Cenovus poised to build expansion at Foster Creek oilsands project

CALGARY - Cenovus Energy Inc. is poised to break ground on a major oilsands expansion as part of an ambitious plan to increase bitumen production five-fold by 2019.

Regulators have approved plans to build three additional 30,000-barrel-per-day phases at Foster Creek, south of Fort McMurray, Alta., the Calgary-based crude producer said Monday.

"The regulatory approval of these expansions at Foster Creek is another milestone reached in Cenovus's efforts to expand production and increase net asset value," said Brian Ferguson, president and chief executive officer.

"With these approvals, we believe there is a step change in the value of this project as there's increased certainty around the schedule and timing of the expansion."

The expansions will bring Foster Creek's current production from 120,000 barrels per day up to 210,000 barrels per day.

Engineering on the first of the three new phases, Phase F, has already begun and construction is expected to start soon, although Cenovus didn't provide a specific date.

About 1,000 people will be employed to complete the Phase F expansion, which is set to begin producing by 2014. The next two phases are set to come on stream by 2017.

Earlier this year, Cenovus set itself the lofty goal of producing 300,000 barrels of bitumen per day by 2019 — five times its current output.

"One of the things that Cenovus has going for it is just an outstanding set of leases. A lot of it comes down to having good properties to begin with," said John Stephenson, portfolio manager at First Asset Investment Management.

All Cenovus oilsands developments use steam to liquefy the sticky bitumen deep underground so it can be more easily drawn to the surface.

Stephenson praised Cenovus for having one of the best steam-to-oil ratios in the industry. That essentially means it requires less steam — and therefore water and energy — to produce each barrel of oil.

"The steam-oil ratio is huge. That directly impacts your economics," he said.

In addition to Foster Creek, Cenovus is in the midst of expanding its Christina Lake project, just to the north. Two new phases there are expected to add 40,000 barrels per day, with the first coming on next year and the next in 2013.

A regulatory application has also been filed for the 130,000 barrel-per-day Narrows Lake project, which could begin production as soon as 2016.

Foster Creek, Christina Lake and Narrows Lake are part of a 50-50 joint venture with Houston-based energy giant ConocoPhillips, which ties Cenovus production to two of the U.S. firm's refineries. The partnership must endorse the expansion plans announced Monday.

Meanwhile, Cenovus continues to work on a pilot project in the relatively undeveloped Grand Rapids formation. It is also doing some early testing on other properties in the region.

Cenovus is a relatively new name in the oilpatch, having split off from natural gas producer Encana Corp. (TSX:ECA) at the end of last year.

Cenovus shares rose about 1.8 per cent to $28.38 on the Toronto Stock Exchange in mid-day trading.