Cenovus Energy Inc. is dialing back its aggressive hedging program after untimely financial bets on crude oil prices led to a hefty first-quarter loss.
The oil sands producer also blamed the weak financial showing for the three months ended March 31 on full pipelines and a lack of spare rail capacity, which pressured prices and forced the company to throttle back output at its steam-driven plants.
Cenovus said on Wednesday the first-quarter loss swelled to $654-million or 53 cents a share compared with a profit of $211-million or 25 cents in the year-ago period.
The loss from hedging widened to $469-million from $79-million during the same period last year. Such financial contracts secure future sales at set prices, protecting cash flow in a falling market, but they can also limit gains should oil prices appreciate.
The company said production covered by financial hedges would fall from about 80 per cent today to about 37 per cent in the second half of the year as contracts expire.
“I wouldn’t expect to see a lot more of that activity going forward,” chief executive officer Alex Pourbaix told analysts on a conference call.
Calgary-based Cenovus has been selling assets to repay debt taken on to fund its $17.7-billion acquisition of oil sands and natural gas assets from ConocoPhillips Co.
However, it offered no update on the timing and scope of additional sales beyond Deep Basin lands producing 15,000 barrels of oil equivalent it currently has on the block.
The company has been hammered by sharp price discounts as rising production tests the limits of export capacity. In the quarter, adjusted funds flow from operations was negative $41-million versus $323-million a year ago.
Still, the Toronto-listed shares jumped more than 6 per cent in mid-afternoon trading.
Cenovus and others have cut output and bumped up maintenance work at major plants to cope with low prices, but analysts say that relief is temporary.
The company said on Wednesday it had resumed normal operations after earlier curtailing production at its flagship plants in Christina Lake and Foster Creek, Alta.
However, executives said it could dial back output again or slow increases at a 50,000 b/d Christina Lake expansion, known as Phase G, should prices weaken.
In the quarter, oil sands production was 359,666 b/d, below its 2018 guidance range of 364,000 to 382,000 b/d. Financial results were also hit by planned maintenance at its U.S. refining operations.
The oil industry has been stymied by backlogs of grain, lumber and other freight hauled by railways, which have also balked at moving large volumes of oil without long-term commitments from producers.
That has delayed shipments and compounded woes for oil sands producers already grappling with tight pipeline capacity, Mr. Pourbaix said in an interview. Deliveries should increase later this year and into 2019, he said.
“They were just not in a position to move as quickly as I think a lot of industry expected,” he said.