus's Pipestone Partnership, helped reduce net debt to below $8.0 billion, down about $1.6 billion from the end of the second quarter. Cenovus also signed deals to move significant quantities of oil by rail over the next three years. Due to strong operational performance and efficient use of capital, the company has reduced forecast 2018 capital spending by about $250 million with essentially no change to its production guidance.
- Generated cash from operating activities of nearly $1.3 billion, compared with $592 million in the third quarter of 2017
- Achieved free funds flow of more than $700 million, up 30% from the third quarter of 2017
- Reduced oil sands per-unit operating costs to $6.59/bbl, down 13% year over year
- Redeemed US$800 million in unsecured notes on October 29, 2018
- Signed contracts to move up to 100,000 bbls/d of oil by rail, ramping up through 2019
- Received corporate credit rating upgrade from Moody's to Ba1, stable
In the third quarter of 2018, Cenovus recorded cash from operating activities of nearly $1.3 billion compared with $592 million in the same period a year earlier. The company generated adjusted funds flow of nearly $1 billion, in line with the third quarter of 2017. Adjusted funds flow in the quarter reflected realized risk management losses of $325 million, largely related to Cenovus's remaining hedging activity, which was significantly reduced at the end of the second quarter. Cenovus had free funds flow of $706 million in the third quarter of 2018, a 30% increase year over year. Benchmark WTI prices increased almost 45% from the third quarter of 2017, while WCS prices increased 23%. The WTI-WCS price differential widened to an average of US$22.25/bbl in the quarter compared with US$9.94/bbl a year earlier. While the wider differential impacted cash generation from Cenovus's upstream operations, the lower cost of WCS relative to WTI provided a feedstock cost advantage for the company's refineries as did the wider price differential between WTI and West Texas Sour (WTS). Refining and Marketing operating margin was very strong in the third quarter, more than doubling to $436 million compared with the same period in 2017.
During the quarter, the company sold the Cenovus Pipestone Partnership in the Deep Basin for cash proceeds of $625 million before closing adjustments. The company realized a non-cash before-tax loss of $795 million on the sale. Including the proceeds of the sale and cash from operations, the company reduced net debt to below $8.0 billion at the end of the third quarter, down from $9.6 billion in the second quarter and $11.5 billion in the third quarter of 2017. On October 29, 2018, the company used cash on hand to redeem US$800 million of its US$1.3 billion unsecured notes due October 2019. The early redemption is expected to result in net interest savings of US$23 million. Reducing debt through free funds flow and asset sales remains Cenovus's top priority. The company continues to target a net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of less than two times.
"We continue to make excellent progress on the commitments we've made to shareholders," said Alex Pourbaix, Cenovus President & Chief Executive Officer. "In the third quarter, we further reduced our net debt and took a significant step forward in streamlining our Deep Basin business while advancing our market access objectives through strategic rail commitments. We also continued to lower our cost structure, which has substantially improved over the past three years."
Citing Cenovus's improving leverage, reduced oil sands cost structure, substantial oil sands production and ability to generate strong annual free cash flow from its assets, Moody's Investors Service recently upgraded the company's corporate credit rating to Ba1 from Ba2. Moody's left the company's outlook unchanged at stable. Cenovus continues to maintain three investment grade credit ratings with other rating agencies.
Cenovus also made significant progress during the quarter in reducing its long-term fixed real estate costs by subleasing an additional eight floors of The Bow. With a portion of its excess real estate space now under sublease and plans to move staff into Brookfield Place being finalized, Cenovus has reassessed the value of its overall real estate portfolio at current market conditions and has recorded a non-cash expense of $630 million.
Cenovus expects the wide differentials Western Canadian oil producers have been experiencing will begin to ease in the coming months with major North American refineries returning to normal operations following scheduled maintenance, the planned ramp-up of Canadian oil-by-rail activity and the anticipated start-up next year of Enbridge's Line 3 Replacement project. The company has been positioning itself to generate significant free funds flow as market conditions improve and price differentials return to more historic levels.
In the third quarter of 2018, Cenovus executed three-year deals with major rail companies to transport up to 100,000 bbls/d of heavy crude oil from northern Alberta to various destinations on the U.S. Gulf Coast, where the company has been receiving robust pricing for its oil shipments. The rail agreements involve moving oil with CN from Cenovus's Bruderheim Energy Terminal, which has already started, and with CP through USD Partners' terminal in Hardisty, Alberta beginning in the second quarter of next year. Over the past few months, Cenovus has added resources at Bruderheim and increased shipments from the terminal and expects to continue ramping up its rail loading operations and railcar capacity through the end of 2019.
In addition to its rail agreements, Cenovus has firm capacity to the West Coast of 11,500 bbls/d on the existing Trans Mountain pipeline and 75,000 bbls/d of capacity to the U.S. Gulf Coast on the Flanagan South system. The company also has committed capacity on the proposed Keystone XL pipeline project and the Trans Mountain Expansion Project of 175,000 bbls/d combined, and Cenovus will consider adding committed capacity on future pipeline projects over time.
"With our rail contracts, pipeline commitments and existing refining capacity, our long-term market access position is strong," said Pourbaix. "In the short term, as takeaway capacity out of Alberta remains constrained, Canadian producers will continue to be disproportionately exposed to WCS pricing. To further mitigate the impact of wider differentials and improve long-term shareholder value, we're taking action on a number of fronts to optimize the margin on every barrel of oil we produce."
Through its 50% ownership in the Wood River and Borger refineries, the company gains a feedstock cost advantage when WCS prices are relatively low compared with WTI. This reduces Cenovus's exposure to crude oil price differentials. In the near-term, including its refining capacity, existing pipeline commitments and plans to ramp-up crude-by-rail loading capacity to 100,000 bbls/d, approximately 55% to 60% of Cenovus's blended heavy oil volumes can be partially mitigated against wider differentials.
Cenovus also has the ability to respond to widening differentials and the current environment for Canadian producers by strategically slowing production at Foster Creek and Christina Lake. The company is currently operating both facilities at reduced volumes and is managing production levels to avoid any impacts to its reservoirs. Cenovus will continue to monitor the Canadian price environment and adjust its oil sands production accordingly. The company expects oil sands production for the full year to be within guidance between 364,000 bbls/d and 382,000 bbls/d. In addition, Cenovus is actively assessing other avenues of production management to increase shareholder value, including exploring a variety of additional low-cost storage options for its oil.
Cenovus's oil sands facilities continued to demonstrate excellent operational performance in the third quarter, with total oil sands production increasing 4% compared with 2017. Cenovus's Foster Creek project had production of 163,939 bbls/d in the third quarter, a 6% increase compared with the same quarter of 2017, while production at Christina Lake was 212,733 bbls/d, up 2% from the previous year.
At Foster Creek, the steam to oil ratio (SOR), the amount of steam needed to produce one barrel of oil, was 2.7 in the third quarter of 2018, compared with 2.5 in the same period of 2017. At Christina Lake, the SOR was 1.8 in the third quarter of 2018, in line with a year earlier. The company expects SORs to remain within full-year guidance of 2.6 to 3.0 at Foster Creek and 1.8 to 2.2 at Christina Lake in 2018.
For the second consecutive quarter, the company had record-low per-barrel oil sands operating costs. Combined oil sands operating costs were $6.59/bbl, down 13% from $7.58/bbl in the third quarter of 2017. At Foster Creek, non-fuel operating expenses decreased to $5.88/bbl from $7.43/bbl in the third quarter of 2017, primarily due to higher sales volumes, a reduction in workforce costs and fewer workovers, partially offset by higher chemical costs. At Christina Lake, non-fuel operating expenses increased slightly to $4.42/bbl from $4.30/bbl in the same period a year ago due to higher chemical costs, partially offset by lower workforce costs and reduced workovers.
Field construction of Christina Lake phase G, which has approved capacity of 50,000 bbls/d, continues on schedule and is expected to begin production in the second half of 2019. Continuing to benefit from its capital discipline and improved cost structure, Cenovus anticipates go-forward capital costs, from the time the project was restarted last year through to completion, of between $13,000 and $14,000 per barrel of capacity, 21% lower than the company's original cost estimates.
Cenovus's Christina Lake project achieved a significant milestone in the quarter, reaching payout for royalty purposes in August 2018 as cumulative revenues from the project surpassed cumulative allowable costs. Royalties at Christina Lake now follow the post-payout formula described in Cenovus's Management's Discussion and Analysis for the period ended September 30, 2018. The company's revised royalty forecast for the year is reflected in its updated Guidance document dated October 30, 2018.
Total production in the Deep Basin for the quarter averaged 118,920 barrels of oil equivalent per day (BOE/d), a 3% increase from the same quarter a year earlier and down 8% compared with the second quarter of 2018 due, in part, to the divestiture of the Cenovus Pipestone Partnership. The Deep Basin assets generated operating margin of $73 million in the third quarter compared with $64 million in the same period of 2017. During the quarter, Cenovus completed four net wells and tied in two net wells. Cenovus's 2018 drilling program in the Deep Basin was largely completed in the first half of the year, and results have been in line or better than expected.
Cenovus intends to further focus its portfolio and reduce debt by divesting more of its Deep Basin assets. The company is continuing to advance confidential divestiture processes.
Refining and MarketingCenovus's Wood River and Borger refineries, which are jointly owned with Phillips 66, continue to demonstrate excellent operational performance. Combined, the refineries processed a record 492,000 gross bbls/d of crude oil, compared with 462,000 bbls/d a year earlier, and produced 518,000 gross bbls/d of refined products, compared with 490,000 bbls/d in the third quarter of 2017. Refining and Marketing operating margin more than doubled to $436 million compared with $211 million in the same period a year earlier. The increase was largely due to lower feedstock costs driven by wider price differentials between WTI and WCS as well as WTI and WTS, reduced costs for renewable identification numbers and very high utilization.
Cenovus's refining operating margin is calculated on a first-in, first-out (FIFO) inventory accounting basis. Using the last-in, first-out (LIFO) accounting method employed by most U.S. refiners, the operating margin from Refining and Marketing would have been $15 million lower in the third quarter of 2018, compared with $9 million lower in the third quarter of 2017.
Continuing to benefit from its focus on capital discipline, Cenovus is reducing its forecast capital expenditure for 2018 by approximately $250 million at the midpoint, with essentially no change to its production guidance. This reduction is due to strong operational performance and efficient use of capital. Cenovus is also reducing forecast per-unit oil sands operating costs for 2018 to $7.49/bbl at the midpoint, down 5% from its December 13, 2017 Guidance. Cenovus's updated Guidance document is available under Investors on cenovus.com.
Cenovus did not add any new corporate commodity hedges during the third quarter. As of September 30, 2018, the company had approximately 150,000 bbls/d or 37% of its forecast oil production hedged for the fourth quarter of the year using WTI and Brent contracts. Cenovus has 19,000 bbls/d of forecast oil production hedged for 2019.
More from Industry News
H. G. Schaevitz LLC, Alliance Sensors Group has released its LV-45 series inductive, contactless linear position sensor using LVIT Technology. The LV-45 linear position sensors are specifically designed for measuring applications requiring rugged devices, whether measuring position of steam turbine valves, mounted in a paper mill head box or calendar roll stand, or outdoors fastened to a building, bridge or structure. The LV-45 series was designed after identifying the wants and needs of engineers in the industrial world, so LV-45 Series linear position sensors can withstand the high vibration and severe shock environment found in steel, aluminum, and paper mills, as well as extremes of temperature and humidity found in most outdoor applications where many other types of linear position sensors cannot survive.
Baker Hughes, a GE company has posted its Weekly Rig Count reports.
The Petroleum Services Association of Canada (PSAC) expressed its profound disappointment with the 2019 federal budget, which the organization states has no measures to address Canada's competitiveness issues to encourage private capital investment and stimulate job creation.
AltaGas Ltd. (AltaGas) has announced that after careful consideration, David Cornhill, Founder of AltaGas and Chairman, has elected to step down on April 1, 2019 from the Chairman position. New Chair Pentti Karkkainen has been appointed by the Board of Directors, effective April 2. Mr. Cornhill will remain on the Board, ensuring an orderly transition and continuity.
Williams announced a series of transactions that will establish a new platform for the optimization of its midstream operations in the western Marcellus and Utica basins through a long-term partnership with Canada Pension Plan Investment Board.
The United States Federal Energy Regulatory Commission has issued the Final Environmental Impact Statement for Texas LNG Brownsville LLC's proposed 2 train, 4 million tonnes per annum LNG export facility located in the Port of Brownsville, Texas. The FEIS has been issued in accordance with the anticipated dates listed in the Notice of Schedule for Environmental Review received in August 2018.
Fluor Corporation announced that its joint venture with TechnipFMC has successfully completed its engineering, procurement and construction management services scope of work on Sasol's world-scale petrochemical complex in Westlake, Louisiana. The joint venture will continue to provide assistance to the Sasol team with remaining activities by working with Sasol in parallel on transition plans for each unit and system. The joint venture team will also assist in performance testing for the complex.
Schneider Electric, the leader in the digital transformation of energy management and automation, has entered into a global partnership with Vericlave, a leading cybersecurity technology provider. Under the terms of the agreement, Schneider Electric will provide Vericlave's advanced encryption technology to further secure and protect its customers' critical IT and OT systems from the risk of cyberattack.
Imperial has slowed the pace of development of its Aspen in situ oil sands project given market uncertainty stemming from Alberta government intervention and other industry competitiveness challenges.
The National Energy Board (NEB) has released a report examining short and long-term options to optimize oil pipeline capacity out of Western Canada as requested by Amarjeet Sohi, Minister of Natural Resources.
NACE International, the nonprofit association and leading resource for corrosion expertise and education, has launched its newly redesigned website, www.nace.org. Based on feedback from frequent users and customers, the new site features enhanced tools and search functions, intuitive navigation to help users quickly locate information, and convenient mobile functionality and responsive design.
Sproule and GTI have announced a strategic partnership to deliver a jointly developed Canadian natural gas liquids (NGL) report to industry. The report provides an in-depth understanding of the economics of producing natural gas and NGLs. This monthly report leverages the expertise of GTI and Sproule principals to provide insight and analysis on the profitability of natural gas and NGL production at western Canadian gas plants. Included in the report are supply and price forecasts for gas and NGLs, netback analysis by component and a summary of the market dynamics that are affecting pricing along commentary regarding key developments and relevant news.
Despite each of our daily lives becoming increasingly digitized to save us time and money and keep us safe and healthy, many areas of heavy industry, especially those which rely on large-scale physical infrastructure, are still grappling with how to integrate meaningful technologies that will move them beyond cumbersome and costly analogue processes.
United Electric Controls, a producer of safety, alarm and shutdown technology, has announced that it has added carbon monoxide (CO) to the list of gases detected by the latest Vanguard WirelessHART gas detector. Vanguard version 1.2 also includes new mounting flexibility and a variety of other features that enhance installation, configurability and maintainability.
BNK Petroleum Inc. has announced that its total proved reserves as of the end of 2018 is 33.8 million barrels of oil equivalent (BOE), an increase of 26% over the previous year. Its proved plus probable reserves are an estimated 53.3 million BOEs.
Canadian Natural has reported its 2018 fourth quarter and full year results, indicating that the company is continuing to show growth, even within a challenging oil and gas industy.
Questerre Energy Corporation has executed a definitive purchase and sale agreement with a senior exploration and production company to acquire all their assets in Quebec. This follows the letter of intent signed in early 2018 as set out in the Company's press release dated June 4, 2018.
Rotork IQ3 intelligent multi-turn electric actuators have been specified for use in solar powered control stations for water gathering pipelines in the USA.
Endress+Hauser is investing $38.5 million into a new 112,000 square-foot Gulf Coast Regional Center Campus. The company officially broke ground on March 7, 2019, at its new site in Pearland's lower Kirby District, just outside of the Houston area. Completion is projected by the end of 2020.
Baker Hughes, a GE company announced that the Baker Hughes international rig count for February 2019 was 1,027, up 3 from the 1,024 counted in January 2019, and up 48 from the 979 counted in February 2018. The international offshore rig count for February 2019 was 250, up 8 from the 242 counted in January 2019, and up 56 from the 194 counted in February 2018.
Tracking and reducing methane emissions from oil and gas operations needs an innovative approach, according to new report from the C.D. Howe Institute. In "Measuring and Managing the Unknown: Methane Emissions from the Oil and Gas Value Chain" authors Sarah Marie Jordaan and Kate Konschnik highlight the growing pressure on industry and policymakers to address the "unknown" factor in greenhouse gas emissions and propose a regulatory approach that remains open to new technologies.
Rittal is committed to its global strategic partnership with ABB to provide edge data center solutions for industrial organizations. Rittal's collaboration with ABB on secure edge data centers continues to grow, including through the annual ABB Customer World event in Houston.
Saskatchewan’s taxes on new oil and gas investment highest among North American energy producers: Fraser Institute
Saskatchewan has the highest taxes on new oil and gas investment among all major energy-producing jurisdictions in North America, which is harming the province's competitiveness, finds a new study released by the Fraser Institute, an independent, non-partisan Canadian policy think-tank.
Dedicated to securing and protecting trust in the digital economy, Schneider Electric today announced its membership in the Cybersecurity Coalition, based in Washington, D.C. As a digital transformation leader operating in more than 100 countries, Schneider Electric continues to work closely with governments, customers, and partners to play a principal role in confronting cybersecurity risks and challenges. By joining the Coalition, Schneider affirms its commitment to being open, transparent, and collaborative so it can better detect, prevent, and respond to cyber threats across its extended enterprise.
CIRCOR Industrial Valves announces the cost-saving Rotable Critical Trim Refurbishment Program. Eliminating the delay and expense of cutting out a leaking valve, the program replaces internal valve components to return valve function quickly while restoring the removed parts for future use.
In the oil and gas industry, failing to perform ongoing maintenance on equipment can have severe consequences including reducing equipment service life, causing unplanned shutdowns and degrading performance. Ongoing maintenance is required to remove rust, corrosion and other accumulated material from the inside diameter (ID) of valves, pumps, piping, diesel engines, motors, natural gas compressors, flow meters and other large bore equipment. Often, this maintenance work is performed in the field under harsh conditions.
Ritchie Bros. has conducted its first Edmonton, AB auction of the year, selling more than 5,000+ equipment items and trucks over three days for CA$69+ million (US$52+ million)—up 15% year over year.
A landmark gift from Pembina Pipeline Corporation is ensuring working landscapes across the Canadian Prairies also work for conservation. Its $1-million investment in Ducks Unlimited Canada's (DUC) Revolving Land Conservation Program will protect approximately 2,000 acres (809 hectares) of important wetland habitat. At the same time, communities across Alberta and Saskatchewan will profit from a host of environmental benefits.
D&L Oil Tools introduces the patented ProTension Safe Tension Tool (STT), which was designed as a safety tool to eliminate the potential for loss of well control when pulling a tubing string into tension. Additionally, it allows operators to safely set tubing anchors and other downhole tools in tension.
Cuda Oil and Gas Inc. has released the results of its 2018 year-end oil and gas reserves evaluation for Wyoming and Alberta.
FLIR Systems, Inc. has launched the FLIR GF77 Gas Find IR, its first uncooled thermal camera designed for detecting methane. This handheld camera offers inspection professionals the features they need to find potentially dangerous, invisible methane leaks at natural gas power plants, renewable energy production facilities, industrial plants, and other locations along a natural gas supply chain. The GF77 provides methane gas detection capability at roughly half the price of cooled gas inspection thermal cameras, to empower the oil and gas industry to reduce emissions and ensure a safer work environment.
Technical Toolboxes, al provider of desktop and cloud-based pipeline engineering software, as well as industry training for pipeline engineering and technical professionals, has released the Pipeline HUB (HUBPL) to integrate pipeline data and better facilitate customers' technical work.
Husky Energy generated funds from operations of $4 billion in 2018, an increase of 21 percent from 2017. Annual net earnings rose 85 percent to $1.5 billion, and free cash flow was $426 million.
Perkins opens third Regional Logistics Centre in Curitiba, Brazil, to serve South and Central America
Perkins has announced the planned opening of a new Regional Logistics Centre (RLC) in Curitiba, Brazil, to support Original Equipment Manufacturers (OEMs) and Perkins distributors in South and Central America. Co-located with the Perkins engine manufacturing facility in Curitiba, the new RLC - expected to be operational in the first quarter of 2019 - will stock more than 3,000 genuine Perkins parts and provide next day or two-day delivery for most of the region.
The National Energy Board (NEB) released its report and recommendations on the Reconsideration Hearing. The report will play a substantial role in the Governor in Council's decision on the Trans Mountain Expansion Project.
Pembina Pipeline Corporation has announced its financial and operating results for the fourth quarter and full year 2018. Pembina delivered strong 2018 financial and operational results leading to record full year earnings and Adjusted EBITDA. These results were largely driven by the full-year contribution from assets included in the acquisition of Veresen Inc. in October 2017 and assets placed into service following a large-scale capital program, driving growing revenue volumes. Highlights for the fourth quarter and full year 2018 include:
- Fourth quarter and full year earnings of $368 million and $1.3 billion, a 17 percent decrease and 45 percent increase, respectively, over the same periods in 2017;
- Cash flow from operating activities of $674 million for the fourth quarter and $2.3 billion in 2018, increases of 29 percent and 49 percent, respectively, over the same periods in 2017. Adjusted cash flow from operating activities increased by nine percent and 54 percent to $543 million and $2.2 billion in the fourth quarter and full year 2018, respectively, compared to the same periods in 2017;
- On a per share (basic) basis, cash flow from operating activities for the fourth quarter and full year 2018 increased by 28 percent and 26 percent, respectively, compared to the same periods in the prior year. On a per share (basic) basis, adjusted cash flow from operating activities for the fourth quarter increased eight percent and 31 percent for the full year compared to the same periods of the prior year;
- Fourth quarter and full year operating margin of $800 million and $3.2 billion, were seven percent and 64 percent higher, respectively, than the same periods of the prior year; and
- Fourth quarter and full year Adjusted EBITDA of $715 million and $2.8 billion, representing six percent and 67 percent increases, respectively, over the same periods in 2017.
The decision by the National Energy Board to approve continued work on the Trans Mountain Pipeline Expansion was welcomed by its owner, the Canadian government, while opponents have suggested that any attempt to restart construction will end with court challenges.
The National Energy Board (NEB) has delivered its Reconsideration report to the Government of Canada, with an overall recommendation that the Trans Mountain Expansion Project (Project) is in the Canadian public interest and should be approved.