Cenovus reports $118M first-quarter loss, says cost cutting plan on track

Senior executives at oilsands giant Cenovus Energy Inc. are sharing their employees’ pain by taking lower pay in light of low commodity prices that contributed to a first−quarter loss of $118 million.

Cenovus has cut its overall head count by 31 per cent since the end of 2014 and employees this year will see lower allowances and benefits going forward after getting bonus reductions in 2015, the company said Wednesday. This year, 440 staff and full−time contractor positions have been eliminated.

"In an effort to control costs and given the challenging market conditions, the board has kept 2015 base salaries for the named executive officers at 2013 levels with performance bonuses reduced and partially deferred into 2017," president and CEO Brian Ferguson said on a conference call.

In its annual disclosure document filed in March, Cenovus reported that total compensation for four named executives fell to $18 million in 2015 from $22 million in 2013. Ferguson earned $7.9 million in salary, bonuses and other income, down from $9.2 million in 2013.

In an interview, Ferguson pointed out that executive cash salaries have been frozen for three years and employee salaries for two.

The company said administration costs in the first quarter ended March 31 were $60 million, 15 per cent lower than in the same period of 2015. It said it would record severance costs of $17 million in the second quarter related to the most recent workforce reductions.

Analyst Arthur Grayfer of CIBC World Markets said Cenovus’ results were largely in line with expectations.

He wrote in a note to investors that he hadn’t expected Cenovus to reactivate stalled oilsands growth projects given the weak business environment but left his estimate for 2016 capital spending at 15 per cent higher than guidance as more spending is expected to materialize.

Overall oil production at Cenovus fell nine per cent to 198,000 barrels per day in the first quarter. Oilsands production was down four per cent to 138,000 bpd and conventional oil production fell 19 per cent to about 60,000 bpd.

Lower expectations of its Alberta light oil plays were largely responsible for a $170−million asset writedown that affected Cenovus’ net loss in the first three months of 2016. In the same period last year, it had a net loss of $668 million mainly due to an unrealized foreign exchange loss of $514 million.

Cenovus ended the quarter with about $3.9 billion in cash on its books but Ferguson shot down suggestions from analysts on the call that the money might be used for early payouts of its bonds or to increase dividends.

He said preservation of the balance sheet is the priority, pointing out the company will be able to meet its reduced capital spending budget of $1.2 billion and fund its current dividend even if Brent crude prices remain at about US$40 per barrel through 2017.

Cenovus says it had an operating loss in the quarter of $423 million compared with an operating loss of $88 million a year ago.

Revenue totalled nearly $2.25 billion after royalties, down from $3.14 billion in the same quarter last year.