That little yellow area to the right of Telephone Lake was once Oilsands Quest land. Cenovus

 

CALGARY – Saskatchewan’s largest oil producer, Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) announced its 2024 budget on Dec. 14.

Continuing with the growth plan embarked on in 2023, Cenovus expects to invest capital of between $4.5 billion and $5.0 billion in 2024. This investment includes $1.5 billion to $2.0 billion of optimization and growth capital, primarily for progressing the West White Rose project as well as incrementally growing production at the Foster Creek, Christina Lake and Sunrise oil sands facilities. Additionally, Cenovus will implement further initiatives in its downstream business to improve reliability and increase margin capture as well as invest in opportunities in the Conventional business. Approximately $3.0 billion will be directed towards sustaining production and supporting continued safe and reliable operations.

The budget is based on a West Texas Intermediate price of US$75 per barrel, with a US$58 per barrel price for Western Canadian Select.

Among the Saskatchewan capital items listed include carbon capture and storage projects for the Lloydminster Upgrader. There was no specific mention of additional Lloydminster thermal projects in the offing beyond the 11 already in place. This is significant, as Husky, the previous operator of those thermal projects, had at one point spoken of up to 15 that might be developed. Each cost in the neighbourhood of $250 to $350 million, all-in.

That said, on Dec. 14, the company had eight rigs drilling in northwest Saskatchewan, largely in a line from east of Maidstone to north of Paradise Hill, according to RiggerTalk.com.

Lloydminster thermals are listed at 103,000 bpd production in 2023, while Lloydminster conventional oil production was 17,000 bpd in 2023. The Lloydminster conventional zone includes a broad area of Alberta in the Lloydminster area.

Cenovus is also piloting carbon dioxide-enhanced oil recovery (CO2-EOR).

The Lloydminster refinery is listed as 29,000 bpd heavy oil throughput capacity, producing more than 30 types and grades of road asphalt.

Total downstream optimization, including the company’s five U.S. refineries as well as the Lloydminster facilities, is approximately $150 million.

A notable graphic shows the feedstock, as a percentage of throughput, and the refined products, of the upgrader and six refineries.

The Lloyd Upgrader and Lloyd Refinery both have 100 per cent input of heavy oil. The other five refineries’ intake of heavy oil varies from eight per cent at Lima to 72 per cent at Superior. That’s significant as Superior is at the terminus of the Enbridge Mainline.

As for output, the Lloyd Upgrader, 70 per cent of its output is synthetic oil, followed by 17 per cent distillates, 11 per cent intermediates, and two per cent “other.”

The Lloyd Refinery’s output is 76 per cent asphalt, and 24 per cent intermediates.

The map of the company’s Alberta and Saskatchewan heavy oil properties had one curious point – indicating oilsands lands on the Saskatchewan border. This would be land that had been picked up in 2012 from defunct Oilsands Quest, which tried without success to develop oilsands on this side of the border. However, there was no indication of development of these properties within the budget.

“We will continue to progress strategic initiatives in our base business in 2024 that will enhance our integrated operations and further drive our ability to grow total shareholder returns, even in periods of price volatility,” said Jon McKenzie, Cenovus president & chief executive officer. “We will remain focused on reducing costs and continued capital discipline, while realizing the full value of our integrated strategy.”

2024 budget highlights:

  • Total upstream production of between 770,000 and 810,000 barrels of oil equivalent per day (BOE/d) with production from oil sands and thermal projects expected to be between 590,000 and 610,000 barrels per day (bpd), which reflects a turnaround at Christina Lake in the third quarter of 2024.
  • Total downstream crude throughput of 630,000 bpd to 670,000 bpd, an increase of approximately 17 per cent compared to the prior year.
  • Oil sands operating expenses per barrel (bbl) of $12.00 to $14.00 and U.S. refining operating expenses of $11.75/bbl to $13.75/bbl, which includes expensed turnaround costs.

 

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2024 guidance

Oil Sands
Oil sands production guidance for 2024 is 590,000 bpd to 610,000 bpd, which reflects a turnaround in the third quarter at Christina Lake, with an expected annualized impact of approximately 13,000 bpd to 15,000 bpd. Oil sands operating costs are expected to be in the range of $12.00/bbl to $14.00/bbl in 2024, partially due to higher non-fuel costs associated with the Christina Lake turnaround.

Cenovus plans to invest $2.5 billion to $2.75 billion of capital in its oil sands assets, including approximately $650 million of growth and optimization capital, largely related to further advancing brownfield and multi-year growth opportunities that will increase production across its oil sands portfolio.

Investment in the coming year will be focused on projects with strong capital efficiencies, Cenovus said, including the Foster Creek optimization project, Narrows Lake tie-back to Christina Lake and optimization and new well pads at Sunrise, positioning the company to meaningfully increase production starting in 2025. In addition to the Foster Creek optimization project, capital investment will also be directed to a project to enhance sulphur recovery at Foster Creek, leading to lower operating costs once completed.

Conventional
The company plans to invest between $350 million and $425 million in its conventional assets. Capital will be primarily used to maintain production, advance methane reduction projects and build gas handling infrastructure to support future production growth. Total production is expected to be between 120,000 boepd and 130,000 boepd.

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Offshore
Total Offshore production is expected to be in the range of 60,000 boepd to 70,000 boepd. This includes between 10,000 bpd and 15,000 bpd in the Atlantic region, which reflects the impact of the SeaRose floating production, storage and offloading (FPSO) vessel asset life extension program, scheduled to begin in January. The SeaRose is expected to return to the field and resume production late in the third quarter of 2024.

Capital spending of between $850 million and $950 million will be primarily directed towards the ongoing construction of the West White Rose project in the Atlantic region, in addition to the capital costs associated with the SeaRose asset life extension program, which will support production at the White Rose field, including production associated with West White Rose, until 2038. First oil from the West White Rose project is expected in the first half of 2026, with peak production of approximately 45,000 bpd anticipated in 2028.

Downstream
Crude throughput is expected to be between 630,000 bpd and 670,000 bpd, representing a crude utilization rate of approximately 87 per cent, and includes 85,000 bpd to 95,000 bpd of crude throughput in the Canadian Refining segment.

The Lloydminster Upgrader will begin a turnaround in the second quarter of 2024, which will impact annualized throughput by approximately 10,000 bpd to 12,000 bpd. As a result of the turnaround, operating costs per barrel in Canadian Refining are expected to be $18.00/bbl to $20.00/bbl in 2024, with the increase relative to 2023 attributable to higher expensed turnaround costs.

Crude throughput in U.S. Refining is expected to be 545,000 bpd to 575,000 bpd, an increase of 24 per cent year-over-year, which reflects a full year of throughput at the Superior Refinery, in addition to the increased working interest at the Toledo Refinery acquired in early 2023. U.S. operating costs are expected to be between $11.75/bbl and $13.75/bbl, a decrease of approximately 17 per cent when compared to 2023. Capital investment in the downstream business is projected to be between $750 million to $850 million, including approximately $155 million for growth and optimization capital, and will be primarily focused on safety and reliability initiatives across Cenovus’s downstream businesses as well as optimization projects to enhance margin capture.

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Corporate
General and administrative (G&A) expenses, not including stock-based compensation, are expected to be in the range of $625 million to $725 million in 2024. In addition, Cenovus expects to invest $200 million to $300 million on IT systems upgrades, which will modernize and replace the company’s existing enterprise resource planning systems, enhance cyber security and standardize data across the company.

Sustainability
Cenovus said it continues to progress work towards its environmental, social and governance (ESG) targets. The company continues to deploy previously announced capital on initiatives to advance its goal of reducing absolute scope 1 and 2 greenhouse gas (GHG) emissions by 35% by year-end 2035, from 2019 levels, on a net equity basis. In 2024, investments in targeted emissions reduction initiatives and Cenovus’s commitment to the Pathways Alliance foundational project are forecast to reach almost $100 million. This includes progressing carbon capture projects at the Lloydminster Upgrader and Christina Lake, methane reduction initiatives across Conventional operations, continuing work to increase energy efficiency at the company’s Canadian offshore assets and advancing additional technology assessments.

2024 planned maintenance
Cenovus expects maintenance and repair activities will contribute to higher operating costs in 2024 as the company works to ensure the safety and reliability of all its upstream and downstream assets. Atlantic region operating expenses reflect the planned SeaRose FPSO vessel asset life extension program, while work at Cenovus’s Lloydminster Upgrader will result in higher operating costs for Canadian Refining.

 

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