Cenovus Energy Q2 Profit Falls; Plans For Additional Staff Reductions

(RTTNews) - Cenovus Energy Inc. (CVE, CVE.TO) reported that its second-quarter 2015 net earnings fell to $126 million from $615 million in the second quarter of 2014. Earnings per share dropped to $0.15 from $0.81 last year.

In addition to lower operating earnings, the decline was related to higher unrealized risk management losses of $151 million, compared with $11 million in losses a year prior, and lower non-operating unrealized foreign exchange gains of $99 million, compared with $177 million in gains in the previous year's period.

Net earnings were also impacted by a deferred income tax recovery of $261 million, compared with a deferred tax expense of $216 million in the second quarter of 2014.

Cenovus had operating earnings of $151 million in the second quarter, compared with operating earnings of $473 million in the same quarter in 2014. The decrease was primarily due to the decline in cash flow as well as an exploration expense of $21 million in the second quarter of 2015, compared with an exploration expense of $1 million in the same period of 2014. The decrease in operating earnings was partially offset by a recovery of deferred income tax and lower employee long-term incentive costs.

With the expectation of a prolonged period of low oil prices and the cash flow impact from the sale of its royalty and fee land business, Cenovus reduced its dividend by 40%. The Board of Directors has declared a third quarter dividend of $0.16 per share, payable on September 30, 2015 to common shareholders of record as of September 15, 2015.

Cenovus continues to make solid progress attacking cost structures across the entire company to reduce its spend and create sustainable cost improvements. The company previously announced a target of $200 million in upstream operating, capital and G&A cost savings for 2015, which were largely achieved within the first six months of the year. As a result, the company is increasing its cost-cutting expectation for 2015 to approximately $280 million, 40% higher than its initial target.

In February, Cenovus announced initial plans to reduce its workforce by approximately 800 positions to align with capital budget reductions for the year. The company has since identified 300 to 400 positions at its Calgary offices that are expected to be eliminated before the end of 2015. These positions are no longer required because of a decrease in work due to the continued.

The cost savings associated with these additional workforce efficiencies are expected to be at least $100 million annually. Because the full impact of these workforce savings is still being finalized and will likely be more evident in 2016, they have not been included in the company's $280 million overall cost-reduction target for this year.

Cenovus is also planning for additional staff reductions at its field operations in early 2016, as the company continues to identify even greater workforce efficiencies.

Cenovus is also realigning the structure of its Leadership Team to better fit with the functional model. The planned retirements of four Executive Vice-Presidents announced this May are proceeding as expected. The retiring executives will continue in varying capacities until the end of the first quarter of 2016. As a result of Cenovus's strong focus on internal succession planning, three of the vacancies on the Leadership Team are being filled by internal candidates who are being promoted to newly-restructured portfolios. In addition, an external search is well underway for a President, Upstream Oil & Gas, who will be responsible for the company's oil sands and conventional operations. Cenovus expects to have that candidate identified by September.

The company anticipates that 2015 capital spending will remain within its previously announced guidance of $1.8 billion to $2.0 billion.