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We are on track with our strategy.
We are on track with our business
plan. and we have the bright minds
to deliver on our commitments.
2012 a nnua l rep ort
Table of contents
2
4
8
evolving our culture
our purpose, promise and values
motivating our teams to go furtHer
message from our president
& chief executive officer
developing our assets
our integrated approach
10
cHarting our course
our strategy
Looking back on the year
12
advancing our top-Quality resources
16 driving value tHrougH eXecution
20 applying new ideas and new approacHes
24
building momentum
message from our Board chair
26 operating HigHligHts
27
financial HigHligHts
28 management’s discussion
and analysis
72 consolidated financial statements
79 notes to consolidated
financial statements
118 supplemental information
124 additional reserves and oil
and gas information
129 advisory
133 corporate and sHareHolder
information
FORWA RD-LOOKING INF ORMATION This annual report contains
forward-looking information about our strategy, milestones, goals, targets and
future expectations. This forward-looking information is based on certain factors
and assumptions and is subject to risks and uncertainties, some of which are
specific to cenovus and others that apply to the industry generally. For details
about these factors, assumptions, risks and uncertainties, please refer to the
advisory. all estimated timelines are subject to regulatory and/or partner approval.
readers are cautioned not to place undue reliance on forward-looking information
as our actual results may differ materially from those expressed or implied. For
an overview of our approach to risk management, see “risk management” in
our management’s Discussion and analysis for the year ended December 31,
2012 (“mD&a”). NON-GAAP MEASuRES This annual report contains references
to certain financial measures which do not have a standardized meaning as
prescribed by gaap. a description of each non-gaap measure, including a
definition and reconciliation with gaap measures, is included in our mD&a.
OIL AND GAS INFORMATION This annual report contains information about
our reserves and our bitumen resources. For additional information about our
reserves, contingent and prospective resources, see “oil and gas reserves and
resources” in our mD&a and “additional reserves and oil and gas Information”
in this annual report.
Who we are
We are a canadian
integrated oil company.
our goal is to increase total
shareholder return, while
applying fresh, progressive
thinking to safely and
responsibly unlock energy
resources the world needs.
We are focused on delivering
predictable, reliable performance.
our achievements are a direct
result of the energy of our people.
That energy is the momentum
that’s carrying us forward.
Why investing in Cenovus makes sense
• We have industry-leading oil sands assets. These great
assets support decades of oil growth.
• We have a track record of strong operational results.
This has allowed us to be a leader in steam-assisted
gravity drainage, or sagD.
• We have a manufacturing approach to oil development.
This approach supports our industry-leading cost
metrics and capital efficiencies.
• We are focused on innovation. This means we’re
continually improving our performance.
• We have an integrated approach. This improves
the stability of our overall cash flow despite
the variability in commodity prices.
• We have financial strength. This provides
the flexibility to pursue our growth
plans and support a strong and
sustainable dividend.
EVO LV IN g
O UR cU LtU RE
OUR PURPOSE, PRO MIS E AN D VAL UE S
How we do our work at Cenovus is as
important as what we do. Our passion
drives us to grow responsibly and live
up to our commitments.
Our purpose, our promise and
our values are more than just
words on a page. They speak to
the pride we all have in the work
we do and in the way we do it.
They speak to the importance
of that work to world progress.
Most importantly of all, they
speak to the kind of company
we are. The kind of company we
want to be. They guide us in
how we do our work today and
as we grow.
Our purpose
(why wE ExISt)
Our values
(hOw wE bEhAVE)
We inspire bright minds to
help fuel world progress.
Our promise
(whAt wE DO)
We work collectively to unlock
challenging oil resources in a way
that makes Canadians proud.
Rigorous
We’re smart about the way
we develop our resources.
We are safety-focused. We manage our
business as a whole to get the best results.
We understand that executional excellence
requires a diversity of talents and
perspectives. We can be counted on to
do what we say. We are pragmatic and
strive to keep things simple. We are
responsible and thoughtful in what we do.
2
CENOVUS ENERGY 2012 ANNUAL RE PO RT / OUR PURPOSE , PROMISE AND VAL UES
Respectful
We trust each other to do
the right thing.
Ready
We have the courage to embrace
fresh thinking and new ideas.
Our ExEcutivE tEam
Left to right
Ivor r uste
Executive Vice-President
& Chief Financial Officer
Kerry Dyte
Executive Vice-President, General
Counsel & Corporate Secretary
Haywar D walls
Executive Vice-President, Organization
& Workplace Development
We conduct our business with respect,
recognizing that respect requires both
candour and caring. We collaborate with
each other. We make the communities
where we live and work better because we
are there. We build strong relationships
with our stakeholders and business
partners. We relentlessly look for ways to
reduce the impacts of our activities on
the environment.
Our innovation today creates the
Cenovus of tomorrow. We leverage
our decades of operating experience
by applying new thinking to our
work in a practical, yet creative way.
By being ready to continuously
improve. By being open-minded
problem-solvers. By being decisive
and ready for change.
Harb Ir C HHI na
Executive Vice-President, Oil Sands
b rI an Ferguson
President & Chief Executive Officer
Jo H n b rann an
Executive Vice-President
& Chief Operating Officer
sH e I l a M C In tos H
Executive Vice-President,
Environment & Corporate Affairs
Don s wystun
Executive Vice-President, Refining,
Marketing, Transportation & Development
Cenovus energy 2 012 ann ual rePort / OU R P URP OSE , PROMI S E A ND VA LU E S
3
M OT I VAT IN G
O UR T E AMS
TO GO
FURT H ER
mE ssag E fr O m O ur Pr E si d E nt
& chiEf ExEcuti vE Offic Er
Attuned to our strategy, culture and
people, our leaders inspire great results.
Leadership is the propelling force
behind any successful business.
buIlDIng MoMentuM
CreatIng value
The concept of momentum is a fitting
theme for this year’s annual report to
shareholders. We’ve been steadily
building momentum over our three
years as an independent company and
I can say with confidence that in 2012 we
hit our stride in delivering predictable,
reliable performance, and fostering a
culture of excellence.
We are on track with our strategy.
We are on track with our business plan.
And, thanks to the smart, dedicated
people who work at Cenovus, we once
again had strong results.
Our strategy is as simple as it is effective:
To create long-term value for you, our
shareholders, through the development of
our vast oil sands resources, our execution
excellence, our ability to innovate and our
financial strength. Our integrated approach,
which enables us to capture the full value
chain from production to high-quality end
products like transportation fuels, relies on
our entire asset mix:
• Oil sands for growth
• Conventional oil for near-term cash flow
and diversification of our revenue stream
• Natural gas for the fuel we use at our oil
sands and refining facilities, and for the
cash flow it provides to help fund our
capital spending programs
• Refining to help reduce the impact of
commodity price fluctuations
We are focused on continually building our
net asset value (NAV) and paying a strong
dividend. Our goal is to double our NAV
between 2010 and the end of 2015. We
established a baseline illustrative NAV of
$28 per share in December 2009 and it has
since grown every year. Despite weaker
oil and natural gas prices in 2012, we
grew NAV to $40 per share at year end,
a 43 percent increase in our first three
years of operation.
Our growth plan is anchored by the
responsible development of our vast oil
sands resource base, which includes some
of the best in-situ oil sands reservoirs in
the industry. We are currently using the
most advanced technology to drill into
these reservoirs to extract the oil – and
are relentless in our pursuit to find even
better ways to operate. To improve
4
Cenovus energy 2012 annual re Port / MESSAG E FROM OUR PRESIDENT & C HIE F E XECUTIVE OF FICER
our performance. To minimize our
environmental impact. To reduce costs.
To ensure we work safely.
That’s because, at Cenovus, how we do our
work is just as important as what we do. To
help us define our culture, we formalized a
set of statements this past year that outline
why we exist as a company (our purpose),
what we do (our promise) and how we
behave (our values).
These statements, which you may have
already seen on page 2, were rolled out
to staff at a company-wide forum in
November and will guide us as we continue
to grow. They were developed with input
from the senior leaders of our company and
reflect both the fundamental importance
of energy in our lives as well as what we
believe in as a company.
DelIverIng qualIty results
We do our utmost to live up to the
responsibility that goes with being a
developer of one of Canada’s most valuable
resources. We are proud of how we are
developing this resource and stand behind
our actions.
It starts with executing with excellence,
which is integral to everything we do
at Cenovus.
On the oil sands side, our teams worked
hard through the year to move the value
of our resources forward, continuing to
develop them responsibly, on time and at
industry-leading costs. At the end of 2012,
our oil sands operations had the capacity
to produce nearly 110,000 barrels of oil
per day net. Our strategic objective is
to have, by late 2015, capacity in excess
of 600,000 barrels of oil per day net
of current design capacity. Construction of
the next three expansion phases at the site
is also moving forward. We’re on track to
reach 310,000 barrels of oil per day gross as
we continue to see tremendous value from
this reservoir.
As we bring on each new SAGD phase, we
are ramping up quickly, using accelerated
start-up techniques and enhancing
processes where we can. These contribute
to increased project returns and to the
building of our NAV. In the future, we
will continue to look for ways to bring
expansion phases on even more efficiently.
But that’s not all we’re doing to sustain
momentum in our business. In 2012, we
made excellent progress in developing our
emerging oil sands projects.
OIL SANDS PRODUCTION (before royalties)
89,736
66,533
59,045
12 5, 000
100 ,000
75,00 0
d
/
s
l
b
b
50, 000
44,423
25, 00 0
0
200 9
20 10
20 11
2012
to Cenovus of producing or regulator-
approved projects. This will give Cenovus a
broad portfolio of investment opportunities
and lock in low-risk growth for more than
the next decade.
125000
75000
100000
At Christina Lake, average production
nearly tripled in 2012 compared with 2011
to about 32,000 barrels of oil per day net
as we continued to bring on additional
expansion phases ahead of schedule. We are
encouraged by the overall well productivity
at Christina Lake and are seeing steam-
assisted gravity drainage (SAGD) well recovery
rates that are among the highest in the
industry. With optimization and the addition
of another four planned phases, three of
which are already under construction, we
believe Christina Lake has the potential to
produce 300,000 barrels of oil per day gross.
25000
50000
Our Foster Creek operation also continued
to demonstrate exceptional performance,
with production averaging about 97 percent
0
In May, we received regulatory approval for
Narrows Lake – a significant achievement
as we move forward with our plan to build
NAV. Narrows Lake has a total expected
gross capacity of 130,000 barrels of oil per
day, with production from the first phase
of 45,000 barrels of oil per day expected
to start in 2017. Ground work for the initial
phase began last fall. I am pleased to report
that the project will be one of the world’s
first commercial applications of an innovative
solvent aided process using butane. We
are excited about this technology, which
has the potential to significantly improve
bitumen recovery while continuing to reduce
environmental impacts.
We plan to continue to build on this
momentum by putting additional projects
through the regulatory process. The
next two oil sands projects awaiting
regulatory approval are Telephone Lake
and Grand Rapids – both 100 percent owned
by Cenovus. We believe that ultimately
Cenovus energy 201 2 ann ual re Port / MESSAGE F ROM OU R PRESIDENT & C HIE F E X EC UT I V E OF FI C ER
5
I am extremely proud to work with the men
and women who make up Cenovus. I thank
them for the spirit, enthusiasm and energy
they have for this company.”
Telephone Lake can support more than
300,000 barrels of oil per day of production
capacity and Grand Rapids 180,000 barrels
of oil per day of production capacity.
We also continued to develop the potential
in our conventional oil operations. At
Pelican Lake, heavy oil production volumes
have started to increase as a result of the
expansion of our polymer flood program,
increasing 10 percent from 2011. However, the
project has experienced some challenges.
On a more positive note, as our oil
production increases, especially from our oil
sands assets, we are seeing notable benefits
from our integration strategy. Having a
strategy that includes both producing and
oil refining operations helps to protect
Cenovus from price volatility in the heavy
crude oil market. Lower prices for Canadian
heavy crude oil decrease our operating
cash flow from oil sands production. At
the same time, they benefit our refining
operating cash flow because it costs less for
markets if transportation options don’t keep
pace with growing volumes. In addition to
limiting sales points for Canadian oil, this
restricted market access drives down the
price of Canadian oil relative to U.S. and
global prices.
To address these issues, we are taking a
portfolio approach to give us a variety of
alternatives. We are supporting new pipelines
to the U.S. Gulf Coast and Canadian east
and west coasts, which open up access to
international markets. We are increasing the
amount of light and medium oil we ship
by rail. And we are entering into hedging
arrangements and long-term sales contracts.
Through actions such as these as well as the
formation of a task force internally, we are
working to ensure market access and manage
our exposure to price differentials.
We weren’t able to achieve production
increases as quickly as anticipated as we
needed to temporarily reduce reservoir
pressure in order to safely drill the infill
wells. A new area of opportunity is our
emerging tight oil assets in southern Alberta,
predominantly our fee land area. We chose
to focus capital investment on these
conventional oil assets rather than on natural
gas and are encouraged by the early results.
All in all, I am extremely pleased with the
progress we are making in responsibly
growing our production, although an area
that we haven’t done as well in is safety.
Despite the many safety programs we have
in place, the number of incidents increased
in 2012. That’s a huge concern to me, the
Executive Team and our Board. We will be
increasing our efforts on safety awareness
to make sure that safety is top of mind
in everything we do for everyone who
works at Cenovus.
the feedstock our refineries need to create
products such as gasoline and jet fuel.
Our expansion of the heavy oil processing
capacity at the Wood River Refinery is
providing additional integration since we’re
able to process more heavy oil at the same
time as we’re growing our oil production.
The expansion effectively doubled our
heavy oil processing capacity at Wood River.
In 2012, perhaps more than ever, our refining
investments paid off, generating nearly
$1.3 billion in operating cash flow and
providing significant ongoing support for our
company’s oil growth plans. Operating cash
flow from our refineries would have been
even stronger if planned major turnarounds
at the Borger and Wood River refineries
hadn’t gone longer than expected.
As our industry and Cenovus continue to
grow production, we expect producers may
encounter problems getting oil to various
Our strong financial position, healthy
balance sheet and integration strategy give
us the flexibility to withstand volatility while
continuing to invest for future growth and
maintaining our focus on creating long-term
shareholder value.
Certainly our operating and financial
results confirm that Cenovus is on the right
track. Already in our short history, we have
delivered three exceptional years. They are
evidence of a company that is consistently
executing its strategy to deliver predictable,
reliable performance.
In 2012, I’m pleased that we outperformed
the S&P/TSX Energy Index by about
two percentage points, although we
underperformed relative to the broader
market, lagging behind the S&P/TSX
composite Index by approximately six
percentage points. Since the company’s
formation in late 2009, we have delivered
total shareholder return of 35 percent,
6
Cenovus energy 2012 annual rePort / MESSAGE FROM OU R PRESIDEN T & CHIEF E XECU TIVE OF FICE R
outperforming the S&P/TSX Energy Index
and the S&P/TSX Composite Index by
approximately 10 and six percentage
points respectively.
This outperformance of both the energy
and broader market index in total
shareholder return recognizes that we
are building the underlying value of the
company – as measured by NAV. It also
demonstrates we are providing a strong and
growing income stream to our shareholders
by way of a dividend.
While I am pleased with our progress, I am
focused on our future. Success is determined
over many years, not just three. So, as good
as our performance has been we know we
must keep up the momentum by delivering
even better performance year over year.
Plans For 2013
We plan to keep our focus on these five areas:
execution excellence: Safety will be a top
priority in 2013. Our strong track record of
operating efficiently and responsibly while
keeping costs low shows we know what
it takes to execute our production goals.
We must continue to aim for excellence,
growing our oil production significantly in
2013, primarily at Christina Lake. Some of
our operating costs have crept upwards this
past year, so we will remain focused on cost
control across our organization by finding
ways to work smarter.
value creation: We need to keep moving
the value of our resources forward. Thanks
to our strong balance sheet and cash flow,
we plan to maintain capital investment
in 2013 at about $3.4 billion. Most of the
investment will be made to advance
reputation and communication: As we
grow our business, it’s important that
we have strong relationships with the
communities where we live and work. We
will continue to take an active role through
media and stakeholder tours in contributing
to public understanding about our business.
Through our national advertising campaign,
we will also continue to do our part to
raise Canadians’ understanding of why we
are so proud of our energy industry.
Healthy organization: We will have an
even greater focus on our culture in 2013.
We will reinforce it through meaningful
actions taken by our leaders and in
conversations with our employees, and
ensure it is central to developing our
people and enhancing our technical and
leadership competencies.
HIgHlIgHts oF our
PerForManCe In 2012
We grew average oil sands production
to about 90,000 barrels of oil per day,
up 35 percent over 2011.
We generated record cash flow of
$3.6 billion, due to increased oil
production and higher operating cash
flow from our refining business.
We increased our proved reserves by
12 percent and our economic bitumen
best estimate contingent resources by
17 percent in 2012 compared with 2011.
Our strong cash flow, combined with
our disciplined capital management,
allowed us to fund our growth plans
while providing a dividend of $0.88
per share – part of our commitment
to our shareholders.
existing and new oil sands assets and will
also go towards our conventional oil assets.
Our integrated business plan was a key
contributor to our financial success in 2012.
Moving forward, we need to do a better job
of ensuring the benefits of our integration
are understood, so we realize even more
value for you, our shareholders.
Innovation: At Cenovus, we firmly believe
in doing things better. We take pride in
our ability to implement new ideas and
new approaches. We have already seen
the benefits from a number of initiatives
we’ve implemented, ranging from small
incremental improvements to new
technologies – technologies that improve
our operational performance and reduce our
environmental impact. We will continue to
invest in innovation in 2013 by advancing the
work on the 140 technology development
projects we have underway.
It is my belief that a company’s long-term
success is dependent on three things: having
highly talented, passionate and motivated
people, having a strong culture, and having a
high-quality asset base. At Cenovus, we have
all three. You will see evidence of that in the
stories in this report.
I am extremely proud to work with the men
and women who make up Cenovus. I thank
them for the spirit, enthusiasm and energy
they have for this company. I would also
like to thank our Board of Directors for their
insightful guidance and advice. Together,
we are ready to take Cenovus to the next
level. I am truly excited about the great
opportunities ahead of us.
br Ian C . F erguson
President & Chief Executive Officer
Cenovus energy 2 012 ann ual rePort / MESSAGE FROM O UR P RESIDE NT & C HIEF E X EC U TI VE O FFI C ER
7
DE V ELOPING
O UR ASSE TS
Our int Egrat E d a PP r Oach
Our growth plan is anchored by
the responsible development of
our vast oil sands resource base.
Our integrated approach
provides the foundation for
years of energy development.
It includes an industry-leading
portfolio of oil sands assets, two
high-quality refineries, a strong
balance sheet, and conventional
oil and low-cost natural gas
operations that generate
substantial operating cash flow.
In the oil sands, we have two producing
projects, Foster Creek and Christina Lake,
which we are continuing to expand. Our
next project is Narrows Lake, where we
expect to begin construction in the third
quarter of 2013. These three projects
are operated by Cenovus in partnership
with ConocoPhillips. We also have two
emerging projects, Grand Rapids and
Telephone Lake, in the pilot stage, both
of which are 100 percent owned by us.
None of our oil sands projects are mined.
We use specialized techniques to drill and
pump the oil to the surface.
While the bulk of our future growth is
anticipated to be in the oil sands, we also
expect significant near-term growth from
our other oil assets. We produce heavy oil
from our 100 percent owned Pelican Lake
operation. We also produce light and medium
oil from our tight oil plays in southern Alberta
and Saskatchewan. Another important
oil project is our enhanced oil recovery
operation in Weyburn, Saskatchewan.
As an integrated company, our strong
portfolio of oil growth assets is
complemented by great refining assets.
We have ownership in two refineries in
the United States as part of a business
arrangement with Phillips 66. Cenovus
has a 50 percent interest in the Wood
River (Illinois) and Borger (Texas) refineries,
which Phillips 66 operates. Our integrated
approach provides stability to our overall
cash flow stream, especially in times of
volatile commodity prices.
In addition, our low-cost natural gas assets
in southern Alberta provide strong cash
flow to help fund our oil growth, and offset
the cost of the natural gas we consume
within our oil sands and refining operations.
8
Cenovus energy 2012 annual rePort / OUR INTEGRATED APPROACH
The oil sands – why they’re important to Canada
Energy is as essential to our lives as the
food we eat and the water we drink. It heats
our homes. It creates electricity. It takes us
to work. It delivers our food to the grocery
store. And fossil fuels, specifically, are also
a building block for the plastic, synthetic
and petrochemical products we use as part
of our daily routines, like smart phones,
computers, furniture and many more.
Global energy demand will increase by a
third between 2010 and 2035, according
to the International Energy Agency (IEA),
an autonomous organization that works
to ensure reliable, affordable and clean
energy for its 28 member countries.
Given this growing demand, all energy
sources will play a significant role in
meeting world needs.
That includes Canada’s oil. Canada has the
world’s third largest oil reserves: 174 billion
barrels of oil, 97 percent of which are in the
oil sands. Today, about half the oil from the
oil sands is accessed by drilling. But, every
year, the amount of oil developed that way
is expected to rise.
However, it wasn’t that long ago that
drilling in the oil sands was thought to
be impossible because most of the oil
is embedded deep underground in sand.
Through determination and persistence,
some ingenious Canadians figured out that
the oil could be separated and liquefied by
injecting steam into the well.
In Canada, we’re fortunate to have enough oil
to take us into the next century and beyond.
In addition to supporting our way of life, the
oil from the oil sands generates hundreds of
thousands of jobs, and contributes billions of
dollars in tax revenue and investment in our
economy across Canada every year.
GLO bAL PRI MARy EN ERGy DEMAND
Oil sands help supply global energy needs.
t
n
e
l
a
v
i
u
q
e
l
i
o
s
e
n
n
o
t
n
o
i
l
l
i
B
20
15
10
5
0
19 90
2010
2020
2030
2035
OTH ER RE NE WABLE S
NUCLE A R
COAL
B IOE NERG Y*
H YDRO
NATURAL GAS
OIL
*Includes traditional and modern biomass uses
Source: IEA 2012
The oil sands – how we’re developing them responsibly
With tremendous accuracy, we drill two
horizontal wells, one directly above the
other, deep under the ground. We inject
steam into the top well to liquefy the oil
and separate it from the sand as much as
450 metres below the surface. With the help
of gravity, the oil then flows into the bottom
well where it’s pumped to the surface. This
is all done with as little disruption to the
land as possible. That’s steam-assisted gravity
drainage technology, or SAGD as it’s called.
In fact, 80 percent of the oil in the oil sands
is buried so deep, it can only be accessed
by drilling. About 20 percent of the oil in
the oil sands is close to the surface and can
be mined.
While drilling in the oil sands is still very
much in its early stages, we’ve made some
huge advancements to the technology in
just a few short years – advancements that
have improved both our operational and
environmental performance. We spend a
significant amount of time learning about
our oil sands reservoirs; each is unique and
has different characteristics. We also test
new ways to improve SAGD technologies
and reduce our environmental footprint.
It’s challenging work, but we are persistent
in our determination to continue to build
and operate our projects efficiently and
improve our performance. We’re tackling
these challenges every day so we can be
even better at what we do.
usIng salty water wHerever we Can
Most of the water we use to generate the
steam we inject underground is saline water.
Saline water, because it’s salty, can’t be used
for human or animal consumption, or for
watering plants. We get this water from
deep underground and recycle it over and
over again in our production process. Less
than five percent of the water we use in
our oil sands operations is fresh. The fresh
water comes from underground aquifers
not from lakes or rivers.
strIvIng For a low steaM to oIl ratIo
Part of the work that goes into developing
our projects is identifying ways to make the
steam to oil ratio (SOR) as low as possible.
SOR measures the amount of steam used to
produce a barrel of oil from the oil sands.
A low SOR is a reflection of the approach
used to develop the resource, the efficiency
with which we run our facilities and the
quality of the reservoir.
Our combined SOR at Christina Lake and
Foster Creek in 2012 was 2.1, among the
lowest in the industry. A low SOR is not only
good for the environment but it’s also good
for the bottom line because we burn less
natural gas and use less water.
Cenovus energy 2 012 ann ual rePort / O UR INTEGRAT ED A PP ROACH
9
C HARTIN G
O UR CO U RS E
O ur st rat E gy
We have the resource base, the
financial strength and the integrated
approach that position us well
today and for the long term.
Our strategy
We create long-term value for our
shareholders through the development of
our vast oil sands resources, our execution
excellence, our ability to innovate and
our financial strength. We are focused on
continually building our net asset value (NAV)
and paying a strong and sustainable dividend.
While our oil sands resources are the
dominant asset in our portfolio, they don’t
stand alone. Our integrated approach,
which enables us to capture the full value
chain from production to high-quality end
products like transportation fuels, relies on
our entire asset mix:
Due to the long-term nature of our oil
sands projects, and the phased approach
we take to develop those projects, our
business plan looks out 10 years. It’s
reviewed regularly to ensure we’re able to
anticipate and create change when needed,
so we’re able to be resilient and deliver
predictable, reliable results.
• Oil sands for growth
• Conventional oil for near-term cash flow
and diversification of our revenue stream
• Natural gas for the fuel we use at our oil
sands and refining facilities, and for the
cash flow it provides to help fund our
capital spending programs
• Refining to help reduce the impact of
commodity price fluctuations
We measure our progress by our ability to
deliver on the commitments and milestones
we set each year and, longer term, by our
ability to:
• Meet our 2021 target of producing
about 500,000 barrels of oil per day net
to Cenovus
• Continually grow our NAV over the long
term, with an interim target of achieving a
NAV of $56 per share by the end of 2015
• Maintain a solid balance sheet and pay a
strong and sustainable dividend
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Cenovus energy 2012 annual rePort / OUR STRATEGy
Our milestones
It’s important to us that you know our operational milestones and can track our progress
as we build our business over many years.
our 2012 MIlestones – we Met eaCH one
Grow reserves and contingent resources
Drill 400 to 500 stratigraphic test wells
and assess results
Achieve first production at Christina
Lake phase D
Anticipate regulatory approval for
Narrows Lake project and partner
approval for phase A – start construction
Achieve production growth response
from the Pelican Lake expansion
Pursue additional conventional oil
growth opportunities
Connect Shaunavon and bakken central
facilities to pipeline to support tight oil
production growth in the area
Implement at least one new commercial
technology
Demonstrate stable and reliable coker
and refinery expansion (CORE) operation
at the Wood River Refinery
Develop tailored business unit
environmental performance strategies
Advance value creation from Telephone
Lake asset
our 2013 MIlestones
Grow reserves and contingent resources
Increase rail takeaway capacity for oil to
Drill 350 to 400 gross stratigraphic test
wells and assess results
Submit regulatory application for Foster
Creek phase J expansion
Submit regulatory application for Christina
Lake phase H expansion
Provide updates on Grand Rapids and
Telephone Lake pilot projects
Achieve first production at Christina Lake
approximately 10,000 bbls/d
Progress preliminary work and initiate
facility construction at Narrows Lake
phase A
Anticipate regulatory approval for Grand
Rapids in the fourth quarter
Evaluate debottlenecking opportunities at
the Wood River Refinery
Continue to evaluate light oil opportunities
phase E in the third quarter
Leverage supply chain management to
improve operating costs
Cenovus energy 2 012 ann ual rePort / OU R ST RAT E Gy
11
ADVANCING
O U R TOP-qUALITy
RESO URCES
l OO king back O n th E y E ar
We’re excited about developing energy for
generations to come. Our commitment to
develop it safely, responsibly and efficiently
is what sparks our innovative spirit.
We rose to the challenge by developing a totally
new process for SAGD. It’s called dewatering.”
– robert baIllargeon
“This could be the start of a new generation
of solvent-based recovery options to enhance
the SAGD process, and that’s exciting.
– MIKe Plettell
Unlocking potential at Telephone Lake
Robert Baillargeon, who’s part of a team responsible for our
new venture activities, is enthusiastic about the future of our
Telephone Lake asset.
Robert describes this emerging project as
having a unique reservoir with huge potential,
anticipating production capacity of more than
300,000 barrels of oil per day. What’s unique
about the reservoir is that, unlike any of our
other oil sands assets, there’s a layer of water
that sits above the oil deep below the surface.
In order for Telephone Lake to be as efficient as
our other oil sands projects, we needed to figure
out how to remove that layer of water before we
produce oil using steam-assisted gravity drainage
(SAGD) technology.
“We rose to the challenge by developing a totally
new process for SAGD. It’s called dewatering and,
based on the early results of testing we did in
2012, it’s all working as expected, so we’re off to a
good start,” says Robert.
By removing the water we expect SAGD to work
more efficiently in this reservoir, allowing us to
reduce the steam to oil ratio (SOR) and operating
costs for the project. SOR is the amount of steam
it takes to produce a barrel of oil.
To learn more about the dewatering process,
including what we do with the water we remove,
visit cenovus.com.
Excitement builds for Narrows Lake
As a company, we’re excited about our Narrows Lake oil sands
project because it’s the first we’ll have built from the ground
up in over a decade.
The approved project, which is our third in the
oil sands, will be developed in three phases
and is anticipated to have a gross production
capacity of 130,000 barrels of oil per day,
playing a significant part in our growth plans.
Site preparation is underway and we expect to
complete the first phase in 2017. It will be the
first time butane is used as a solvent with steam
on a commercial scale. Until now, we’ve used
only steam to liquefy the oil to the point where
it can be pumped to the surface.
“This could be the start of a new generation of
solvent-based recovery options to enhance the
SAGD process, and that’s exciting,” says Mike
Plettell, a development planner on the project.
The official term for adding a solvent is solvent
aided process, or SAP. In this case, it involves
injecting both steam and butane, a naturally-
occurring natural gas liquid. The butane dissolves
into the oil making it thinner and allowing it to
flow more freely to the producing well. Using
a solvent like butane in our SAGD process
reduces the amount of steam we use to recover
each barrel of oil. Based on results of testing at
Christina Lake, SAP has the potential to decrease
the SOR and improve the oil production rate
by as much as 30 percent when compared with
SAGD alone.
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Christina Lake phase D adds to production
The completion of phase D, three months ahead of
schedule, increased total gross production capacity at
Christina Lake, pictured here, to 98,000 barrels of oil per
day. With the addition of another four planned phases,
Christina Lake has the potential to produce as much as
300,000 barrels of oil per day gross with optimization.
Cenovus energy 2 012 ann ual reP ort / LOO KING bACK O N T H E y E A R
13
sHIF tIng gears
Being flexible in business means being able
to adapt and thrive in times of change.
Some of our teams from our conventional
oil and natural gas properties have proven
to be very capable of doing just that.
With our growth strategy focused on
oil, and because of stronger oil prices
relative to natural gas, the teams safely and
successfully transitioned from producing
natural gas to producing more oil in 2012
compared to 2011. Our ability to shift gears
is, in part, why we exceeded production
targets for oil in Alberta. And we still
produced 594 million cubic feet per day
of natural gas, continuing to provide
significant ongoing financial support for
our oil growth plans.
“Being able to shift our focus while
maintaining our strong team coordination
and attention to safety were key to our
success. I’m so proud of everyone involved,”
says Dan Schiller, Senior Vice-President,
Conventional Oil & Natural Gas.
FInanCIal strengtH ContInues
to suPPort grow tH
We have high-quality assets, a strong growth
plan and the right people to execute on
our strategy. Part of executing our strategy
is about maintaining our solid financial
position to help support our growth.
In 2012, we increased the capacity of our
commercial paper program, extended the
term of our committed credit facility and
issued US$1.25 billion of senior unsecured
notes at attractive long-term rates.
“These steps further improved our
liquidity and financial strength to carry
out our future plans,” says Shane Cooke,
Assistant Treasurer.
sPenDIng loCally HelPs us Meet
labour neeDs anD ContrIbutes to
tHe loCal eConoMy
Many of our operations are located in
remote and rural areas of Alberta and
Saskatchewan. Hiring local businesses and
sourcing local contract services, including
Aboriginal businesses, is a key part of how
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Part of executing our strategy
is about maintaining our solid
financial position to help
support our growth.
we do business. In 2012, we spent over
$1 billion doing business with local and
Aboriginal companies in our operating
areas, doubling our spend since 2010.
“Not only does this help us with our
growth plans, it also benefits the
communities where we operate,” says
Troy Schwab, who is responsible for
business development in our local
communities. “By taking this approach
we know there will be a number of
qualified companies that understand
our business and have as much interest
in our success as their own.”
HearIng FroM our staKeHolDers
Our commitment to doing right by the
environment and the communities where
we live and work is something we take
very seriously.
We seek feedback from those living in
our operating areas and from large urban
centres across Canada on a regular basis.
We do that through focus groups, and
telephone and online surveys.
The 2012 telephone survey that we
commissioned in our Alberta and
Saskatchewan operating areas indicates that
we are demonstrating that commitment:
• 93 percent of respondents said Cenovus
works hard to minimize its impact on
the environment
• 95 percent said Cenovus provides benefits
to their community
• 95 percent said Cenovus conducts
business in an honest, ethical manner
“Knowing what’s important to people when
it comes to oil development helps us get
better at what we do,” says Sandra Barker, a
manager on our Communications team.
Cenovus energy 2 012 ann ual rePort / LOO KING bACK O N TH E yE AR
15
DR IV IN G
VA LU E T HROUGH
E XE CU TIO N
l OO king back O n th E y E ar
Executing with excellence is
integral to everything we do.
It’s what motivates our teams to
consistently deliver great results.
It’s a great time to be in the refining business.
Our integration strategy is really paying off
for Cenovus overall.”
– Peter lanDry
“When you look at our daily production
plot, you’ll see a steady line ... To me, that’s
excellent performance.
– ranDy Penny
Our integration strategy generates strong performance
Not only do we produce oil in the oil sands, we also own
50 percent of two U.S. refineries. Phillips 66 owns the other
half and is the operator.
Our ownership in these refineries means we can
capture the full value chain from oil production
through to refined products. Once the oil is out
of the ground, it has to go through a number
of steps – blending, transporting, upgrading,
refining – all the way to finished products such
as gasoline, diesel and jet fuel. From a pricing
perspective, the value of a barrel of heavy
crude oil is significantly less than the value of a
comparable amount of gasoline or jet fuel.
“It’s a great time to be in the refining business.
Our integration strategy is really paying off for
Cenovus overall,” says Peter Landry, who works
as a business planner on our refining team.
Having both upstream and downstream operations
helps protect us from price variability in the
heavy crude oil market. Being involved in various
steps of the value chain helps our bottom line by
allowing us to capture value from the production
of oil through to the output of finished products
like transportation fuels. Essentially, we shift from
being a producer of heavy crude oil to being a
producer of high-value finished products.
Operations excellence drives Foster Creek’s production results
When Randy Penny, our Vice-President of Foster Creek Operations,
talks about operating performance at Foster Creek over the last
year, he uses a production graph to make his point.
Randy says the facility’s success is largely
due to a program we call Operations
Excellence, which has introduced systems and
techniques aimed at helping us continuously
improve our performance.
“When you look at our daily production plot,
you’ll see a steady line with no significant
day-to-day variations. That’s what you want
to see because it means we’re delivering
consistent production,” says Randy. “To me,
that’s excellent performance.”
Foster Creek production averaged approximately
116,000 barrels of oil per day gross in 2012. In
fact, we exceeded nameplate capacity, which
is 120,000 barrels of oil per day gross, for six
months of the year. This means we produced
more oil per day than we had anticipated at this
stage of the project.
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Our Wood River and Borger refineries
Strategically located in the mid-continent
of the United States, these refineries are
able to process heavy oil, which has helped
generate strong operating cash flow.
Cenovus energy 2 012 ann ual rePort / LOO KING bACK O N T H E y E A R
17
“It’s everyone’s responsibility on
site to be safe by looking after
ourselves and one another.”
– sHelDon JaCKson
lIvIng uP to our CoMMItMent to
MaKIng CoMMunItIes better
For Liz Swift, who works on one of our
environment teams, giving back to her
community is more than just giving money
to a charity. And she should know. Every
year, Liz gives time and money to a cause
that’s close to her heart.
“Several of my family members have been
affected by multiple sclerosis (MS) and
a large part of my effort is dedicated to
helping end MS,” says Liz. “It’s great to work
for a company that encourages employees
to volunteer. Not only does MS get some
of my time, I’m also able to submit my
volunteer hours to receive a company grant
that goes to MS.”
Liz is one of 1,194 employees who, in total,
donated over $1.7 million to 864 charities
through our employee giving programs,
one of which is called Thanks & Giving.
That amount was matched dollar for dollar
by Cenovus, making a combined total of
approximately $3.5 million for 2012. She’s also
one of our many employees who volunteered
at 64 company-sponsored events.
Cenovus also contributed more than
$10 million to more than 435 charities.
As an Imagine Canada Caring Company
we give one percent of our pre-tax profits
to charitable or non-profit organizations.
It’s all part of our commitment to making
communities where we live and work
stronger and better off as a result of us
being there.
Dow Jones Sustainability Index (DJSI) North
America for the third year in a row.
In Canada, we were listed as one of the 2012
Best 50 Corporate Citizens by Corporate
Knights magazine, included on the 2012
Carbon Disclosure Leadership Index for
the third time and recognized as one of
the most trusted and respected brands by
Canadian Business magazine.
“Making it on these lists tells me that
others believe we’re walking the talk,” says
Craig Stenhouse, who leads our Corporate
Responsibility team.
walKIng tHe talK gets us reCognIzeD
The Dow Jones Sustainability World Index is
an exclusive list of the world’s best corporate
citizens and we’re on it. We were the only
Canadian oil and gas company to make the
2012-2013 index and one of just 11 Canadian
companies. We were also named to the
tHInKIng saFe MarKs Four years oF no
lost-tIMe InCIDents at PelICan laKe
When a contractor was disconnecting a
process line at Pelican Lake he noticed two
others enter the area who weren’t wearing
all the required safety gear for the work
18
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being done. He immediately stopped the
work and ensured they exited to a safe area
before continuing his work.
contacted our Weyburn facility ahead of
time to lessen any impact the move would
have on our business.
“It’s everyone’s responsibility on site to
be safe by looking after ourselves and
one another,” says Sheldon Jackson, an
operator who saw what happened. “The
fact that the work was stopped to address
a potential safety risk, tells me we’re living
up to our safety commitments.”
This is just one example of how the Pelican
Lake team has achieved four years of
no lost-time safety incidents and of the
importance Cenovus places on safety.
How MovIng a HerD oF Cattle
strengtHeneD a relatIonsHIP
Moving a herd of cattle from one pasture
to another using a municipal roadway takes
more than just a few people on horseback.
That’s why a local landowner made sure he
“When I got the notice from our
landowner, I sent a note to all our staff
to make sure everyone knew and would
exercise caution when coming across the
herd on the road,” says Arron Rush, an
operator at the facility. “The landowner
let us know how pleased he was with the
respect and cooperation he received from
us. It made me feel great knowing that
doing the right thing goes a long way.”
We want community members to know
they can expect respect in everything we
do. Our Expect Respect program, launched
in 2012, also addresses concerns often
associated with oil and gas operations such
as noise and dust. It’s one of the ways we
demonstrate to our neighbours that we’re
operating responsibly.
on tHe Move
Several years of hard work by hundreds of
people from across the company made it
possible for more than 2,500 employees to
move into four buildings in 2012, including
our head office move to THE BOW, with
minimal disruption to their daily work.
“Feedback from employees was that the
move was seamless – they simply packed
their old office at the end of one week and
showed up on Monday to their new office
ready to work,” says Denise Froese,
Vice-President, Administrative Services.
“Our success in this transition is a reflection
of the tireless efforts of so many people
and the strength of teamwork and
collaboration to execute a strong plan.”
C enovus energy 2 012 ann ual rePort / LOO KING bACK ON T HE yE A R
19
A P PLy IN G NEW
I DE AS AN D NEW
AP PROACH ES
l OO king back O n th E y E ar
While we’re proud of our work in
the oil sands, we’re committed to
finding new and better ways to
develop this energy resource.
To be a part of this exciting project early on
in my career with a company that believes
in doing the right thing is so rewarding.”
– CanDICe Paton
“It was great being part of a team that
took an idea from whiteboard to reality.
– DustIn JaCK
Thinking outside the box leads to environmental benefits
What does the automotive industry have in common with the
oil sands? If you’re thinking gasoline, that’s true. But there’s also a
technology commonly used in the automobile and other industries
that we’ve tailored for our own needs.
Empowered to always improve, a team of our
engineers looked outside our industry for ways to
reduce our emissions beyond what’s required by
the regulators. The team introduced a technology
called flue gas recirculation that recycles exhaust
from steam generators used in the steam-assisted
gravity drainage (SAGD) process, just like exhaust is
recycled in our cars.
“We’re the first in the oil sands to use this
technology in the SAGD process and the results
we’re seeing are cutting emissions significantly,” says
Candice Paton, one of our technology development
engineers. “To be a part of this exciting project
early on in my career with a company that believes
in doing the right thing is so rewarding.”
The technology reduces the amount of nitrogen
oxides emitted into the air during the combustion
of fuel and gas. In the oil sands we use natural
gas in our steam generators. By using a tube to
take exhaust from the steam generator, we can
recycle the exhaust back into the burner. The
exhaust helps cool the burner flame, reducing
nitrogen oxide emissions going into the air. Early
results show these emissions from the boiler are
down to 20 parts per million (ppm) from 40 ppm
– a 50 percent reduction. The pilot project is in
operation on one boiler at Christina Lake and is
expected to be in operation on additional boilers
for the next expansion phase.
From the whiteboard to reality: a game-changing innovation
Imagine using a helicopter to place a drilling rig in a remote area.
That’s what we’ve started doing in the oil sands to drill stratigraphic
test wells that provide information about what’s underground.
“Heli-portable drilling rigs have been used
for decades in the hard-rock mining industry,”
says Dustin Jack, one of our drilling technologists.
“Our team believed it could also work in the
oil sands to solve our challenge of finding a
way to drill year-round while reducing our
environmental footprint.”
After two years of development and testing we
put our SkyStratTM drilling rig into action, drilling
a total of 15 wells in 2012. Using this rig eliminates
the need for road infrastructure because the rig
and crew are transported by helicopter, reducing
the amount of land we use. Where we use our
SkyStratTM drilling rig we expect to achieve up to
a 50 percent reduction in our surface footprint
compared with traditional stratigraphic test well
drilling methods.
“It was great being part of a team that took an
idea from whiteboard to reality,” says Dustin.
“And it’s great to work for a company whose
direct supervisors and senior leaders give us the
support we need to be innovative and be able
to execute on our ideas.”
Our SkyStratTM drilling rig is also expected to
reduce the amount of water we use for drilling
operations by up to 50 percent.
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Foster Creek, an industry first
Foster Creek, pictured here, is recognized as being
the first commercial SAGD project in Alberta.
We’ve introduced a number of innovations at this
project, including our Wedge WellTM technology
which has increased production by 10 to 15 percent.
Visit cenovus.com for more information.
Cenovus energy 2 012 ann ual rePort / LOO KING bACK O N T H E y E A R
21
FoCusIng on teCHnology
brIngs rewarDs
We received double honours at New
Technology Magazine’s Technology Star
Awards. Our blowdown boiler technology
was selected as the best health, safety and
environment technology for its innovative
approach to water recycling. And, our
accelerated start-up with steam technology
was selected as runner-up for best
production technology.
“The blowdown boiler is a great example of
how innovation and efficiency can help us
limit our environmental impact,” says Susan
Sun, who’s a water treatment engineer.
The blowdown boiler technology has been
implemented at Foster Creek and Christina
Lake. The enhanced steam generation
process allows us to recycle more water and
use less natural gas while creating steam for
SAGD projects. We expect to introduce this
technology at future oil sands projects.
Accelerated start-up, the technology we
commercialized in 2012, involves injecting
steam down both the injector and producer
wells in a controlled manner, to accelerate
the interaction between the wells and
increase mobility of the oil in the reservoir.
This is one of the reasons why Christina
Lake was able to achieve first production
on phase D earlier than expected.
“Our accelerated start-up with steam
dilation is one way we’re getting oil out of
the ground faster,” says Maliha Zaman, one
of our reservoir engineers.
CollaboratIon Is Key to early
start-uP at CHrIstIna laKe PHase D
When our phase D expansion at Christina
Lake began producing oil three months
ahead of schedule, our operations
superintendent, Darren Matvichuk,
summed up the achievement in one
word: collaboration.
“Our employees came together as a team
to achieve this milestone. Collaboration is
what strengthens our ability to execute,” says
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Cenovus energy 2012 annual rePort / LOOKI NG bACK ON THE yE AR
“We’re always looking
to challenge the status
quo and improve the
way we work.”
– Darren MatvICHuK
Darren. “We’re always looking to challenge
the status quo and improve the way we
work. In this case we clarified roles and
responsibilities, streamlined our processes,
and integrated our planning and scheduling.”
and implement practical solutions to
environmental challenges,” says Brian
Ferguson, our President & Chief Executive
Officer. “As a company, we believe in
continuously improving, and we are excited
to be a charter member.”
“I’m inspired by how passionate people are
about their communities,” says Dave Hassan,
who leads the environment technology
investment team and was one of the
contest judges. “It’s wonderful to see such
strong community spirit.”
Co sIa: DrawIng uPon tHe best
anD brIgHtest
Cenovus was one of the Canadian oil
sands producers who in early 2012 joined
together to form Canada’s Oil Sands
Innovation Alliance (COSIA). This new
organization is focused on accelerating oil
sands environmental performance through
innovation and collaboration.
“COSIA is drawing upon the best
minds within the industry to develop
CoMMunIty sPIrIt sHInIng brIgHtly
There’s something special about every
community. That’s why we launched the
Great Communities contest, to celebrate
the spirit that lives within the communities
where we live and work. We asked residents
to tell us why their communities are great
in 50 words or less.
In total there were 124 entries. Each of the
12 community residents who submitted
winning entries received a $5,000 donation
from Cenovus to give to their favourite
local charity.
Cenovus energy 2 012 ann ual rePort / LOO KING bACK O N T H E y E A R
23
b U I L DIN G
M OM EN T UM
mE ssag E fr O m O ur bOard chai r
The theme of Cenovus’s 2012 annual report
is building momentum, driving forward.
From an operating perspective the company
is certainly growing assets and asset
value. From a governance perspective the
question is whether that momentum can
be expected to deliver desirable results.
Because the company is “driving,” in a
responsible manner, toward goals valued
by shareholders, your Board believes the
answer to be an unequivocal “yes.”
Cenovus began independent life in December
2009 with a large inventory of high quality,
well understood assets. Since then the
company has increased oil reserves and
resources each year, increased oil production
and sales volumes each year and accelerated
schedules for many of its projects based
on achieved results. Supported by its
comprehensive stratigraphic test well
program, Cenovus continues to convert its
bitumen prospective resources to contingent
resources and then to reserves, and ultimately
to production. Downstream integration
has paid off with increased cash flow for
investment when realized crude prices
have been low. Good financial performance
supported dividend increases. So, there is no
question that momentum is building.
What about direction? An initial dividend
and a dividend policy were announced after
the company began independent operations.
The 2012 dividend increase and the recently
announced first quarter 2013 increase were
consistent with that policy. A growth plan
was laid out in early 2010. Subsequent
operating results combined with independent
third-party estimates of bitumen initially-in-
place and economic contingent resources
provided the basis for converting it to
an achievable 10-year business plan. The
disclosed increase in targeted bitumen
production is consistent with that plan.
Management adopted net asset value as
a performance measure with a target of
doubling it by the end of 2015. We believe all
of these actions are aimed at goals valued by
investors and demonstrate that Cenovus is
doing what it said it would do.
All of this progress has been accomplished
in a responsible manner, consistent with
Cenovus’s stated values. The company’s
financial structure is designed to support
growth and absorb significant downside
commodity price shock. Downstream
integration has mitigated some of the
crude oil price risk. The company continues
to invest in energy and environmental
technology to improve performance and
reduce its environmental footprint. Cenovus
published its first corporate responsibility
report in 2010. The report is based on
the company’s Corporate Responsibility
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Cenovus energy 2012 annual rePort / MESSAGE FROM OU R b OAR D CHAIR
Policy and provides a baseline against which
performance may be measured. Cenovus has
been recognized in each year as a leader in
emissions reporting and has been on the
Dow Jones Sustainability Index North America
for three years, being named to the World
Index in 2012.
For these and the many other reasons,
described in the company’s public documents,
your Board believes that Cenovus is definitely
building momentum toward goals that will
serve investors and all other stakeholders well.
Respectfully submitted on behalf of the Board.
MICH ael a . gr an DI n
Board Chair
Cenovus energy 2 012 ann ual rePort / MESSAGE F ROM O U R bOARD CH AI R
25
O PER AT ING
HI G H LIGHTS
B e f o r e r o y a l t i e s
Production
Crude Oil and Natural Gas Liquids (bbls/d)
Oil Sands – Heavy Oil
Foster Creek
Christina Lake
Total
Pelican Lake
Conventional Liquids
Heavy Oil
Light and Medium Oil
Natural Gas Liquids
Total Crude Oil and Natural Gas Liquids (bbls/d)
Natural Gas (MMcf/d)
Refinery Operations (1)
Crude Oil Capacity (Mbbls/d)
Crude Oil Runs (Mbbls/d)
Crude Utilization (%)
Proved Reserves (2)
Total Reserves (MMBOE)
Year-end Bitumen Reserves (MMbbls)
Total Production Replacement (%)
Recycle Ratio (3)
Proved Finding & Development Costs ($/BOE) (4)
Reserve Life Index (years)
2012
2011
% Change
57,833
31,903
89,736
22,552
112,288
16,015
36,071
1,029
165,403
594
452
412
91
2,175
1,717
345
3.2
9.04
23
54,868
11,665
66,533
20,424
86,957
15,657
30,524
1,101
134,239
656
452
401
89
1,945
1,455
422
5.3
5.95
22
5
173
35
10
29
2
18
(7)
23
(9)
–
3
2
12
18
(18)
(40)
52
5
(1) Represents 100% of the Wood River and Borger refinery operations.
(2) Natural gas is converted using a 6:1 oil equivalent. See the Advisory section.
(3) Recycle ratio is calculated by dividing netback (before hedging and general and administrative costs) by Proved Finding and Development Costs (excluding changes in future development costs).
(4) Finding and Development Costs presented do not include changes in future development costs. Finding and Development Costs calculated with changes in future development costs for proved reserves
and for proved plus probable reserves, are disclosed in the Advisory.
26
Cenovus energy 2012 annual rePort / OPERATING HIG HLIGHTS
FI NA NC IAL
H I GH LIGHTS
$ M i l l i o n s , e x c e p t p e r s h a r e a n d o t h e r a m o u n t s a s n o t e d
Gross Sales
Revenues
Cash Flow (1)
Per Share – Diluted
Operating Earnings (1)
Per Share – Diluted
Net Earnings
Per Share – Diluted
Capital Investment
Net Acquisition and Divestiture Activity
Net Capital Investment
Dividends Per Common Share
Dividend Yield (%) (2)
Debt to Capitalization (%) (1)
Debt to Adjusted EBITDA (times) (1)
(1) Non-GAAP measures as referenced in the Advisory section.
(2) Based on TSX closing share price at year end.
2012
17,229
16,842
3,643
4.80
866
1.14
993
1.31
3,368
38
3,406
0.88
2.6
32
1.1
2011
% Change
6
7
11
(30)
(33)
24
30
10
16,185
15,696
3,276
4.32
1,239
1.64
1,478
1.95
2,723
(102)
2,621
0.80
2.4
27
1.0
“We had another strong year in 2012, achieving the milestones
we set for ourselves. We added significant new reserves and
resources, increased our oil production, enhanced net asset
value and generated record cash flow. We remain committed
to delivering a growing total shareholder return and have
again increased our dividend by 10 percent.”
– brIan Ferguson, PresIDent & CHIeF exeCutIve oFFICer
Cenovus energy 2 012 ann ual rePort / FINAN C I AL HI G HL I G HTS
27
M A NAGE MENT ’S DISCUSSION
AN D AN ALYSI S
OVERVIE W OF CE NOVUS.... .... .... ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 29
Q UARTE RLY RE SULTS.......................... ...................... ......... ...................... 53
2012 OPERAT ING AND FIN AN C IAL HI G H L I G HTS.. . . . . . . . . . . . . . . . . . . . . . . . ......... 31
O IL AND G AS R ESERVES AND R ESO URCE S.......................................... 54
OPERATING RESULTS... .... .... .... .... .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ..... .33
LIQ UI DI TY AND CAPI TAL RESO URC ES.... ......... ....................... .............. 56
COMMODIT Y PRICES UND E RLYIN G O UR FI N A N C I AL R E S ULTS.. ... .....34
RI SK MAN AGE MENT.......................... ...................... ......... ....................... 60
F IN A N C IAL RE S U LTS............ .. ... ... .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 36
REPORTABL E SEGMENTS..... .. ... ... .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ...... 41
CR ITI CAL ACCO UNTIN G JUD GME NTS ,
ESTI MATES AN D ACCO UNTI NG PO LI CI E S... ....................... ......... ......... 65
.
.
.
.
O IL . S A N DS .. . . . . . . .. .. .. ... . ..... ... ... .. ... ... .. ... ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ 42
CO N VE NT I ON A L.. . .. . ... .. ... ... .. ... ... .. ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ 46
R E F I NI N G.AND. MARK ET IN G.. ... .. .. ..... ... ..... ... ..... ... ... . . . . . . . . . . . . . . ...... .. 49
COR PO RATE .AND. EL IMI NAT IONS... ... ... .. ... ... .. ... ... .. ... .. . . . . . . . . . . ....... 50
CON TROL ENV IRO NMEN T........................ ......... ....................... .............. 69
TRANS PAR ENC Y AN D COR PO RATE RES PO N SI B I LI TY.. ........................ 69
O UTLO O K........................................... ...................... ......... ....................... 70
For the Year Ended December 31, 2012
This.Management’s.Discussion.and.Analysis.(“MD&A”).for.Cenovus.Energy.Inc..
(“we”,.“our”,.“Cenovus”,.or.the.“Company”).dated.February.13,.2013,.should.be.read.in.
conjunction.with.our.December.31,.2012.audited.Consolidated.Financial.Statements.
and.accompanying.notes.(“Consolidated.Financial.Statements”)..This.MD&A.
contains.forward-looking.information.about.our.current.expectations,.estimates,.
projections.and.assumptions..See.the.Advisory.for.information.on.the.risk.factors.
that.could.cause.actual.results.to.differ.materially.and.the.assumptions.underlying.
our.forward-looking.information..Cenovus.Management.prepared.the.MD&A,.while.
the.Audit.Committee.of.the.Cenovus.Board.of.Directors.(the.“Board”).reviewed.and.
recommended.its.approval.by.the.Board..Additional.information.about.Cenovus,.
including.our.quarterly.and.annual.reports.and.the.Annual.Information.Form.(“AIF”).
and.Form.40-F,.is.available.on.SEDAR.at.www.sedar.com,.EDGAR.at.www.sec.gov.and.
on.our.website.at.www.cenovus.com..
Basis of Presentation
This.MD&A.and.the.Consolidated.Financial.Statements.and.comparative.information.
have.been.prepared.in.Canadian.dollars,.except.where.another.currency.has.been.
indicated.and.have.been.prepared.in.accordance.with.International.Financial.
Reporting.Standards.(“IFRS”.or.“GAAP”).as.issued.by.the.International.Accounting.
Standards.Board..Production.volumes.are.presented.on.a.before.royalties.basis.
Non-GAAP Measures
Certain.financial.measures.in.this.document.do.not.have.a.standardized.meaning.as.
prescribed.by.IFRS,.such.as.operating.cash.flow,.cash.flow,.operating.earnings,.free.cash.
flow,.debt,.capitalization.and.adjusted.EBITDA,.and.therefore.are.considered.non-GAAP.
measures..These.measures.may.not.be.comparable.to.similar.measures.presented.by.
other.issuers..These.measures.have.been.described.and.presented.in.order.to.provide.
shareholders.and.potential.investors.with.additional.measures.for.analyzing.our.ability.
to.generate.funds.to.finance.our.operations.and.information.regarding.our.liquidity..
The.additional.information.should.not.be.considered.in.isolation.or.as.a.substitute.
for.measures.prepared.in.accordance.with.IFRS..The.definition.and.reconciliation.of.
each.non-GAAP.measure.is.presented.in.the.Operating.Results,.Financial.Results.and.
Liquidity.and.Capital.Resources.sections.of.this.MD&A.
28
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
OVE RVIEW OF CENOVUS
We.are.a.Canadian,.integrated.oil.company.headquartered.in.Calgary,.
Alberta,.with.our.shares.trading.on.the.Toronto.and.New.York.stock.
exchanges..On.December.31,.2012,.we.had.a.market.capitalization.
of.approximately.$25.billion..We.are.in.the.business.of.developing,.
producing.and.marketing.crude.oil,.natural.gas.liquids.(“NGLs”).and.
natural.gas.in.Canada.with.refining.operations.in.the.United.States.
(“U.S.”)..Our.total.2012.average.crude.oil.and.NGLs.production.was.in.
excess.of.165,000.barrels.per.day,.our.average.natural.gas.production.
was.in.excess.of.590.MMcf.per.day.and.our.refinery.operations.
produced.approximately.433,000.barrels.per.day.of.refined.product..
Our.reportable.segments.are:.Oil.Sands,.Conventional,.Refining.and.
Marketing.and.Corporate.and.Eliminations..
OUR STRATEGY
Our.strategy.is.to.create.long-term.value.for.our.shareholders.through.
the.development.of.our.vast.oil.sands.resources,.our.execution.
excellence,.our.ability.to.innovate.and.our.financial.strength..We.are.
focused.on.continually.building.our.net.asset.value.and.paying.a.strong.
and.sustainable.dividend.
Our.integrated.approach,.which.enables.us.to.capture.the.full.value.
chain.from.production.to.high-quality.end.products.like.transportation.
fuels,.relies.on.our.entire.asset.mix:
)
d
/
s
l
b
b
M
(
•. Oil.Sands.for.growth;
•.
•.
.Conventional.crude.oil.for.near-term.cash.flow.and.diversification.of.
revenue.stream;
.Natural.gas.for.the.fuel.we.use.at.our.oil.sands.and.refining.facilities,.
and.for.the.cash.flow.it.provides.to.help.fund.our.capital.spending.
programs;.and
•. Refining.to.help.reduce.the.impact.of.commodity.price.fluctuations.
To.achieve.our.expected.production.targets,.we.anticipate.our.total.
annual.capital.investment.to.average.between.$3.0.and.$3.5.billion.for.
the.next.decade..This.capital.investment.is.expected.to.be.primarily.
internally.funded.through.cash.flow.generated.from.our.crude.oil,.
natural.gas.and.refining.operations.as.well.as.prudent.use.of.our.balance.
sheet.capacity..We.continue.to.focus.on.executing.our.10-year.business.
plan.in.a.predictable.and.reliable.way,.leveraging.the.strong.foundation.
we.have.built.to.date..
500
40 0
30 0
200
10 0
0
Oil Production
We.plan.to.increase.our.net.oil.sands.bitumen.production.to.
400,000.barrels.per.day.and.our.net.crude.oil.production,.including.
our.conventional.oil.operations,.to.approximately.500,000.barrels.
per.day.by.the.end.of.2021..We.are.focusing.on.the.development.
of.our.substantial.crude.oil.resources.predominantly.from.Foster.
Creek,.Christina.Lake,.Pelican.Lake,.Narrows.Lake.and.our.tight.oil.
opportunities.in.Alberta.and.Saskatchewan..Our.future.opportunities.
are.currently.based.on.the.development.of.the.land.positions.that.
we.hold.in.the.oil.sands.in.northern.Alberta.and.we.plan.to.continue.
assessing.our.emerging.resource.base.by.drilling.approximately..
350-450.gross.stratigraphic.test.wells.each.year.for.the.next.five.years.
TO TAL OI L PRO DUC TI ON (MBB LS /D) NE T TO C ENOVUS
2010
2012
2015F ( 1)
2021F (1)
(1). Expected.gross.production.capacity.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / MA NAGEM ENT ’S DISCU SSION AND AN ALYSIS
29
OiL SANDS
Our.operations.include.the.following.steam-assisted.gravity.drainage.(“SAGD”).oil.sands.projects.in.northern.Alberta:
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Existing Projects.
.
Foster.Creek.
. Christina.Lake.
. Narrows.Lake.
Emerging Plays
. Grand.Rapids..
. Telephone.Lake.
..
.
Ownership
interest
(percen t)
.
50
50
50
.
2012 Net
Production
Volumes
(b b ls /d )
.
57,833
31,903
–
100
100
–
–
Current.
Expected Gross.
Production.
Capacity.
(bbls/d)
310,000
300,000
130,000
180,000
300,000
Foster.Creek,.Christina.Lake.and.Narrows.Lake.are.operated.by.Cenovus.
and.located.in.the.Athabasca.Region.of.northeast.Alberta..In.addition.
to.current.production,.expansion.work.is.underway.at.phases.F,.G.and.
H.at.Foster.Creek.with.added.production.capacity.expected.in.2014..
In.the.third.quarter.of.2013,.Christina.Lake.is.anticipating.production.
from.phase.E..For.our.Narrows.Lake.property,.we.received.regulatory.
approval.in.May.2012.for.phases.A,.B.and.C,.and.final.partner.approval.
in.December.2012.for.phase.A..Site.preparation.is.underway.and.we.
anticipate.first.production.in.2017..
Two.of.our.emerging.projects.are.Grand.Rapids.and.Telephone.Lake..
At.our.Grand.Rapids.property,.located.within.the.Greater.Pelican.
CONVENTiONAL
Region,.a.SAGD.pilot.project.is.underway..In.December.2011,.we.filed.
a.joint.application.and.Environmental.Impact.Assessment.(“EIA”).for.a.
commercial.SAGD.operation..We.anticipate.regulatory.approval.in.the.
fourth.quarter.of.2013..Our.Telephone.Lake.property.is.located.within.
the.Borealis.Region..In.December.2011,.we.submitted.a.revised.joint.
application.and.EIA.due.to.an.increase.in.the.project.development.area.
which.we.anticipate.receiving.regulatory.approval.in.2014.
Also.located.within.the.Athabasca.Region.is.our.wholly.owned.Pelican.Lake.
property..Pelican.Lake.produces.heavy.oil.using.polymer.flood.technology.
and.has.expected.production.capacity.of.55,000.barrels.per.day.
Our.crude.oil.and.NGLs.production.from.our.Conventional.business.segment.continues.to.generate.predictable.near-term.cash.flows,.which..
enables.further.development.of.our.Oil.Sands.assets.and.provides.diversification.to.our.revenue.stream..Our.natural.gas.production.acts.as.an.
economic.hedge.for.the.natural.gas.required.as.a.fuel.source.at.both.our.upstream.and.refining.operations.and.provides.cash.flows.to.help.fund.our.
growth.opportunities.
For the Year Ended Decem b er 3 1, 2 012 ($ m il l ions).
Operating.Cash.Flow.
Capital.Investment.
Operating Cash Flow in Excess of Related Capital Investment..
Crude Oil and NGLs
962
805
157
.
Natural Gas
482
43
439
We.have.established.conventional.crude.oil.and.natural.gas.producing.assets.and.developing.tight.oil.assets..In.Saskatchewan,.we.also.inject.carbon.
dioxide.to.enhance.oil.recovery.at.our.Weyburn.operations..
Refining and Marketing
Our.operations.include.refineries.located.in.Illinois.and.Texas.that.are.jointly.owned.with.and.operated.by.Phillips.66,.an.unrelated.U.S..public.company:
.
.
.
.
.
.
.
.
.
Wood.River.(1).
Borger.
Ownership 2012 Nameplate.
Capacity
(Mb bls/d)
306
146
interest
(percen t)
50
50
.
.
.
.
(1). Effective.January.1,.2013,.Wood.River.has.a.nameplate.capacity.of.311,000.barrels.per.day.
Our.refining.operations.allow.us.to.capture.the.value.from.crude.oil.
production.through.to.refined.products.such.as.diesel,.gasoline.and.jet.
fuel.to.mitigate.volatility.associated.with.North.American.commodity.
price.movements..This.segment.also.includes.the.marketing.of.third.
party.purchases.and.sales.of.product,.undertaken.to.provide.operational.
flexibility.for.transportation.commitments,.product.quality,.delivery.points.
and.customer.diversification..
30
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
Refining and Marketing (continued )
($ mil lions).
Operating.Cash.Flow.
Capital.Investment.
Operating Cash Flow in Excess of Related Capital Investment .
.
.
.
.
.
.
.
2012
1,267
118
1,149
Technology and Environment
Dividend
Technology.development.plays.a.key.role.in.improving.the.amount.
of.bitumen.we.can.access.and.extract.from.the.ground,.potentially.
reducing.costs.and.building.on.our.history.of.excellent.project.
execution..The.Cenovus.culture.fosters.new.ideas.and.new.approaches.
and.has.a.track.record.of.developing.innovative.solutions.that.unlock.
previously.inaccessible.resources..Environmental.considerations.
are.embedded.into.our.business.with.the.objective.of.reducing.our.
environmental.impact..We.are.advancing.technologies.with.the.goal.of.
reducing.the.amount.of.water,.natural.gas.and.electricity.consumed.in.
our.operations.and.minimizing.surface.land.disturbance..
Our.disciplined.approach.to.capital.allocation.includes.continuing.
to.pay.a.strong.and.sustainable.dividend.as.part.of.delivering.total.
shareholder.return.
Net Asset Value
We.measure.our.success.in.a.number.of.ways.with.a.key.measure.being.
growth.in.net.asset.value..Our.operational.and.financial.performance.
in.2012.and.consistent.production.growth.has.increased.our.net.asset.
value..We.continue.to.be.on.track.to.reach.our.goal.of.doubling.our.
December.2009.net.asset.value.by.the.end.of.2015.
2 0 12 OPERATI NG A ND FINA NCIAL HIGHLIG HTS
In.2012,.we.delivered.solid.performance.and.achieved.or.exceeded.the.
milestones.we.set.out.for.the.year..We.completed.our.planned.capital.
programs,.met.or.exceeded.our.production.targets.and.increased.our.
net.asset.value.
OPERATIONAL RESULTS
Crude.oil.production.from.our.Oil.Sands.segment.averaged.112,288.barrels.
per.day,.an.increase.of.29.percent,.primarily.due.to.increased.production.
at.Christina.Lake.and.Foster.Creek..Christina.Lake.phase.D,.our.9th.SAGD.
expansion.phase.to.come.online,.came.on.production.ahead.of.schedule.
in.late.July,.2012.and.below.budgeted.cost..This.was.the.result.of.effective.
use.of.our.Nisku.module.yard,.faster.ramp-up.of.production.from.
improved.start-up.techniques.and.production.commencing.in.a.higher.
quality.area.of.the.reservoir..Christina.Lake.set.a.new.single.day.gross.
production.high.of.almost.94,000.barrels.per.day.in.2012.and.has.exceeded.
gross.nameplate.capacity.of.98,000.barrels.per.day.in.early.2013.
TO TAL CRUD E OIL AN D N GL S P RO DUC TI ON VOLU MES
Within.our.Conventional.segment,.crude.oil.and.NGLs.production.
averaged.53,115.barrels.per.day,.an.increase.of.12.percent,.as.a.result.
of.our.successful.drilling.programs..Alberta.production.increased.
10.percent.to.an.average.of.30,357.barrels.per.day.and.Saskatchewan.
production.increased.15.percent.to.an.average.of.22,758.barrels.per.day.
Our.proved.bitumen.reserves.increased.18.percent.to.over.1.7.billion.
barrels.and.our.economic.bitumen.best.estimate.contingent.resources.
increased.17.percent.to.9.6.billion.barrels,.demonstrating.our.strong.
resource.base..Additional.information.about.our.resources.is.included.in.
the.Oil.and.Gas.Reserves.and.Resources.section.of.this.MD&A..
Our.refining.operations.produced.approximately.433,000.barrels.per.
day.of.refined.products,.an.increase.of.about.14,000.barrels.per.day..
The.increase.resulted.from.greater.heavy.crude.oil.processing.capability.
as.a.result.of.a.full.year.of.operations.from.the.Coker.and.Refinery.
Expansion.(“CORE”).project.at.the.Wood.River.Refinery.which.was.
completed.in.the.fourth.quarter.of.2011..Refining.operations.processed.
an.average.of.412,000.(2011.–.401,000).barrels.per.day.of.crude.oil,.
including.198,000.barrels.per.day.of.heavy.crude.oil,.despite.planned.
turnarounds.at.both.refineries.in.the.fourth.quarter.of.2012..
129,187
134,239
)
d
/
s
l
b
b
(
18 0,0 00
160 ,00 0
14 0,00 0
120 ,0 00
10 0,0 00
80,0 00
60,0 00
40 ,000
20,0 00
0
165,403
Other.significant.operational.results.in.2012,.as.compared.to..
2011,.include:
•.
•.
•.
.Christina.Lake.production.averaging.31,903.barrels.per.day,.more.than.
doubling,.due.to.the.start-up.of.phases.C.and.D.in.the.third.quarters.
of.2011.and.2012,.respectively;
.Foster.Creek.production.averaging.57,833.barrels.per.day,.an.increase.
of.five.percent.due.to.plant.optimization;
.Pelican.Lake.production.averaging.22,552.barrels.per.day,.an..
increase.of.10.percent.as.a.result.of.our.infill.drilling.and.polymer.
flood.programs;.
2010
2011
2012
CEN OV US EN ERGY 2012 AN NUAL R EPORT / MAN AGE MEN T ’S DISC USSIO N AND A NA LYS IS
31
•.
•.
•.
•.
.Natural.gas.production.declining.nine.percent.to.an.average.of.594.
MMcf.per.day,.primarily.due.to.expected.natural.declines.and.the.
divestiture.of.a.non-core.property.early.in.the.first.quarter.of.2012;
.Receiving.regulatory.approval.for.phases.A,.B.and.C,.and.partner.
approval.for.phase.A.of.our.Narrows.Lake.project;
.Completing.planned.refinery.turnarounds.at.both.Borger.and.Wood.
River;.and
Cash Flow
Cash.flow.of.$3,643.million,.increasing.$367.million.or.11.percent,.
primarily.due.to.higher.operating.cash.flow,.partially.offset.by:.
•.
.An.increase.in.current.income.tax,.excluding.tax.on.divestitures,.of.
$168.million.mainly.due.to.$68.million.of.withholding.tax.on.a.U.S..
dividend,.higher.U.S..income.tax.and.improved.operating.cash.flow.
from.our.Canadian.operations;.and
.Accessing.new.markets.for.our.crude.oil.through.pipeline.to.the.west.
coast.and.rail.to.the.east.coast.and.U.S.
•.
.An.increase.in.our.general.and.administrative.expenses.due.to.higher.
staffing.and.office.support.costs.in-line.with.our.growth..
FINANCIAL RESULTS
Throughout.2012,.our.financial.results.benefited.from.strong.crude.
oil.production.and.continued.high.refining.margins,.despite.declines.
in.crude.oil,.NGLs.and.natural.gas.prices..Total.operating.cash.flow.
reached.$4.4.billion.(an.increase.of.15.percent).and.cash.flow.was..
$3.6.billion.(an.increase.of.11.percent)..Operating.earnings.were.
$866.million.(a.decrease.of.30.percent).primarily.due.to.a.goodwill.
impairment.in.the.fourth.quarter.related.to.our.Suffield.area.within..
our.Conventional.segment..Net.earnings.declined.33.percent.to..
$993.million,.primarily.resulting.from.non-cash.items.related.to.
decreases.in.gains.recorded.on.unrealized.risk.management.activities.
and.divestitures..We.completed.a.US$1.25.billion.public.offering.of.
senior.unsecured.notes.in.August.and.paid.annual.dividends.of..
$0.88.per.share.(2011.–.$0.80.per.share)..
Other.financial.highlights.for.2012,.as.compared.to.2011,.include:
CASH FLOW PER SHARE – DI LUTE D
)
e
r
a
h
s
/
$
(
6.0 0
5.00
4.0 0
3.0 0
2 .00
1.0 0
0.0 0
4.80
4.32
3.20
2010
2011
2012
Revenues
Revenues.of.$16,842.million,.increasing.$1,146.million.or.seven.percent.as.
a.result.of:.
•.
•.
•.
.Crude.oil.and.NGLs.sales.volumes.increasing.25.percent;
.Refining.and.Marketing.revenues.rising.$731.million.due.primarily.to.
higher.refinery.output.and.refined.product.prices;.and
.A.decrease.in.crude.oil.and.NGLs.royalties.by.20.percent.primarily.
due.to.an.increase.in.capital.investment..
Partially.offsetting.these.increases.in.revenues.were:
•.
•.
.Our.crude.oil.and.NGLs.average.sales.prices.(excluding.financial.
hedging).decreasing.10.percent;.and
.Natural.gas.revenues.decreasing.$344.million.due.to.declining.
production.and.lower.average.sales.prices.
Operating Cash Flow
Operating Earnings
Operating.earnings.of.$866.million,.decreasing.$373.million.or..
30.percent.primarily.due.to.the.following.non-cash.items:
•.
.Goodwill.impairment.of.$393.million.in.our.Conventional.segment.at.
Suffield,.resulting.primarily.from.declining.future.cash.flows.due.to.
lower.natural.gas.and.crude.oil.prices.and.increased.operating.costs..
We.have.also.had.minimal.levels.of.capital.spending.for.natural.gas.
such.that.production.has.exceeded.reserve.replacement.in.the.area..
With.lower.future.cash.flows.and.decreasing.volumes,.the.carrying.
amount.of.the.goodwill.which.arose.in.2002,.exceeded.its.fair.value;
•.
.Increased.depreciation,.depletion.and.amortization.(“DD&A”).as.a.
result.of.higher.production.and.higher.DD&A.rates;.and
•.
.Increased.exploration.expense.
Higher.cash.flow.partially.offset.the.decreases.in.operating.earnings.as.
discussed.above..
Operating.cash.flow.of.$4,436.million,.increasing.$574.million.or.15.
percent.due.to:
Net Earnings
•.
•.
.Upstream.operating.cash.flow.of.$3,169.million,.an.improvement.of.
$288.million,.due.to.higher.crude.oil.and.NGLs.volumes,.partially.
offset.by.lower.realized.crude.oil.and.natural.gas.prices.and.lower.
natural.gas.volumes;.and
.Operating.cash.flow.of.$1,267.million.from.our.Refining.and.
Marketing.segment.increasing.$286.million.on.improved.refinery.
output,.feedstock.costs.and.crack.spreads,.partially.offset.by.higher.
operating.costs.for.planned.turnarounds..
Net.earnings.of.$993.million,.decreasing.$485.million.or.33.percent,.as.
decreases.in.operating.earnings.discussed.above,.decreases.in.unrealized.
risk.management.gains,.after.tax.and.a.gain.on.divestiture.in.2011.were.
partially.offset.by.higher.unrealized.foreign.exchange.gains.
Capital Investment
Capital.investment.of.$3,368.million,.increasing.$645.million.or..
24.percent.primarily.due.to.expansion.of.our.Oil.Sands.operations.
and.the.development.of.tight.oil.opportunities.in.our.Conventional.
segment,.partially.offset.by.reduced.capital.spending.in.Refining.and.
Marketing.with.the.completion.of.the.CORE.project.in.2011..
32
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
OP ER ATI NG R ESULTS
.
.
CRUDE OIL PRODUCTION VOLUMES
.
(barrels per d ay).
Oil Sands.
.
Foster.Creek.
. Christina.Lake.
. Pelican.Lake.
Conventional.
. Heavy.Oil.
. Light.&.Medium.Oil.
. NGLs.(1).
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012
.
57,833
31,903
22,552
.
16,015
36,071
1,029
165,403
2012.
vs. 2011
.
5%.
173%.
10%.
.
2%.
18%.
-7%.
23%.
.
2011.
.
54,868.
11,665.
20,424.
.
15,657.
30,524.
1,101.
134,239.
2011.
vs..2010.
.
7%.
48%.
-11%.
.
-6%.
4%.
-6%.
4%.
2010
.
51,147
7,898
22,966
.
16,659
29,346
1,171
129,187
(1). NGLs.include.condensate.volumes.
In.2012,.our.crude.oil.and.NGLs.production.increased.23.percent.due.
to.the.start-up.of.Christina.Lake.phases.C.and.D.in.the.third.quarters.
of.2011.and.2012.respectively,.improved.well.performance.and.plant.
optimization.at.Foster.Creek.and.rising.production.at.Pelican.Lake.from.
our.infill.drilling.and.polymer.flood.program..Our.successful.drilling.
program.in.Alberta.and.drilling,.completions.and.facilities.work.in.
Saskatchewan,.also.contributed.to.higher.production..
.
.
NATURAL GAS PRODUCTION VOLUMES
.
( M M c f p e r day).
Conventional.
Oil.Sands.
.
.
.
.
.
.
.
.
.
2012
561
33
594
2012.
vs. 2011
-9%.
-11%.
-9%.
.
2011.
619.
37.
656.
2011.
vs..2010.
-11%.
-14%..
-11%.
2010
694
43
737
In.2012,.our.natural.gas.production.declined.nine.percent..In.the.low.
price.environment,.we.have.chosen.to.restrict.natural.gas.capital.
spending.for.the.past.several.years..Declines.were.also.a.result.of.the.
divestiture.of.our.Boyer.property.in.early.2012,.partially.offset.by.the.
absence.of.weather.related.production.issues.that.were.encountered.in.
2011..Excluding.the.impact.of.the.first.quarter.divestiture,.our.natural.gas.
production.would.have.decreased.six.percent.
OPERATING NETBACKS
.
.
.
.
.
..
.
.
.
..
.
.
Price.(1).
Royalties.
Transportation.and.Blending.(1).
Operating.Expenses.
Production.and.Mineral.Taxes.
Netback Excluding Realized Risk Management.
. Realized.Risk.Management.Gains.(Losses).
Netback Including Realized Risk Management.
2012.
2011.
2010
Crude Oil
& NGLs
($/ bbl)
65.79
6.29
2.65
13.90
0.56
42.39
1.39
43.78
Natural.
Gas.
($/ Mc f )
2.42.
0.03.
0.10.
1.10.
0.01.
1.18.
1.14.
2.32.
Crude.Oil.
&.NGLs.
($ /bb l)
72.84.
9.84.
2.76.
13.47.
0.56.
46.21.
(2.79).
43.42.
Natural.
Gas.
($/ Mc f )
3.65.
0.06.
0.15.
1.10.
0.04.
2.30.
0.87.
3.17.
Crude.Oil.
&.NGLs.
($ /bb l)
62.96.
9.33.
1.88.
11.74.
0.62.
39.39.
(0.36).
39.03.
Natural.
Gas
( $/Mc f )
4.09
0.07
0.17
0.95
0.02
2.88
1.07
3.95
(1). .Heavy.crude.oil.is.mixed.with.purchased.condensate..The.crude.oil.and.NGLs.price.and.transportation.and.blending.costs.exclude.the.impact.of.condensate.purchases.of.$26.72.per.barrel..
(2011.–.$24.91.per.barrel;.2010.–.$20.36.per.barrel).
In.2012,.our.average.netback.for.crude.oil.and.NGLs,.excluding.realized.
risk.management.gains.and.losses,.decreased.by.$3.82.per.barrel.from.
2011..Sales.prices.were.lower.in.2012,.consistent.with.lower.benchmark.
prices.and.decreased.sales.prices.for.Christina.Lake.due.to.the.Christina.
Dilbit.Blend.(“CDB”).differential.to.Western.Canadian.Select.(“WCS”)..
In.addition,.higher.operating.costs.as.a.result.of.workover.activities,.
workforce.and.repairs.and.maintenance.costs.also.decreased.our.
average.netback..This.decrease.was.offset.by.a.reduction.in.royalties.
primarily.due.to.increased.capital.investment.
Our.average.netback.for.natural.gas,.excluding.realized.risk.management.
gains.and.losses,.decreased.$1.12.per.Mcf.in.2012.predominantly.as.a.
result.of.lower.sales.prices.as.compared.to.2011.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / MA NAGEM ENT ’S DISCU SSION AND AN ALYSIS
33
REFINING (1)
.
.
.
.
Crude.Oil.Runs.(Mbbls/d).
Refined.Product (Mbbls/d).
Crude.Utilization (percent).
(1). Represents.100.percent.of.the.Wood.River.and.Borger.refinery.operations.
.
.
.
.
.
.
2012
412
433
91
2012.
vs. 2011
3%.
3%.
2%.
.
2011.
401.
.419.
89.
2011.
vs..2010.
4%.
3%.
3%.
2010
386
405
86
Crude.oil.runs.and.refined.product.improved.three.percent.as.a.result.of.a.
full.year.of.operations.after.completion.of.the.CORE.project.at.the.Wood.
River.Refinery..Improvements.were.partially.offset.by.longer.than.expected.
planned.turnarounds.at.both.refineries.in.the.fourth.quarter.of.2012..
Further.information.on.the.changes.in.our.production.volumes.and.
items.included.in.our.operating.netbacks.can.be.found.in.the.Reportable.
Segments.section.of.this.MD&A..Further.information.on.our.risk.
management.strategy.can.be.found.in.the.Risk.Management.section.of.this.
MD&A.and.in.the.notes.to.the.Consolidated.Financial.Statements..
COM M ODIT Y PRICES UNDERLYIN G O UR FI NANCIAL RESULTS
Key.performance.drivers.for.our.financial.results.include.commodity.
prices,.price.differentials,.refining.crack.spreads.as.well.as.the..
U.S./Canadian.dollar.exchange.rate..The.following.table.shows..
selected.market.benchmark.prices.and.the.U.S./Canadian.dollar.average.
exchange.rates.to.assist.in.understanding.our.financial.results.
.
.
SELECTED BENCHMARK PRICES AND ExCHANGE RATES (1)
..
Crude Oil Prices (US$/bbl).
Brent.Futures..
. Average.
. End.of.period.
WTI. ..
. Average.
. End.of.period..
Average.Differential.Brent-WTI.
WCS...
. Average.
. End.of.period..
Average.Differential.WTI-WCS.
Condensate.(C5.@.Edmonton).Average.
Average.Differential..
. WTI-Condensate.Premium.
Refining Margin 3-2-1 Average Crack Spreads (2).(U S $/ bb l ).
. Chicago..
. Midwest.Combined.(“Group.3”).
Natural Gas Average Prices.
. AECO ($/GJ).
. NYMEX (US$/MMBtu).
. Basis.Differential.NYMEX-AECO.(U S $/ MMBtu).
U.S./Canadian Dollar Exchange Rate.
. Average.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
..
.
.
..
.
.
.
..
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Q4 2012
.
.
110.13
111.11
.
88.23
91.82
21.90
.
70.12
59.16
18.11
98.14
.
(9.91)
.
28.18
28.49
.
2.90
3.40
0.31
.
1.009
2012.
.
.
111.68.
111.11.
.
94.15.
91.82.
17.53.
.
73.12.
59.16.
21.03.
100.88.
.
(6.73).
.
27.76 .
28.56 .
.
2.28.
2.79.
0.38.
.
1.001.
2011.
..
.
110.91.
107.38.
.
95.11.
98.83.
15.80.
.
77.96.
84.37.
17.15.
105.34.
.
(10.23).
.
24.55.
25.26.
.
3.48.
4.04.
0.31.
.
1.012.
2010
.
80.34
94.75
79.61
91.38
0.73
65.38
72.87
14.23
81.91
.
(2.30)
9.33
9.48
.
3.91
4.39
0.40
.
0.971
(1).. .These.benchmark.prices.do.not.reflect.our.realized.sales.prices..For.our.average.realized.sales.prices.and.realized.risk.management.results,.refer.to.the.Operating.Netbacks.table.in.the.Operating.
Results.section.of.this.MD&A.
(2). .The.3-2-1.crack.spread.is.an.indicator.of.the.refining.margin.generated.by.converting.three.barrels.of.crude.oil.into.two.barrels.of.regular.unleaded.gasoline.and.one.barrel.of.ultra-low.sulphur.
diesel.using.current.month.WTI.based.crude.oil.feedstock.prices.and.a.last.in,.first.out.accounting.basis.(“LIFO”).
Crude Oil Benchmarks
The.Brent.benchmark.is.representative.of.global.crude.oil.prices.and.is.
also.a.better.indicator.than.WTI.of.changes.in.inland.refined.product.
prices,.which.are.tied.to.global.markets..In.2012,.the.average.price.of.
Brent.crude.oil.was.roughly.the.same.as.in.2011,.averaging.near.US$112.
per.barrel,.as.the.effects.of.weak.demand.growth,.was.offset.by.supply.
outages.caused.by.operational.and.geopolitical.problems..Demand.
weakness.was.the.result.of.weak.European.and.North.American.
economies,.as.governments.addressed.fiscal.imbalances.and.slowing.
Chinese.growth,.as.authorities.tried.to.reduce.the.inflated.value.of.
products.within.the.Chinese.economy.
34
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
WTI.is.an.important.benchmark.for.Canadian.crude.oil.since.it.reflects.
inland.North.American.crude.oil.prices.and.its.Canadian.dollar.
equivalent.is.the.basis.for.determining.royalties.for.a.number.of.our.
crude.oil.properties..WTI.has.been.trading.at.a.significant.discount.to.
Brent.prices.for.the.past.two.years.as.inland.supply.growth.has.strained.
the.capacity.of.takeaway.transportation.from.inland.markets..These.
discounts.widened.somewhat.in.2012.as.additional.transportation.
capacity.provided.by.reversing.the.Seaway.pipeline.to.flow.out.of.the.
U.S..Midwest,.was.more.than.offset.by.growth.in.inland.supply..
WCS.is.blended.heavy.oil.which.consists.of.both.conventional.heavy.oil.
and.unconventional.diluted.bitumen..This.blended.heavy.oil.is.traded.
at.a.discount.to.the.light.oil.benchmark.WTI..The.WTI-WCS.average.
differential.widened.in.2012,.primarily.due.to.greater.transportation.
congestion.out.of.the.Western.Canadian.Sedimentary.Basin.(“WCSB”),.
despite.increased.supply.outages.and.availability.of.rail.capacity.
)
l
e
r
r
a
b
r
e
p
s
r
a
l
l
o
d
.
S
.
U
e
g
a
r
e
v
A
(
1 30
1 20
1 10
1 00
90
80
70
60
5 0
4 0
Q 1
Q 2
Q3
Q 4
Q 1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2 010
2011
2012
2013 FORWARD PRICES
AT DECEMBER 31, 2012
BRENT
C5 @ EDMO NTO N
W T I
W CS
Blending.condensate.with.bitumen.and.heavy.oil.enables.our.
production.to.be.transported..Our.blending.ratios.range.from.10.percent.
to.33.percent..The.WTI-Condensate.differential.is.the.Edmonton.
benchmark.price.of.condensate.relative.to.the.price.of.WTI..The.
differentials.for.WTI-WCS.and.WTI-Condensate.are.independent.of.one.
another.and.tend.not.to.move.in.tandem..Condensate.differentials.at.
Edmonton.weakened.in.2012.by.US$3.50.per.barrel.due.largely.to.the.
continued.strong.growth.in.North.American.condensate.supply,.mostly.
from.the.Eagleford.basin.in.Texas,.offset.partially.by.increased.costs.of.
transport.to.the.Edmonton.market..
Refining 3-2-1 Crack Spread Benchmarks
Average.2012.crack.spreads.in.the.U.S..inland.Chicago.and.Group.3.markets.increased.from.strong.2011.levels.due.to.increased.North.American.crude.
oil.discounts.and.global.refinery.closures.
)
l
e
r
r
a
b
r
e
p
s
r
a
l
l
o
d
.
S
.
U
e
g
a
r
e
v
A
(
40
35
30
25
20
15
10
5
0
Q1
Q2
Q3
Q4
Q1
Q2
Q 3
Q4
Q1
Q 2
Q 3
Q 4
Q 1
Q 2
Q3
Q4
2010
2011
2012
2013 FORWARD PRICES
AT DECEMBER 31, 2 012
GROUP 3
CHICAGO
Benchmark.crack.spreads.are.a.simplified.view.of.the.market.based.on.
LIFO.and.reflect.the.current.month.WTI.price.as.the.crude.oil.feedstock.
price..Our.realized.crack.spreads.are.affected.by.many.other.factors.
such.as.the.variety.of.feedstock.crude.oil.inputs,.refinery.configuration.
and.product.output,.and.feedstock.costs.based.on.first.in,.first.out.
accounting.basis..
CEN OV US EN ERGY 2012 AN NUAL R EPORT / MAN AGE MEN T ’S DISC USSIO N A ND ANALYSI S
35
Other Benchmarks
Average.natural.gas.prices.in.2012.fell.sharply.from.2011.levels.due.to.
one.of.the.warmest.winters.on.record.coupled.with.continued.strong.
growth.in.North.American.supply.despite.a.falling.rig.count...
In.order.to.create.sufficient.demand.to.offset.these.imbalances,.gas.
prices.fell.sufficiently.to.induce.fuel.switching.away.from.coal-fired.
power.generation.to.gas-fired.power.generation..
A.decrease.in.the.value.of.the.Canadian.dollar.compared.to.the.U.S..
dollar.has.a.positive.impact.on.our.revenues.as.the.sales.prices.of.our.
crude.oil.and.refined.products.are.determined.by.reference.to.U.S..
benchmarks..Similarly,.our.refining.results.are.in.U.S..dollars.and.therefore.
a.weakened.Canadian.dollar.increases.our.reported.results,.although.
a.weaker.Canadian.dollar.also.increases.our.current.period’s.reported.
refining.capital.investment..During.2012,.the.Canadian.dollar.weakened.
slightly.relative.to.the.U.S..dollar,.but.remained.close.to.parity.
FINA N C IAL RESU LTS
SELECTED CONSOLIDATED FINANCIAL RESULTS
The.following.key.performance.indicators.are.discussed.in.more.detail.within.this.section:.
OPERATING CAS H FLOW, C AS H FLOW, OP ER ATIN G E AR N IN GS AND NE T E ARN IN GS
)
s
n
o
i
l
l
i
m
$
(
5 ,0 00
4,5 00
4 ,00 0
3,5 00
3,00 0
2 ,50 0
2 ,0 00
1,5 00
1,00 0
50 0
0
OP ERATING CASH FLOW
CASH FLOW
OPERAT ING E ARNIN GS
NE T E ARNIN GS
.
.
.
($ mil lions, except per share am oun ts)
Revenues.
Operating Cash Flow (1).
Cash Flow (1).
. per.Share.–.Diluted..
Operating Earnings (1).
. per.Share.–.Diluted.
Net Earnings .
. per.Share.–.Basic.
. per.Share.–.Diluted.
Total Assets.
Total Long-Term Financial Liabilities .
Capital Investment (2).
Cash Dividends .
. per.Share..
2010
2 0 11
2 0 12
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012
16,842
4,436
3,643
4.80
866
1.14
993
1.31
1.31
24,216
6,128
3,368
665
0.88
2012.
vs. 2011
7%.
15%.
11%.
11%.
-30%.
-30%.
-33%.
-33%.
-33%.
9%.
13%.
24%.
10%.
10%.
.
2011.
15,696.
3,862.
3,276.
4.32.
1,239.
1.64.
1,478.
1.96.
1.95.
22,194.
5,411.
2,723.
603.
0.80.
2011.
vs..2010.
24%.
30%.
36%.
35%.
55%.
55%.
37%.
36%.
36%.
12%.
-4%.
29%.
0%.
0%.
2010
12,641
2,981
2,412
3.20
799
1.06
1,081
1.44
1.43
19,840
5,618
2,115
601
0.80
(1). Non-GAAP.Measure.and.defined.in.this.MD&A.
(2). Includes.expenditures.on.property,.plant.and.equipment.(“PP&E”).and.exploration.and.evaluation.(“E&E”).assets.
36
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
REVENUE VARIANCE
($ mil lions).
Revenues, Comparative Year.
Increase.(Decrease).due.to:.
. Oil.Sands..
. Conventional.
. Refining.and.Marketing.
. Corporate.and.Eliminations.
Revenues, End of Year .
.
.
.
.
.
.
.
.
2012 vs. 2011.
15,696.
.
866.
(227).
731.
(224).
16,842.
2011.vs..2010
12,641
584
9
2,397
65
15,696
Oil.Sands.revenues.increased.29.percent.primarily.due.to.increased.
crude.oil.and.condensate.volumes,.partially.offset.by.decreased.average.
crude.oil.prices..Conventional.revenues.decreased.by.11.percent.as.
crude.oil.and.NGLs.production.increases.were.offset.by.lower.crude.oil.
prices.and.lower.natural.gas.production.and.prices..Revenues.generated.
by.the.Refining.and.Marketing.segment.rose.by.seven.percent.as.a.result.
of.increased.refined.product.output.and.higher.refined.product.prices,.
despite.reduced.output.levels.during.planned.turnarounds..Higher.
revenues.from.third.party.sales.undertaken.by.the.marketing.group.to.
provide.operational.flexibility.also.increased.revenues..Corporate.and.
Eliminations.revenues.relate.to.sales.and.operating.revenues.between.
segments.and.are.recorded.at.transfer.prices.based.on.current.market.
prices..Further.information.regarding.our.revenues.can.be.found.in.the.
Reportable.Segments.section.of.this.MD&A.
OPERATING CASH FLOW
Operating.cash.flow.is.a.non-GAAP.measure.that.is.used.to.provide.a.consistent.measure.of.the.cash.generating.performance.of.our.assets.for.comparability.
of.our.underlying.financial.performance.between.years..Operating.cash.flow.is.defined.as.revenues.less.purchased.product,.transportation.and.blending,.
operating.expenses.and.production.and.mineral.taxes.plus.realized.gains.less.losses.on.risk.management.activities..Operating.cash.flow.excludes.unrealized.
gains.and.losses.on.risk.management.activities,.which.are.included.in.the.Corporate.and.Eliminations.segment.
( $ m il li o n s ).
Revenues (1).
(Add.Back).Deduct:.
. Purchased.Product.(1).
. Transportation.and.Blending.
. Operating.Expenses.(1).
. Production.and.Mineral.Taxes.
. Realized.Gain.on.Risk.Management.Activities.(1).
Operating Cash Flow.
2012.
17,125.
.
9,506.
1,798.
1,684.
37.
(336).
4,436.
2011.
15,755.
.
9,149.
1,369.
1,407.
36.
(68).
3,862.
2010
12,765
7,674
1,065
1,289
34
(278)
2,981
(1). Excludes.any.revenues,.purchased.product.and.operating.expenses.included.in.the.Corporate.and.Eliminations.segment..See.the.notes.to.the.Consolidated.Financial.Statements.for.details..
OPERATING C AS H FLOW BY SE G MEN T
O PERATIN G CASH FLOW BY UPSTR E AM PRO DUC T
)
s
n
o
i
l
l
i
m
$
(
2 ,00 0
1,5 00
1,0 00
50 0
0
1,774
1,131
1,613
1,716
1,268
981
1,453
1,267
76
)
s
n
o
i
l
l
i
m
$
(
3,0 00
2 ,500
2 ,00 0
1,500
1,0 00
500
0
1,805
1,084
2,647
2,091
777
513
2010
2011
2012
2010
2011
2012
OIL SANDS
CONVENTIONAL
REFINING AND MARKETING
CRUDE OIL AN D NGLs
NATURAL G AS
CEN OV US EN ERGY 2012 AN NUAL R EPORT / MAN AGE MEN T ’S DISC USSIO N AND A NA LYS IS
37
Operating Cash Flow Variance for the Year Ended December 31, 2012
compared to December 31, 2011
Overall,.operating.cash.flow.increased.$574.million.or.15.percent.
as.operating.cash.flow.from.crude.oil.and.NGLs.and.Refining.and.
Marketing.increased.27.percent.and.29.percent,.respectively..
The.increase.in.operating.cash.flow.from.crude.oil.and.NGLs.was..
driven.by.increased.production.volumes,.partially.offset.by.lower.
average.crude.oil.sales.prices.and.higher.operating.costs..Operating..
cash.flow.from.natural.gas.declined.$264.million.(34.percent),.as.a.
result.of.lower.average.sales.prices.combined.with.reduced.production.
volumes.from.expected.natural.declines.and.the.divestiture.of.a.
non-core.natural.gas.property.in.the.first.quarter.of.2012..Refining.
and.Marketing.operating.cash.flow.rose.on.improved.refinery.output,.
feedstock.costs.and.crack.spreads,.partially.offset.by.higher.operating.
costs.for.planned.turnarounds..
.
Additional.details.explaining.the.changes.in.operating.cash.flow.can.be.
found.in.the.Reportable.Segments.section.of.this.MD&A.
CASH FLOW
)
s
n
o
i
l
l
i
m
$
(
5,000
4,500
4,000
3,500
3,000
2 ,500
2 ,000
1,500
1,000
500
0
556
286
3,862
(264)
4,436
(4)
Year Ended
December 31,
2011
Crude Oil
and NGLs
Natural
Gas
Refining
and
Marketing
Other
Year Ended
December 31,
2012
INCRE A SE
DECRE A SE
Cash.flow.is.a.non-GAAP.measure.commonly.used.in.the.oil.and.gas.industry.to.assist.in.measuring.a.company’s.ability.to.finance.its.capital.programs.
and.meet.its.financial.obligations..Cash.flow.is.defined.as.cash.from.operating.activities.excluding.net.change.in.other.assets.and.liabilities.and.net.
change.in.non-cash.working.capital..
( $ mi l l i on s ).
Cash From Operating Activities.
(Add.Back).Deduct:.
. Net.Change.in.Other.Assets.and.Liabilities.
. Net.Change.in.Non-Cash.Working.Capital.
Cash Flow.
2012.
3,420.
.
(113).
(110).
3,643.
2011.
3,273.
.
(82).
79.
3,276.
2010
2,591
.
(55)
234
2,412
Cash Flow Variance for the Year Ended December 31, 2012 compared to
December 31, 2011
In.2012,.our.cash.flow.increased.$367.million.or.11.percent.primarily.due.to:
•.
.A.25.percent.increase.in.our.crude.oil.and.NGLs.sales.volumes;
•.
.An.increase.in.operating.cash.flow.from.Refining.and.Marketing.of.
$286.million.due.to.improved.refinery.output,.feedstock.costs.and.
crack.spreads,.partially.offset.by.higher.operating.costs.for.planned.
turnarounds;.
•.
•.
.Realized.risk.management.gains.before.tax,.excluding.Refining.and.
Marketing,.of.$332.million.compared.to.gains.of.$82.million.in.2011;.
and
.A.decrease.in.royalties.of.$102.million.primarily.as.a.result.of.
increased.capital.investment.at.Foster.Creek.and.Pelican.Lake..In.
2011,.inclusion.of.the.Foster.Creek.expansion.phases.F,.G.and.H.
capital.investment.was.approved.as.part.of.the.Foster.Creek.royalty.
calculation,.resulting.in.a.$65.million.reduction.in.royalties.in.2011..
38
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
897
(272)
(80)
102
(171)
250
286
3,643
(219)
3,276
(426)
)
s
n
o
i
l
l
i
m
$
(
4,50 0
4,00 0
3,5 00
3, 000
2 ,50 0
2 ,0 00
1 ,50 0
1 ,00 0
50 0
0
Year Ended
December 31,
2011
Crude Oil and
NGLs Price
Crude Oil and
NGLs Volumes
Natural Gas
Price
Natural Gas
Volumes
Royalties
Oil Sands and
Conventional
Operating
Expenses
Refining and
Marketing
Operating
Cash Flow
I N CR E AS E
D ECR E ASE
Other
Year Ended
December 31,
2012
Realized Risk
Management,
Excluding
Refining and
Marketing
Before Tax
The.increases.in.our.cash.flow.for.2012.were.partially.offset.by:
•.
•.
•.
.A.10.percent.decrease.in.the.average.realized.sales.price.of.crude.oil.
and.NGLs.to.$65.79.per.barrel;
.A.34.percent.decrease.in.the.average.natural.gas.sales.price.to..
$2.42.per.Mcf;
.An.increase.in.operating.expenses.of.$171.million,.primarily.from.
increased.crude.oil.production.at.all.of.our.upstream.properties.with.
crude.oil.per.barrel.operating.costs.increasing.three.percent.to.$13.99.
per.barrel;
OPERATING EARNINGS
•.
.Increase.in.other.expenditures.of.$219.million,.primarily.related.to.
a.$168.million.increase.in.current.income.tax.due.to.$68.million.
of.withholding.tax.on.a.U.S..dividend,.higher.U.S..income.tax.and.
higher.Canadian.tax.due.to.improved.operating.cash.flow.from.our.
Canadian.operations;.and
•.
.A.nine.percent.decline.in.natural.gas.production,.primarily.as.a.
result.of.expected.natural.declines.and.the.divestiture.of.a.non-core.
property.early.in.the.first.quarter.of.2012..
Operating.earnings.is.a.non-GAAP.measure.that.is.used.to.provide.a.consistent.measure.of.the.comparability.of.our.underlying.financial.
performance.between.periods.by.removing.non-operating.items..Operating.earnings.is.defined.as.net.earnings.excluding.the.after-tax.gain.(loss).on.
discontinuance,.after-tax.gain.on.bargain.purchase,.after-tax.effect.of.unrealized.risk.management.gains.(losses).on.derivative.instruments,.after-tax.
gains.(losses).on.non-operating.foreign.exchange,.after-tax.effect.of.gains.(losses).on.divestiture.of.assets.and.the.effect.of.changes.in.statutory.
income.tax.rates..
($ mil lions).
Net Earnings.
(Add.Back).Deduct:.
. Unrealized.Risk.Management.Gains.(Losses),.after-tax.(1).
. Non-Operating.Unrealized.Foreign.Exchange.Gains.(Losses),.after-tax.(2).
. Gain.(Loss).on.Divestiture.of.Assets,.after-tax.
. Gain.(Loss).on.Bargain.Purchase,.after-tax.
Operating Earnings .
2012.
993.
.
43.
84.
–.
–.
866.
2011.
1,478.
.
134.
14.
91.
–.
1,239.
2010
1,081
.
34
153
83
12
.799
(1). The.unrealized.risk.management.gains.(losses),.after-tax.include.the.reversal.of.unrealized.gains.(losses).recognized.in.prior.periods.
(2). .After-tax.unrealized.foreign.exchange.gains.(losses).on.translation.of.U.S..dollar.denominated.notes.issued.from.Canada.and.the.Partnership.Contribution.Receivable,.after-tax.foreign.exchange.
gains.(losses).on.settlement.of.intercompany.transactions.and.deferred.income.tax.on.foreign.exchange.recognized.for.tax.purposes.only.related.to.U.S..dollar.intercompany.debt.
Operating.earnings.of.$866.million,.decreased.$373.million.or.30.percent.primarily.due.to.a.goodwill.impairment,.increased.DD&A.and.exploration.
expense,.partially.offset.by.higher.cash.flow.as.discussed.above.
CEN OV US EN ERGY 2012 AN NUAL R EPORT / MAN AGE MEN T ’S DISC USSIO N A ND ANALYSI S
39
NET EARNINGS VARIANCE
($ mil lions).
Net Earnings, Comparative Year.
Increase.(Decrease).due.to:.
. Operating.Cash.Flow.
. Corporate.and.Eliminations:.
.
.
.
.
. Depreciation,.Depletion.and.Amortization.
. Goodwill.Impairment.
. Exploration.Expense.
.
Net Earnings, End of Year.
. Unrealized.Risk.Management.Gains.(Losses),.after-tax.
. Unrealized.Foreign.Exchange.Gains.(Losses).
. Gain.(Loss).on.Divestiture.of.Assets.
. Expenses.(1).
Income.Taxes,.Excluding.Income.Taxes.on.Unrealized.Risk.Management.Gains.(Losses).
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012 vs. 2011.
1,478.
.
574.
.
(91).
28.
(107).
(52).
(290).
(393).
(68).
(86).
993.
2011.vs..2010
1,081
881
100
(27)
(9)
(86)
7
–
3
(472)
1,478
(1). Includes.general.and.administrative,.finance.costs,.interest.income,.realized.foreign.exchange.(gains).losses,.other.(income).loss,.net.and.Corporate.and.Eliminations.operating.expenses.
Year.over.year,.our.net.earnings.decreased.$485.million.or.33.percent,.
primarily.as.a.result.of.a.goodwill.impairment.and.the.absence.of.
gains.recorded.on.divestitures.of.assets.in.2012..Significant.factors.that.
impacted.our.net.earnings.for.the.year.include:
•.
•.
•.
•.
.Goodwill.impairment.of.$393.million.on.the.carrying.amount.of.
the.Suffield.cash.generating.unit.(“CGU”).within.our.Conventional.
segment,.resulting.primarily.from.declining.future.natural.gas.and.
crude.oil.prices.and.increased.operating.costs..In.addition,.we.
had.minimal.levels.of.capital.spending.for.natural.gas.such.that.
production.has.exceeded.reserve.replacement.in.the.area;
.An.increase.of.$290.million.in.DD&A.expense.due.to.higher.crude.oil.
production,.increased.DD&A.rates.due.to.higher.future.development.
costs.associated.with.total.proved.reserves.and.increased.
depreciable.costs.in.Refining.and.Marketing,.partially.offset.by.
decreased.natural.gas.production;
•.
.No.gains.recorded.on.divestitures.of.assets.during.2012.as.compared.
to.a.gain.of.$107.million.in.2011;
NET CAPITAL INVESTMENT
( $ mi l l i on s ).
Oil.Sands.
Conventional.
Refining.and.Marketing.
Corporate.and.Eliminations.
Capital Investment.
. Acquisitions.(2).
. Divestitures.
Net Capital Investment (1).
.Unrealized.risk.management.gains,.after-tax,.of.$43.million,.compared.
to.gains.of.$134.million.in.2011;
.Income.tax.expense,.excluding.the.impact.of.unrealized.risk.
management.gains.and.losses,.increasing.to.$769.million,.compared.
to.$683.million.in.2011;
•. An.increase.in.exploration.expense.of.$68.million;.and
•.
.An.increase.of.$57.million.for.general.and.administrative.expenses.
primarily.due.to.higher.staffing.and.office.support.costs.
Partially.offset.by:
•.
Increased.operating.cash.flow.as.discussed.previously;.and
•.
.Unrealized.foreign.exchange.gains.of.$70.million.compared.to.a.
gain.of.$42.million.in.2011,.consistent.with.the.strengthening.of.the.
Canadian.dollar.exchange.rate.at.December.31,.2012.resulting.from.
the.translation.of.our.U.S..dollar.long-term.debt.and.Partnership.
Contribution.Receivable.
2012.
2,211.
848.
118.
191.
3,368.
114.
(76).
3,406.
2011.
1,415.
788.
393.
127.
2,723.
71.
(173).
2,621.
2010
857
526
656
76
2,115
86
(307)
1,894
(1). Includes.expenditures.on.PP&E.and.E&E..
(2). Asset.acquisition.included.the.assumption.of.a.decommissioning.liability.of.$33.million.
Oil.Sands.capital.investment.increased.primarily.due.to.higher.spending.
at.Foster.Creek.on.module.assembly.and.facility.construction.for.
phase.F,.piling.work,.steel.fabrication,.module.assembly.and.major.
equipment.procurement.for.phase.G.and.design.engineering.for.phase.
H..In.addition,.Foster.Creek.also.incurred.main.facility.and.infrastructure.
spending..At.Christina.Lake,.the.increase.in.capital.investment.included.
drilling.of.SAGD.well.pairs.related.to.facility.ramp-up,.phase.E.facility.
construction,.as.well.as.phase.F.site.preparation,.engineering.and.major.
equipment.fabrication..Pelican.Lake.capital.investment.included.infill.
drilling.for.expansion.of.the.polymer.flood,.facility.expansion,.pipeline.
construction.and.maintenance.capital..Capital.investment.in.2012.
included.the.drilling.of.473.gross.stratigraphic.test.wells,.down.from.the.
40
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
480.gross.wells.drilled.during.2011..The.results.of.these.stratigraphic.test.
wells.will.be.used.to.support.the.expansion.and.development.of.our.
Oil.Sands.projects.
Conventional.capital.investment.in.2012.was.centered.on.the.
development.of.our.crude.oil.properties.including.drilling,.completion.
and.major.facilities.work.in.Saskatchewan.as.well.as.drilling.completion.
and.tie-in.in.Alberta.focused.on.tight.oil.opportunities..
Our.capital.investment.in.the.Refining.and.Marketing.segment.
declined.significantly.with.the.completion.of.the.CORE.project.in.the.
fourth.quarter.of.2011..Capital.expenditures.in.2012.were.focused.on.
maintenance.and.projects.improving.refinery.reliability..Our.2012.capital.
investment.was.reduced.by.Illinois.state.tax.credits.of.$14.million.related.
to.capital.expenditures.in.prior.periods.at.the.Wood.River.Refinery.
Included.in.our.capital.investment.is.spending.on.technology.
development..Our.teams.look.for.ways.to.either.improve.existing.
technology.or.pursue.new.technology.in.an.effort.to.enhance.the.
recovery.techniques.we.use.to.access.crude.oil.and.natural.gas...
One.of.our.ongoing.objectives.is.to.advance.technologies.that.
increase.production.while.minimizing.the.use.of.water,.natural.gas,.
electricity.and.land..This.philosophy.is.evidenced.through.the.use.of.
our.Wedge.WellTM.technology.at.Foster.Creek.and.Christina.Lake,.the.
use.of.enhanced.start-up.techniques.at.Christina.Lake.phase.C.and.
the.development.of.our.SkyStratTM.drilling.rig.used.for.the.drilling.of.
stratigraphic.wells.in.remote.areas.
Capital.investment.in.our.Corporate.and.Eliminations.segment.was.for.
information.technology.and.tenant.improvements.to.new.office.space.
Further.information.regarding.our.capital.investment.can.be.found.in.
the.Reportable.Segments.section.of.this.MD&A.
Acquisitions and Divestitures
The.acquisitions.were.primarily.for.oil.sands.properties.adjacent.to.
our.Telephone.Lake.and.Narrows.Lake.properties.as.well.as.producing.
conventional.crude.oil.properties.in.Alberta.and.Saskatchewan.located.
adjacent.to.existing.production..Divestitures.in.2012.were.mainly.related.
to.the.sale.of.our.Boyer.natural.gas.property,.located.in.northern.
Alberta,.in.the.first.quarter.
CAPITAL INVESTMENT DECISIONS
Our.disciplined.approach.to.capital.allocation.includes.prioritizing.our.uses.of.cash.flow.in.the.following.manner:
•.
.First,.to.committed.capital,.which.is.the.capital.spending.required.for.continued.progress.on.approved.expansions.at.our.multi-phase.projects,.and.
capital.for.our.existing.business.operations;
•.
.Second,.to.paying.a.meaningful.dividend.as.part.of.providing.strong.total.shareholder.return;.and.
•.
.Third,.for.growth.capital,.which.is.the.capital.spending.for.projects.beyond.our.committed.capital.projects.
This.capital.allocation.process.includes.evaluating.all.opportunities.using.specific.rigorous.criteria.as.well.as.achieving.our.objectives.of.maintaining.a.
prudent.and.flexible.capital.structure.and.strong.balance.sheet.metrics,.which.allow.us.to.be.financially.resilient.in.times.of.lower.cash.flow.
($ mil lions).
Cash.Flow.
Capital.Investment.(Committed.and.Growth).
Free.Cash.Flow.(1).
Dividends.Paid.
.
.
.
(1). Free.Cash.Flow.is.a.non-GAAP.measure.defined.as.cash.flow.less.capital.investment.
Over.the.next.decade,.we.expect.to.increase.our.net.crude.oil.
production.to.approximately.500,000.barrels.per.day..In.order.to.meet.
these.project.targets,.we.anticipate.capital.expenditures.to.average.
between.$3.0.and.$3.5.billion.a.year..While.internally.generated.cash.
flow.from.our.crude.oil,.natural.gas.and.refining.operations.is.expected.
to.fund.a.significant.portion.of.our.cash.requirements,.a.portion.may.be.
required.to.be.funded.through.financing.activities.and.management.of.
RE P ORTAB LE SE GMENTS
2012.
3,643.
3,368.
275.
665.
(390).
2011.
3,276.
2,723.
553.
603.
(50).
2010
2,412
2,115
297
601
.(304)
our.asset.portfolio..In.August.2012,.we.completed.a.public.debt.offering.
for.the.principal.amount.of.US$1.25.billion..As.at.December.31,.2012,.we.
have.cash.and.cash.equivalents.of.approximately.$1.2.billion.to.fund.
future.capital.investment..Refer.to.the.Liquidity.and.Capital.Resources.
section.of.this.MD&A.for.further.discussion.of.our.financial.metrics..
Our.reportable.segments.are.as.follows:
Oil Sands,.includes.the.development.and.production.of.Cenovus’s.
bitumen.assets.at.Foster.Creek,.Christina.Lake.and.Narrows.Lake.as.
well.as.heavy.oil.assets.at.Pelican.Lake..This.segment.also.includes.
the.Athabasca.natural.gas.assets.and.projects.in.the.early.stages.of.
development.such.as.Grand.Rapids.and.Telephone.Lake..Certain.of.
the.Company’s.operated.oil.sands.properties,.notably.Foster.Creek,.
Christina.Lake.and.Narrows.Lake,.are.jointly.owned.with.ConocoPhillips,.
an.unrelated.U.S..public.company.
CEN OV US EN ERGY 2012 AN NUAL R EPORT / MAN AGE MEN T ’S DISC USSIO N A ND ANALYSI S
41
Conventional,.which.includes.the.development.and.production.
of.conventional.crude.oil,.NGLs.and.natural.gas.in.Alberta.and.
Saskatchewan,.including.the.carbon.dioxide.enhanced.oil.recovery.
project.at.Weyburn.and.emerging.tight.oil.opportunities..
Refining and Marketing,.which.is.focused.on.the.refining.of.crude.
oil.products.into.petroleum.and.chemical.products.at.two.refineries.
located.in.the.U.S..The.refineries.are.jointly.owned.with.and.operated.
by.Phillips.66..This.segment.also.markets.Cenovus’s.crude.oil.and.natural.
gas,.as.well.as.third-party.purchases.and.sales.of.product.that.provide.
operational.flexibility.for.transportation.commitments,.product.type,.
delivery.points.and.customer.diversification.
Corporate and Eliminations,.which.primarily.includes.unrealized.gains.
and.losses.recorded.on.derivative.financial.instruments,.gains.and.losses.
on.divestiture.of.assets,.as.well.as.other.Cenovus-wide.costs.for.general.
and.administrative.and.financing.activities..As.financial.instruments.
are.settled,.the.realized.gains.and.losses.are.recorded.in.the.operating.
segment.to.which.the.derivative.instrument.relates..Eliminations.relate.
to.sales.and.operating.revenues.and.purchased.product.between.
segments.recorded.at.transfer.prices.based.on.current.market.prices.and.
to.unrealized.intersegment.profits.in.inventory.
REVENUE BY REPORTABLE SEGMENT
($ mil lions).
Oil.Sands.
Conventional.
Refining.and.Marketing.
Corporate.and.Eliminations.
.
.
.
2012.
3,873.
1,896.
11,356.
(283).
16,842.
2011.
3,007.
2,123.
10,625.
(59).
15,696.
2010
2,423
2,114
8,228
(124)
12,641
O iL SANDS
In.northeast.Alberta,.we.are.a.50.percent.partner.in.the.Foster.Creek,.
Christina.Lake.and.Narrows.Lake.oil.sands.projects.and.we.also.produce.
heavy.oil.from.our.wholly.owned.Pelican.Lake.operations..We.have.
several.new.resource.plays.in.the.early.stages.of.assessment,.including.
Grand.Rapids.and.Telephone.Lake..The.Oil.Sands.segment.also.includes.
the.Athabasca.natural.gas.property.from.which.a.portion.of.the.natural.
gas.production.is.used.as.fuel.at.the.adjacent.Foster.Creek.operations..
•.
•.
.Foster.Creek.demonstrating.excellent.operating.performance.in.2012,.
exceeding.nameplate.capacity.of.120,000.gross.barrels.per.day.for..
six.months.of.the.year;
.Expansion.work.at.phases.F,.G.and.H.at.Foster.Creek.is.progressing.
with.added.production.capacity.from.phase.F.expected.in.the..
third.quarter.of.2014;.and
Significant.factors.that.impacted.our.Oil.Sands.segment.in.2012.include:
•.
.Early.completion.of.phase.D.at.Christina.Lake.with.production.
starting.up.in.the.third.quarter.of.2012;
OIL SANDS – CRUDE OIL
Financial Results
( $ mi l li o n s ).
Gross Sales.
. Less:.Royalties.
Revenues.
Expenses.
. Transportation.and.Blending.
. Operating.
.
Operating Cash Flow.
. Capital.Investment.
Operating Cash Flow in Excess (Deficient) of Related Capital Investment.
(Gains).Losses.on.Risk.Management.
•.
.Receiving.regulatory.approval.for.Narrows.Lake.phases.A,.B.and.C,.
and.partner.approval.for.phase.A.
2012.
4,037.
215.
3,822.
.
1,651.
548.
(62).
1,685.
2,203.
(518).
2011.
3,217.
282.
2,935.
.
1,229.
409.
87.
1,210.
1,401.
(191).
.
2010
2,610
276
2,334
934
339
14
1,047
850
197
Capital.expenditures.in.excess.of.operating.cash.flow.for.the.Oil.Sands.segment.are.funded.through.operating.cash.flow.generated.by.our.
conventional.and.refining.operations.
42
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
Revenues
PRiCiNG
In.2012,.our.average.crude.oil.sales.price.was.$60.84.per.barrel,.an..
11.percent.decrease.from.2011,.generally.consistent.with.the.decrease.in.
the.WCS.benchmark.price..
In.2012,.with.the.introduction.of.a.new.crude.stream.to.the.market,.
CDB,.approximately.74.percent.(2011.–.12.percent).of.our.Christina.Lake.
production.was.sold.as.CDB.which.sells.at.a.discount.to.WCS..As.the.
year.progressed,.the.discount.from.WCS.decreased.as.CDB.became.
more.widely.accepted.as.a.crude.stream..The.remaining.Christina.Lake.
production.is.being.sold.as.part.of.the.WCS.stream.and.is.subject.to.a.
quality.equalization.charge..
PRODUCTiON
)
s
n
o
i
l
l
i
m
$
(
4,500
4,0 00
3,500
3,0 00
2 ,500
2 ,00 0
1,500
1,0 00
500
0
413
3,822
701
67
2,935
(294)
Year Ended
December 31,
2011
Price(1)
Volume
Royalties
Condensate(1) Year Ended
December 31,
2012
INCRE ASE
DECRE ASE
In.2012,.the.substantial.increase.in.production.at.Christina.Lake.resulted.
from.the.start-up.of.phase.C.in.the.third.quarter.of.2011.and.phase.D.
coming.on.production.in.late.July.2012,.three.months.ahead.of.schedule..
Foster.Creek.production.increased.due.to.improved.well.performance.
and.plant.optimization..In.2012,.both.Christina.Lake.and.Foster.Creek.
achieved.new.single.day.production.highs.of.93,936.and.130,580.gross.
barrels.per.day,.respectively..Pelican.Lake.production.rose.steadily.
(1).
.Revenues.include.the.value.of.condensate.sold.as.heavy.oil.blend..Condensate.costs.are.
recorded.in.transportation.and.blending.expense..The.crude.oil.price.excludes.the.impact.of.
condensate.purchases.
with.production.averaging.10.percent.higher.than.2011..The.increases.at.
Pelican.Lake.resulted.from.infill.wells.being.brought.on.production.in.
2012..In.addition,.2011.production.was.curtailed.due.to.a.scheduled.plant.
turnaround.and.wild.fires.
.
.
.
Cr u d e O i l ( b arrel s p er d ay).
Foster.Creek.
Christina.Lake.
.
.
Pelican.Lake.
.
.
.
.
.
.
.
.
2012
57,833
31,903
89,736
22,552
112,288
2012.
vs. 2011
5%.
173%.
35%.
10%.
29%.
.
2011.
54,868.
11,665.
66,533.
20,424.
86,957.
2011.
vs..2010.
7%.
48%.
13%.
-11%.
6%.
.
2010
51,147
7,898
59,045
22,966
82,011
.
.
.
.
.
.
.
ROYALTiES
Royalty.calculations.for.our.Oil.Sands.projects.differ.between.properties.
and.are.based.on.government.prescribed.pre.and.post-payout.royalty.
rates.which.are.determined.by.the.Canadian.dollar.equivalent.WTI.
benchmark.price..Royalties.at.Christina.Lake.are.based.on.a.pre-payout,.
monthly.calculation.using.the.pre-payout.royalty.rate.applied.to.the.net.
revenue.from.the.project,.which.is.impacted.by.volumes.and.realized.
prices..Foster.Creek.and.Pelican.Lake.royalties.are.based.on.a.post-payout,.
annualized.calculation.using.the.post-payout.royalty.rate.applied.to.a.net.
profit.from.the.project.which.is.impacted.by.volumes,.realized.prices.as.
well.as.allowed.operating.and.capital.costs.
Royalties.decreased.$67.million.during.2012,.primarily.due.to.increased.
capital.investment.at.Foster.Creek.and.Pelican.Lake,.partially.offset.by.
increased.production.at.all.three.Oil.Sands.assets.and.a.$65.million.
decrease.in.2011.royalties.upon.receiving.approval.for.the.inclusion.of.
Foster.Creek.expansion.phases.F,.G.and.H.capital.investment.as.part.of.our.
Foster.Creek.royalty.calculation..The.effective.royalty.rates.for.2012.were.
11.8.percent.at.Foster.Creek.(2011.–.16.8.percent),.6.2.percent.at.Christina.
Lake.(2011.–.5.2.percent).and.5.0.percent.at.Pelican.Lake.(2011.–.11.5.percent).
Expenses
TRANSPORTATiON AND BLENDiNG
The.heavy.oil.and.bitumen.produced.by.Cenovus.requires.the.blending.
of.condensate.to.reduce.its.viscosity.in.order.to.transport.the.product.
to.market..Transportation.and.blending.costs.rose.$422.million.or.
34.percent.in.2012..The.majority.of.the.cost.increase,.$413.million,.stems.
from.additional.condensate.volumes.required.to.blend.as.a.result.of.
higher.production.at.Christina.Lake.and.Foster.Creek..This.was.partially.
offset.by.lower.transportation.charges.on.the.Trans.Mountain.pipeline.
system.under.our.long-term.commitment.for.firm.service,.which.
commenced.in.February.2012.
OPERATiNG
Our.operating.costs.for.2012.were.primarily.for.workforce,.workover.
activities,.repairs.and.maintenance,.chemical.usage.and.fuel.costs.at.
Foster.Creek.and.Christina.Lake..In.total,.operating.costs.increased.
$139.million.in.2012.mainly.due.to.higher.staffing.levels,.fuel.
consumption,.chemicals.and.fluid.and.waste.handling.and.trucking.costs.
associated.with.the.start-up.of.Christina.Lake.phases.C.and.D.which.
increased.gross.production.capacity.by.80,000.barrels.per.day..Overall,.
on.a.per.barrel.basis,.operating.costs.were.$13.33.(2011.–.$13.27)..On.a.
per.barrel.basis,.Christina.Lake.operating.costs.decreased.36.percent.to.
$12.95.per.barrel.due.to.the.increase.in.production..Foster.Creek.operating.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / MA NAGEM ENT ’S DISCU SSION AND AN ALYSIS
4 3
costs.increased.$0.65.per.barrel.to.$11.99.per.barrel.due.to.increased.
workforce.costs,.higher.waste.handling,.trucking.and.workover.activity..
Operating.costs.increased.$2.22.per.barrel.at.Pelican.Lake.primarily.as.the.
result.of.additional.workover.activities,.workforce.and.increased.polymer.
consumption.as.a.result.of.the.expansion.of.the.polymer.flood.
RiSk MANAGEMENT
Risk.management.activities.resulted.in.realized.gains.of.$62.million.
(2011.–.losses.of.$87.million),.consistent.with.our.2012.contract.prices.
exceeding.average.benchmark.prices.in.2012.
OIL SANDS – NATURAL GAS
Oil.Sands.also.includes.our.100.percent.owned.natural.gas.operation.
in.Athabasca.and.other.minor.natural.gas.properties..Our.natural.gas.
production.decreased.to.33.MMcf.per.day.in.2012.(2011.–.37.MMcf.per.day).
as.the.result.of.anticipated.natural.declines,.partially.offset.by.a.reduction.
in.the.use.of.our.natural.gas.production.at.our.Foster.Creek.operation.due.
to.deliverability.issues.in.the.first.quarter.of.2012.and.reduced.volumes.in.
the.fourth.quarter.as.a.result.of.lower.natural.gas.prices.
Reduced.natural.gas.production.in.combination.with.lower.prices.resulted.
in.operating.cash.flow.declining.to.$31.million.for.2012.(2011.–.$52.million).
.
OIL SANDS – CAPITAL INVESTMENT
($ mil lions).
Foster.Creek.
Christina.Lake.
.
.
Pelican.Lake.
Narrows.Lake.
Telephone.Lake..
Grand.Rapids.
Other.(1).
Capital Investment (2).
(1). Includes.new.resource.plays.and.Athabasca.natural.gas.
(2). Includes.expenditures.on.PP&E.and.E&E.assets.
2012.
735.
579.
1,314.
518.
44.
138.
65.
132.
2,211.
2011.
429.
472.
901.
317.
19.
61.
31.
86.
1,415.
2010
277
346
623
104
10
27
59
34
857
Oil.Sands.capital.investment.in.2012.has.been.primarily.focused.
on.the.development.of.the.expansion.phases.at.Foster.Creek.and.
Christina.Lake,.facility.expansion.and.infill.drilling.activities.related.to.
our.Pelican.Lake.polymer.flood,.drilling.of.stratigraphic.test.wells.to.
support.the.development.of.our.Oil.Sands.projects.and.commencing.
operation.of.our.dewatering.pilot.at.Telephone.Lake.in.the.fourth.
quarter..In.addition,.capital.investment.increased.at.Narrows.Lake.as.site.
preparation.commenced.for.phase.A..Construction.of.the.phase.A.plant.
is.scheduled.to.start.in.the.third.quarter.of.2013..
Foster Creek
Foster.Creek.capital.investment.increased.in.2012.compared.to.2011.
primarily.as.a.result.of.higher.phase.F.spending.on.module.assembly.and.
facility.construction,.phase.G.spending.on.piling.work,.steel.fabrication,.
module.assembly.and.major.equipment.procurement.and.phase.H.
design.engineering..Capital.includes.the.drilling.of.141.gross.stratigraphic.
test.wells.in.2012.(2011.–.118.wells).and.higher.spending.on.the.main.
facility.and.infrastructure..First.production.at.phase.F.is.expected.in.the.
third.quarter.of.2014.increasing.production.capacity.by.45,000.gross.
barrels.per.day.
Christina Lake
Christina.Lake.capital.investment.increased.in.2012.compared.to.2011.
primarily.due.to.drilling.of.SAGD.well.pairs.related.to.facility.ramp-up,.
phase.E.facility.construction,.phase.F.site.preparation,.engineering.
and.major.equipment.fabrication.and.phase.G.design.engineering,.in.
addition.to.maintenance.capital..Capital.investment.also.included.the.
drilling.of.stratigraphic.test.wells.(2012.–.29.gross.wells;.2011.–.63.gross.
wells)..The.increases.in.capital.investment.were.partially.offset.by.the.
completion.of.phases.C.and.D.construction.in.the.second.quarters.of.
2011.and.2012,.respectively.
Pelican Lake
Pelican.Lake.capital.investment.in.2012.was.primarily.related.to.infill.
drilling.to.progress.the.polymer.flood,.facilities.expansions,.pipeline.
construction.and.maintenance.capital..Facilities.spending.focused.on.
expanding.fluid.handling.capacity.at.Pelican.Lake.through.additions.and.
upgrades.to.our.crude.oil.treating.units.and.emulsion.pipelines..
Telephone Lake
At.Telephone.Lake.capital.investment.was.primarily.related.to.drilling,.
infrastructure,.fuel.storage.and.facility.construction.related.to.the.
dewatering.pilot.which.started.up.in.the.fourth.quarter.of.2012..
44
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
.
Gross Production Wells Drilled (1)
.
.
Foster.Creek.
Christina.Lake.
.
.
Pelican.Lake.
Grand.Rapids.
Other.
.
.
.
.
2012.
28.
32.
60.
76.
1.
–.
137.
2011.
21.
19.
40.
31.
–.
3.
74.
2010
37
32
69
12
1
–
82
(1). Includes.wells.drilled.using.our.Wedge.WellTM.technology.
FUTURE CAPITAL INVESTMENT
Expansion.work.at.phases.F,.G.and.H.at.Foster.Creek.is.proceeding.as.
planned.with.additional.production.capacity.from.phase.F.expected.
in.the.third.quarter.of.2014..Progress.is.also.being.made.for.phase.G.on.
module.assembly.and.facility.construction.and.on.phase.H.engineering.
and.procurement.is.continuing.with.piling.work.and.module.assembly,.
scheduled.to.start.in.2013..We.anticipate.submitting.an.application.to.
regulators.in.2013.for.an.additional.expansion,.phase.J..
Production.from.phase.E.at.Christina.Lake.is.anticipated.in.the.third.
quarter.of.2013,.a.few.months.earlier.than.originally.planned..In.the.
fourth.quarter.of.2012,.we.received.regulatory.approval.to.add.
cogeneration.facilities.at.Christina.Lake.and.to.increase.expected.total.
gross.production.capacity.by.10,000.barrels.per.day.at.each.of.phases.F.
and.G..Expansion.work.on.these.phases.is.continuing.in.2013.with.
module.assembly,.facility.construction.and.procurement.for.phase.F.and.
detailed.engineering.for.phase.G.
In.2012,.Narrows.Lake.received.regulatory.approval.for.phases.A,.B.and.
C,.and.partner.approval.for.phase.A..Site.preparation.is.underway,.with.
construction.of.the.phase.A.plant.scheduled.to.start.in.the.third.quarter.
of.2013..The.first.phase.of.the.project.is.anticipated.to.have.production.
capacity.of.45,000.gross.barrels.per.day,.with.first.oil.expected.in.
2017..Capital.investment.in.the.project.is.forecasted.to.be.between.
$140.million.and.$160.million.in.2013..
Additional.capital.of.approximately.$270.to.$300.million.is.expected.to.
be.invested.in.the.emerging.SAGD.projects.including.Grand.Rapids.and.
Telephone.Lake.in.2013..We.anticipate.regulatory.approval.for.Grand.
GROSS STRATiGRAPhiC TEST WELLS DRiLLED
Rapids.by.the.end.of.2013..Steam.injection.started.on.the.second.pilot.
well.pair.during.the.third.quarter.of.2012,.with.first.production.expected.
early.in.2013..At.Telephone.Lake,.we.are.advancing.the.regulatory.
application.for.the.project.and.continuing.with.operation.of.the.
dewatering.pilot..We.anticipate.receiving.regulatory.approval.in.2014.
Stratigraphic Test Wells
Consistent.with.our.strategy.to.unlock.the.value.of.our.resource.
base,.we.completed.another.large.stratigraphic.test.well.program.in.
the.first.quarter.of.2012..The.stratigraphic.test.wells.drilled.at.Foster.
Creek,.Christina.Lake.and.Narrows.Lake.are.to.support.the.expansion.
phases,.while.the.other.stratigraphic.test.wells.have.been.drilled.to.
continue.to.gather.data.on.the.quality.of.our.projects.and.to.support.
regulatory.applications.for.project.approval..To.minimize.the.impact.on.
local.infrastructure,.the.drilling.of.stratigraphic.test.wells.is.primarily.
completed.during.the.winter.months,.which.typically.occurs.between.
the.end.of.the.fourth.quarter.and.the.end.of.the.first.quarter..In.2012.
we.developed.the.SkyStratTM.drilling.rig,.which.uses.a.helicopter.and.an.
experimental.lightweight.drilling.rig.to.allow.stratigraphic.well.drilling.
to.be.completed.in.remote.exploratory.drilling.locations.year-round.
Our.2012.stratigraphic.test.well.program.provided.the.primary.basis.for.
the.1.4.billion.barrel.increase.to.our.economic.bitumen.best.estimate.
contingent.resources.as.results.from.the.program.caused.prospective.
resources.to.be.reclassified.as.contingent.resources..Additional.
information.about.our.resources,.including.definitions.and.year.end.
results,.is.included.in.the.Oil.and.Gas.Reserves.and.Resources.section.of.
this.MD&A.
.
.
.
.
Foster.Creek.
Christina.Lake.
.
.
Pelican.Lake.
Narrows.Lake.
Grand.Rapids.
Telephone.Lake.
Borealis.
Other.
.
.
.
2012.
141.
29.
170.
5.
42.
62.
29.
59.
106.
473.
2011.
118.
63.
181.
57.
47.
59.
40.
44.
52.
480.
2010
82
24
106
–
39
71
26
–
17
259
CEN OV US EN ERGY 2012 ANNUAL RE PORT / MA NAGEM ENT ’S DISCU SSION AND AN ALYSIS
4 5
CO NVENT iONAL
Our.Conventional.operations.include.the.development.and.production.
of.crude.oil.and.NGLs.and.natural.gas.in.Alberta.and.Saskatchewan..
The.Conventional.properties.in.Alberta.comprise.predictable.cash.flow.
producing.crude.oil.and.natural.gas.assets.and.developing.tight.oil.
assets..In.Saskatchewan,.our.Conventional.properties.are.predominantly.
crude.oil.producing.properties,.most.notably.the.carbon.dioxide.
enhanced.oil.recovery.project.in.Weyburn..The.established.assets.in..
this.segment.are.strategically.important.for.their.long.life.reserves,.
stable.operations.and.diversity.of.crude.oil.products.produced..The.
reliability.of.these.properties.to.deliver.consistent.production.and.
operating.cash.flow.is.important.to.the.funding.of.our.future.crude.
oil.growth..We.plan.to.continue.to.assess.the.potential.of.new.crude.
oil.projects.within.our.existing.properties,.as.well.as.new.regions,.
especially.tight.oil.opportunities.
Significant.factors.that.impacted.our.Conventional.segment.in.2012.include:.
•.
•.
•.
•.
.Alberta.crude.oil.and.NGLs.production.averaging.30,357.barrels.per.
day,.increasing.10.percent.primarily.due.to.successful.tight.oil.drilling.
programs.and.fewer.weather.and.access.issues.than.in.2011;
.Completing.the.construction.and.commissioning.of.batteries.in.both.
the.Bakken.and.Lower.Shaunavon.areas,.including.all.supporting.
infrastructure,.to.support.production.in.the.respective.areas;
.Bakken.and.Lower.Shaunavon.crude.oil.and.NGLs.production.averaging.
6,480.barrels.per.day,.a.79.percent.increase.due.to.ongoing.drilling;.and
.Generating.operating.cash.flow.in.excess.of.capital.investment.from.
our.Conventional.natural.gas.assets.of.$439.million,.a.decrease.of.
30.percent.from.2011..In.the.low.price.environment,.we.have.chosen.
to.restrict.natural.gas.capital.spending.for.the.past.several.years.
CONVENTIONAL – CRUDE OIL AND NGLS
Financial Results
($ mil lions).
Gross Sales.
. Less:.Royalties.
Revenues.
Expenses.
. Transportation.and.Blending.
. Operating.
. Production.and.Mineral.Taxes.
.
Operating Cash Flow.
. Capital.Investment.
Operating Cash Flow in Excess of Related Capital Investment.
(Gains).Losses.on.Risk.Management.
Revenues
PRiCiNG
Our.average.crude.oil.and.NGLs.sales.price.in.2012.decreased.
six.percent.to.$76.25.per.barrel,.consistent.with.the.change.in.crude..
oil.benchmark.prices.and.associated.differentials.
PRODUCTiON
Our.crude.oil.and.NGLs.production.increased.12.percent.in.2012.as.a.
result.of.successful.drilling.completion.and.tie-in.programs..Production.
in.Alberta.increased.10.percent.to.an.average.of.30,357.barrels.per.day.
and.production.in.Saskatchewan.increased.15.percent.to.an.average.of.
22,758.barrels.per.day..
)
s
n
o
i
l
l
i
m
$
(
1,6 00
1,4 00
1,200
1,0 00
800
60 0
40 0
200
0
2012.
1,559.
166.
1,393.
.
126.
294.
34.
(23).
962.
805.
157.
2011.
1,492.
193.
1,299.
.
104.
244.
27.
43.
881.
686.
195.
2010
1,229
153
1,076
.
86
199
28
5
758
363
395
163
27
4
1,393
1,299
(100)
Year Ended
December 31,
2011
Price(1)
Volume
Royalties
Condensate(1) Year Ended
December 31,
2012
INCRE ASE
DECRE ASE
(1). .Revenues.include.the.value.of.condensate.sold.as.heavy.oil.blend..Condensate.costs.are.
recorded.in.transportation.and.blending.expense..The.crude.oil.and.NGLs.price.excludes.the.
impact.of.condensate.purchases.
46
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
PRODUCTiON (CONTiNUED)
.
.
.
(barrels per d ay)
Heavy Oil.
. Alberta.
Light and Medium Oil.
. Alberta.
. Saskatchewan.
NGLs .
.
.
.
.
.
.
.
.
.
.
2012
.
16,015
.
13,378
22,693
1,029
53,115
2012.
vs. 2011
.
2%.
.
24%.
15%.
-7%.
12%.
.
2011.
.
15,657.
.
10,763.
19,761.
1,101.
47,282.
2011.
vs..2010.
.
-6%.
.
-1%.
7%.
-6%.
0%.
2010
.
.
16,659
10,854
18,492
1,171
47,176
ROYALTiES
OPERATiNG
Royalties.decreased.$27.million.largely.due.to.lower.royalties.in.
Weyburn.primarily.as.a.result.of.lower.realized.crude.oil.prices..The.
effective.crude.oil.royalty.rate.in.2012.for.the.Conventional.segment.
was.11.8.percent.(2011.–.14.2.percent)..Most.of.our.crude.oil.and.NGLs.
production.in.the.Conventional.segment.is.located.on.fee.land.which.
results.in.mineral.tax.recorded.within.production.and.mineral.taxes.
Expenses
TRANSPORTATiON AND BLENDiNG
Transportation.and.blending.costs.increased.$22.million.in.2012...
The.overall.cost.of.condensate.used.in.blending.increased.$4.million.as.
slightly.lower.prices.only.partially.offset.increased.usage.in.our.heavy.
oil.operations..Transportation.costs.increased.$18.million.due.to.higher.
produced.volumes,.an.increase.of.trucking.expenses.attributable.to.
the.clean.oil.sold.out.of.Shaunavon.prior.to.the.construction.of.the.
pipeline.connected.battery,.a.higher.proportion.of.our.volumes.being.
subject.to.spot.pipeline.tolls.and.increased.costs.associated.with.
accessing.new.markets,.such.as.transporting.our.growing.light.and.
medium.crude.oil.production.by.rail.
Operating.costs.are.predominantly.comprised.of.workover.activities,.
electricity,.repairs.and.maintenance.and.workforce..Operating.costs.
increased.$50.million.in.2012.primarily.due.to.a.combination.of.fluid.
waste.handling.and.trucking.costs,.additional.workover.activities,..
repairs.and.maintenance.in.connection.with.single.well.batteries.and.
higher.workforce.costs..These.increases.reflect.the.shift.in.strategic.
focus.from.natural.gas.to.crude.oil.which.has.resulted.in.higher.crude.
oil.production.
RiSk MANAGEMENT
Risk.management.activities.in.2012.resulted.in.realized.gains.of..
$23.million.(2011.–.loss.of.$43.million),.consistent.with.our.contract.
prices.exceeding.the.average.benchmark.prices.
OPERATiNG CASh FLOW iN ExCESS OF CAPiTAL iNVESTMENT
Operating.cash.flow.from.crude.oil.and.NGLs.in.excess.of.capital.
investment.decreased.by.$38.million.in.2012.as.the.$81.million.increase.
in.operating.cash.flow.was.more.than.offset.by.the.$119.million.increase.
in.capital.investment.which.was.focused.on.drilling,.completions.and.
facilities.work.in.Alberta.and.Saskatchewan.
CONVENTIONAL – NATURAL GAS
Financial Results
($ mil lions).
Gross Sales.
. Less:.Royalties.
Revenues.
Expenses.
. Transportation.and.Blending.
. Operating.
. Production.and.Mineral.Taxes.
. Gains.on.Risk.Management.
Operating Cash Flow.
. Capital.Investment.
Operating Cash Flow in Excess of Related Capital Investment.
2012.
496.
6.
490.
.
19.
215.
3.9
(229).
482.
43.
439.
2011.
825.
12.
813.
.
34.
240.
.6
(195).
725.
102.
623.
2010
1,042
17
1,025
.
44
231
(263)
1,007
163
844
CEN OV US EN ERGY 2012 AN NUAL R EPORT / MAN AGE MEN T ’S DISC USSIO N A ND ANALYSI S
47
Revenues
PRiCiNG
Our.average.natural.gas.sales.price.in.2012.decreased.to.$2.42.per.Mcf.
compared.to.$3.65.per.Mcf.in.2011,.consistent.with.the.decline.in.the.
benchmark.AECO.price.
PRODUCTiON
Our.Conventional.natural.gas.production.decreased.nine.percent.to.
561.MMcf.per.day,.primarily.due.to.expected.natural.declines..Further.
production.decreases.stemmed.from.the.divestiture.of.a.non-core.
property.early.in.the.first.quarter.of.2012,.which.reduced.production.by..
21.MMcf.per.day..Excluding.the.impact.of.the.Boyer.divestiture,.our.
natural.gas.production.would.have.been.six.percent.lower.than.in.2011..
.
813
)
s
n
o
i
l
l
i
m
$
(
900
800
700
600
50 0
40 0
300
200
10 0
0
Year Ended
December 31,
2011
Price
Volume
Royalties
Year Ended
December 31,
2012
IN CR E ASE
DECRE ASE
CONVENTIONAL – CAPITAL INVESTMENT (1)
($ mil lions).
Crude.Oil.and.NGLs.
Natural.Gas.
.
.
.
(1). Includes.expenditures.on.PP&E.and.E&E.assets.
ROYALTiES
Royalties.decreased.$6.million.in.2012.due.to.lower.volumes.in.
combination.with.lower.prices..The.average.royalty.rate.in.2012.was.
1.3.percent.(2011.–.1.5.percent)..Most.of.our.natural.gas.production.in..
the.Conventional.segment.is.located.on.fee.land.where.we.hold..
mineral.rights.which.results.in.mineral.tax.recorded.within.production.
and.mineral.taxes.
Expenses
TRANSPORTATiON
Transportation.costs.decreased.$15.million.due.to.lower..
production.volumes.
OPERATiNG
Our.operating.expenses.are.composed.largely.of.property.taxes.and.
lease.costs,.repairs.and.maintenance.and.workforce..Operating.expenses.
decreased.$25.million.in.2012..The.reduction.in.natural.gas.activity.and.
the.disposition.of.the.Boyer.property.early.in.2012.resulted.in.lower.
repairs.and.maintenance.and.workover.activity.costs..
Risk.management.activities.resulted.in.realized.gains.in.2012.of..
$229.million.(2011.–.gains.of.$195.million).consistent.with.our.2012.
contract.prices.exceeding.the.2012.average.benchmark.price.
OPERATiNG CASh FLOW iN ExCESS OF CAPiTAL iNVESTMENT
Operating.cash.flow.from.natural.gas.in.excess.of.capital.investment.
decreased.$184.million.primarily.due.to.lower.operating.cash.flow.
partially.offset.by.a.$59.million.reduction.in.capital.investment.
2012.
805.
43.
848.
2011.
686.
102.
788.
2010
363
163
526
(254)
6
490
(75)
RiSk MANAGEMENT
Capital.investments.in.our.Conventional.segment.focused.on.crude.oil.
opportunities..Capital.was.invested.in.our.tight.oil.drilling.programs.in.
Saskatchewan.and.southeast.Alberta..In.addition,.drilling.and.facilities.
work.continued.in.Weyburn..Spending.on.natural.gas.activities.was.
reduced.in.response.to.low.natural.gas.prices.
Crude.oil.and.NGLs.wells.drilled.reflect.the.continued.development.
of.our.Conventional.properties..Well.recompletions.are.mostly.related.
to.low-risk.Alberta.coal.bed.methane.development.that.continues.to.
deliver.acceptable.rates.of.return.
Conventional Drilling Activity
(net wel ls, unless otherwise sta ted).
Crude.Oil.and.NGLs..
Natural.Gas.
Recompletions.
Gross.Stratigraphic.Test.Wells.
2012.
276.
–.
977.
14.
2011.
325.
65.
1,122.
11.
2010
.180
495
1,194
9
Subsequent.to.December.31,.2012,.Management.decided.to.divest.its.
Lower.Shaunavon.and.certain.of.its.Bakken.properties.in.Saskatchewan..
The.public.sales.process.is.expected.to.be.launched.in.late.February.
2013..The.land.base.associated.with.these.properties.is.relatively.small.
and.does.not.offer.sufficient.scalability.to.be.material.to.Cenovus’s.
overall.asset.portfolio..Operating.results.from.these.properties.are.
included.in.the.Conventional.segment.
48
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
REF iN iNG AND MAR kET i NG
We.are.a.50.percent.partner.in.the.Wood.River.and.Borger.refineries.
which.are.located.in.the.U.S..Our.Refining.and.Marketing.segment.
allows.us.to.capture.the.value.from.crude.oil.production.through.to.
refined.products.such.as.diesel,.gasoline.and.jet.fuel..Our.integrated.
strategy.provides.a.natural.economic.hedge.against.reduced.crude..
oil.prices.by.providing.lower.feedstock.prices.to.our.refineries...
The.Refining.and.Marketing.segment’s.results.are.affected.by.changes..
in.the.U.S./Canadian.dollar.exchange.rate.
Significant.factors.related.to.our.Refining.and.Marketing.segment.in.
2012.include:
•.
.Increased.total.heavy.crude.oil.processing.capacity.to.between.
235,000.to.255,000.barrels.per.day.(dependent.on.the.quality.
of.heavy.crude.oil.that.is.economically.available).as.a.result.of.a.
full.year.of.operations.from.the.CORE.project.at.the.Wood.River.
Refinery,.enhancing.our.ability.to.further.integrate.our.growing.
bitumen.production;
•.
.Our.refineries.processing.412,000.barrels.per.day.of.crude.oil,.
including.198,000.barrels.per.day.of.heavy.crude.oil,.resulting.in.
433,000.barrels.per.day.of.refined.product.output;.and
•.
.Strong.refining.margins,.resulting.from.higher.crack.spreads.and.
discounted.crude.oil.feedstock.costs.
.
.
REFINERY OPERATIONS (1)
.
Crude Oil Capacity (M bb l s /d).
Crude Oil Runs (M bb l s /d ).
. Heavy.Oil.
. Light/Medium.
Crude Utilization (p ercen t).
Refined Products (M bb l s /d).
. Gasoline.
. Distillate.
. Other.
(1). Represents.100.percent.of.the.Wood.River.and.Borger.refinery.operations.
Refining.operations.in.2012.reflect.the.start-up.of.the.CORE.project.
in.the.fourth.quarter.of.2011,.which.has.increased.heavy.crude.oil.runs.
and.refined.product.output..On.a.100.percent.basis,.our.refineries.
had.a.capacity.of.approximately.452,000.barrels.per.day.of.crude.oil.
and.45,000.barrels.per.day.of.NGLs,.including.processing.capability.
to.refine.up.to.235,000.to.255,000.barrels.per.day.of.blended.heavy.
crude.oil..The.ability.to.refine.heavy.crudes.demonstrates.our.ability.to.
economically.integrate.our.heavy.oil.production..
Our.crude.utilization.represents.the.percentage.of.crude.oil,.heavy.and.
other,.that.is.processed.in.our.refineries.relative.to.the.total.capacity..
The.amount.of.heavy.crude.oils.processed,.such.as.WCS.and.CDB,.is.
dependent.on.the.quality.of.available.crude.oils.with.the.total.crude.
FINANCIAL RESULTS
($ mil lions).
Revenues.
. Purchased.Product.
Gross Margin.
Expenses.
. Operating.
.
Operating Cash Flow.
. Capital.Investment.
Operating Cash Flow in Excess (Deficient) of Capital Investment.
(Gain).Loss.on.Risk.Management.
2012.
452.
412.
198.
214.
91.
433.
216.
138.
79.
2011.
452.
401.
126.
275.
89.
419.
207.
132.
80.
2010
452
386
104
282
86
405
204
124
77
input.slate.being.optimized.to.maximize.economic.benefit..The..
amount.of.heavy.crude.processed.increased.by.72,000.barrels.per.day,..
a.57.percent.increase.
Clean.product.yield.is.the.percentage.output.of.high.value.product.
from.every.barrel.of.inputs.going.into.our.refineries..Our.clean.product.
yield.has.increased.as.a.result.of.the.start-up.of.the.CORE.project.which.
increased.our.processing.capacity.of.blended.heavy.crude.oil..Total.
refined.product.output.increased.by.three.percent.over.2011.with.the.
proportion.of.gasoline,.distillate.and.other.refined.products.remaining.
relatively.the.same.
2012.
11,356.
9,506.
1,850.
.
587.
(4).
1,267.
118.
1,149.
2011.
10,625.
9,149.
1,476.
.
481.
14.
981.
393.
588.
2010
8,228
7,674
554
488
(10)
76
656
(580)
CEN OV US EN ERGY 2012 AN NUAL R EPORT / MAN AGE MEN T ’S DISC USSIO N A ND ANALYSI S
49
Gross Margin
The.gross.margin.for.the.Refining.and.Marketing.segment.increased.
$374.million.in.2012.primarily.due.to.improved.refined.product.output.
from.higher.clean.product.yield.at.Wood.River,.higher.refined.products.
prices.and.lower.feedstock.costs.from.processing.more.discounted.
heavy.crude.oil.as.a.result.of.a.full.year.of.operations.after.completion.
of.the.CORE.project..
Operating
Total.operating.costs.consist.mainly.of.labour,.maintenance,.utilities.and.
supplies..Operating.costs.for.2012.increased.$106.million.due.to.higher.
labour.and.maintenance.expenses,.consistent.with.higher.utilization,.as.
well.as.costs.related.to.turnaround.activities.at.both.refineries.in.the.
fourth.quarter..While.there.is.an.increase.in.utility.usage.at.the.Wood.
River.Refinery.subsequent.to.the.CORE.project.start-up,.utilities.costs.
have.declined.at.both.refineries.due.to.significantly.lower.prices.for.fuel.
gas.and.electricity..
Operating Cash Flow
Operating.cash.flow.from.the.Refining.and.Marketing.segment.increased.
$286.million.to.$1,267.million.in.2012.as.a.result.of.improved.refinery.
output,.feedstock.costs.and.crack.spreads,.partially.offset.by.higher.
operating.costs.for.planned.turnarounds..
REFINING AND MARKETING – CAPITAL INVESTMENT
($ mil lions).
Wood.River.Refinery.
Borger.Refinery.
Marketing.
.
.
.
2012.
54.
64.
–.
118.
2011.
346.
45.
2.
393.
2010
568
87
1
656
Our.capital.investment.in.the.Refining.and.Marketing.segment.declined.significantly.with.the.completion.of.the.CORE.project.in.the.fourth.quarter.
of.2011..Capital.expenditures.in.2012.were.focused.on.maintenance.and.projects.improving.refinery.reliability..Our.2012.capital.investment.was.
reduced.by.Illinois.state.tax.credits.of.$14.million.related.to.capital.expenditures.in.prior.periods.at.the.Wood.River.Refinery.
COR PORATE AND EL iM iNAT i ONS
The.Corporate.and.Eliminations.segment.includes.intersegment.
eliminations.relating.to.transactions.that.have.been.recorded.at.
transfer.prices.based.on.current.market.prices,.as.well.as.unrealized.
intersegment.profits.in.inventory..The.gains.and.losses.on.risk.
management.represent.the.unrealized.mark-to-market.gains.and.losses.
related.to.derivative.financial.instruments.used.to.mitigate.fluctuations.
in.commodity.prices.and.unrealized.mark-to-market.gains.and.losses.
on.the.long-term.power.purchase.contract..The.unrealized.gains.on.
risk.management.were.$57.million.for.the.year.ended.December.31,.
2012.(December.31,.2011.–.gains.of.$180.million)..The.Corporate.and.
Eliminations.segment.also.includes.Cenovus-wide.costs.for.general.and.
administrative.and.financing.activities.
GENERAL AND ADMINISTRATIVE AND FINANCING COSTS
($ mil lions).
General.and.Administrative.
Finance.Costs.
Interest.Income.
Foreign.Exchange.(Gain).Loss,.net.
(Gain).Loss.on.Divestiture.of.Assets.
Other.(Income).Loss,.net.
.
.
.
2012.
352.
455.
(109).
(20).
–.
(5).
673.
2011.
295.
447.
(124).
26.
(107).
4.
541.
2010
246
498
(144)
(51)
(116)
(13)
420
Expenses
GENERAL AND ADMiNiSTRATiVE
General.and.administrative.expenses.increased.$57.million.in.2012.
primarily.due.to.the.recruiting.of.new.employees.to.fill.positions.
created.by.our.growth,.which.resulted.in.additional.staffing.and.
office.support.costs,.including.training.and.development,.information.
technology.and.office.space..
FiNANCE COSTS
Finance.costs.include.interest.expense.on.our.long-term.debt,.short-term.
borrowings.and.U.S..dollar.denominated.Partnership.Contribution.Payable,.
as.well.as.the.unwinding.of.the.discount.on.decommissioning.liabilities..
In.2012,.finance.costs.were.$8.million.higher.than.2011.due.to.the.issuance.
of.US$1.25.billion.of.senior.unsecured.notes.on.August.17,.2012,.offset.
by.lower.interest.incurred.on.the.Partnership.Contribution.Payable.as.
the.balance.continues.to.be.repaid..The.weighted.average.interest.rate.
on.outstanding.debt,.excluding.the.U.S..dollar.denominated.Partnership.
Contribution.Payable,.for.2012.was.5.3.percent.(2011.–.5.5.percent).
50
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
iNTEREST iNCOME
FOREiGN ExChANGE
Interest.income.primarily.includes.interest.earned.on.our.U.S..dollar.
denominated.Partnership.Contribution.Receivable.as.well.as.short-
term.investments..Interest.income.in.2012.decreased.by.$15.million,.
consistent.with.lower.interest.earned.on.the.Partnership.Contribution.
Receivable.as.the.balance.continues.to.be.collected..
For.2012,.we.recognized.net.foreign.exchange.gains.of.$20.million..
(2011.–.losses.$26.million).which.includes.unrealized.gains.of.
$70.million.(2011.–.unrealized.gains.of.$42.million).and.realized.losses.
of.$50.million.(2011.–.realized.losses.$68.million)..The.majority.of.
unrealized.gains.are.due.to.translation.of.our.U.S..dollar.denominated.
debt.as.a.result.of.a.stronger.Canadian.dollar.at.December.31,.2012..
DD&A
($ mil lions).
Oil.Sands.
Conventional.
Refining.and.Marketing.
Corporate.and.Eliminations.
.
.
.
2012.
482.
905.
146.
52.
1,585.
2011.
347.
778.
130.
40.
1,295.
2010
375
799
96
32
1,302
Oil.Sands.DD&A.for.2012.increased.$135.million.due.to.higher.sales.
volumes.at.Foster.Creek,.Christina.Lake.and.Pelican.Lake.as.well.
as.increased.DD&A.rates.due.to.higher.future.development.costs.
associated.with.total.proved.reserves.
During.2012,.$68.million.of.capitalized.E&E.costs,.related.primarily.to.
the.Roncott.asset,.a.small.exploration.acreage.within.the.Conventional.
segment,.were.deemed.not.to.be.commercially.viable.and.technically.
feasible,.and.were.recognized.as.exploration.expense.
DD&A.in.the.Conventional.segment.increased.$127.million.in.2012.
due.to.higher.crude.oil.sales.volumes.and.increased.DD&A.rates.due.
to.higher.future.development.costs.associated.with.proved.reserves,.
partially.offset.by.reduced.natural.gas.sales.volumes.
Refining.and.Marketing.DD&A.increased.$16.million.in.2012.as.the.capital.
costs.of.the.CORE.project.are.now.subject.to.depreciation.
Corporate.and.Eliminations.DD&A.includes.provisions.in.respect.of.
corporate.assets,.such.as.computer.equipment,.office.furniture.and.
leasehold.improvements.
ExPLORATION ExPENSE
Costs.incurred.after.the.legal.right.to.explore.has.been.obtained.
and.before.technical.feasibility.and.commercial.viability.has.been.
established.are.capitalized.as.E&E.assets..If.a.field,.project.or.area.is.
determined.to.no.longer.be.technically.feasible.or.commercially.viable.
and.we.decide.not.to.continue.the.E&E.activity,.the.unrecoverable.costs.
are.charged.to.exploration.expense..
GOODWILL IMPAIRMENT
For.the.purpose.of.impairment.testing,.goodwill,.which.arose.on.the.
acquisition.of.exploration.and.production.assets,.is.allocated.to.the.
CGU.to.which.it.relates..At.December.31,.2012,.Cenovus.determined.
that.the.carrying.amount.of.the.Suffield.CGU,.including.the.allocated.
goodwill,.exceeded.its.fair.value.less.costs.to.sell.resulting.in.an.
impairment.loss.of.$393.million..The.full.amount.of.the.impairment.was.
attributed.to.goodwill..This.goodwill.arose.in.2002.upon.the.formation.
of.the.predecessor.corporation..The.impairment.resulted.primarily.due.
to.a.decline.in.natural.gas.and.crude.oil.prices.and.increased.operating.
costs..In.addition,.we.have.had.minimal.levels.of.capital.spending.for.
natural.gas.such.that.production.has.exceeded.reserve.replacement.in.
the.area..With.the.lower.future.cash.flows.and.decreasing.volumes,.the.
carrying.amount.of.the.goodwill,.which.is.not.subject.to.depreciation,.
depletion.and.amortization,.exceeded.its.fair.value.
INCOME TAx ExPENSE
($ mil lions).
Current.Tax..
. Canada.
. U.S..
Total.Current.Tax.
Deferred.Tax..
.
.
.
2012.
.
188.
121.
309.
474.
783.
2011.
.
150.
4.
154.
575.
729.
2010
.
82
–
82
141
223
CEN OV US EN ERGY 2012 ANNUAL RE PORT / MA NAGEM ENT ’S DISCU SSION AN D A NALYSI S
51
In.2012,.current.taxes.were.higher.due.to.increased.cash.flow.from.
upstream.operations.taxed.at.Canadian.rates,.additional.U.S..income.
tax.from.our.refining.operations.and.$68.million.of.withholding.tax.on.
the.payment.of.a.U.S..dividend..We.did.not.have.U.S..federal.taxable.
income.as.we.had.sufficient.deductions.for.2012..U.S..current.tax.
expense.is.much.higher.than.2011.because.of.higher.state.income.tax,.
where.certain.loss.deductions.are.deferred.to.future.years.for.state.tax.
purposes..The.decrease.in.deferred.tax.is.due.to.lower.unrealized.risk.
management.gains,.the.reversal.of.certain.taxable.timing.differences,.
partially.offset.by.an.increase.in.income.from.our.refining.operations.
The.following.table.reconciles.income.taxes.calculated.at.the.Canadian.statutory.rate.with.the.recorded.income.taxes:
($ mil lions, except percent am oun ts).
Earnings Before Income Tax.
Canadian Statutory Rate.
Expected Income Tax.
Effect.of.Taxes.Resulting.From:.
.
Foreign.Tax.Rate.Differential.
. Non-deductible.Stock-based.Compensation.
. Multi-jurisdictional.Financing.
.
. Non-taxable.Capital.Gains.
. Recognition.of.Capital.Losses.
. Adjustments.Arising.From.Prior.Year.Tax.Filings.
. Withholding.Tax.on.Foreign.Dividends.
. Goodwill.Impairment.
. Other.
Total Tax.
Effective Tax Rate.
Foreign.Exchange.Gains.(Losses).not.Included.in.Net.Earnings.
2012.
1,776.
25.2%.
448.
.
146.
10.
(27).
14.
(7).
(22).
33.
68.
99.
21.
783.
44.1%.
2011.
2,207.
26.7%.
589.
.
82.
18.
(50).
(9).
(8).
26.
31.
–.
–.
50.
729.
33.0%.
2010
1,304
28.2%
368
.
(22)
34
(93)
28
(13)
(107)
26
–
–
2
223
17.1%
The.Canadian.statutory.tax.rate.decreased.to.25.2.percent.as.a.result.of.tax.
legislation.enacted.in.2007..The.U.S..statutory.tax.rate.has.increased.to..
38.5.percent.as.a.result.of.the.allocation.of.taxable.income.to.U.S..states.
Permanent.differences.include:
•. Withholding.tax.on.foreign.dividends;
The.increase.in.our.effective.tax.rate.in.2012.is.primarily.due.to.a.
significant.increase.in.the.proportion.of.income.in.the.higher.tax.rate.
U.S..jurisdiction.relative.to.the.lower.tax.rate.Canadian.jurisdiction,.
the.impairment.of.goodwill,.U.S..withholding.tax.on.the.payment.of.a.
dividend.in.2012.and.lower.benefits.of.multi-jurisdictional.financing.
Our.effective.tax.rate.in.any.year.is.a.function.of.the.relationship.
between.total.tax.expense.and.the.amount.of.earnings.before.income.
taxes.for.the.year..The.effective.tax.rate.differs.from.the.statutory.tax.
rate.as.it.takes.permanent.differences.into.consideration,.adjustments.
for.changes.in.tax.rates.and.other.tax.legislation,.variation.in.the.
estimate.of.reserves.and.differences.between.the.provision.and.the.
actual.amounts.subsequently.reported.on.the.tax.returns..
•. Goodwill.impairment;
•. The.non-taxable.portion.of.Canadian.capital.gains.and.losses;
•. Multi-jurisdictional.financing;
•. Non-deductible.stock-based.compensation;
•. Recognition.of.net.capital.losses;.and.
•. Taxable.foreign.exchange.gains.not.included.in.net.earnings.
Our.effective.tax.rate.also.reflects.the.application.of.the.relevant.
statutory.tax.rates.to.income.from.Canadian.and.U.S..sources..The.
effective.rate.for.2012.is.higher.than.2011.due.to.a.change.in.the.
weighting.of.income.between.our.U.S..and.Canadian.operations.
Tax.interpretations,.regulations.and.legislation.in.the.various.
jurisdictions.in.which.Cenovus.and.its.subsidiaries.operate.are.subject.
to.change..We.believe.that.our.provision.for.taxes.is.adequate.
52
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
QUA RT ER LY RESULTS
.
.
.
($ mil lions, except p er share am o unts ).
Production Volumes.
. Crude.Oil.and.NGLs (b b l s/d).
. Natural.Gas.(M Mc f/d ).
Revenues.
Operating Cash Flow (1).
Cash Flow (1).
. per.Share.–.Diluted.
Operating Earnings (Loss) (1).
. per.Share.–.Diluted.
Net Earnings (Loss).
. per.Share.–.Basic.
. per.Share.–.Diluted.
Capital Investment (2).
Cash Dividends.
. per.Share.
Q4
2012
.
177,646
566
3,724
963
697
0.92
(189)
(0.25)
(118)
(0.16)
(0.16)
978
167
0.22
Q3
2012
.
171,350
577
4,340
1,310
1,117
1.47
432
0.57
289
0.38
0.38
830
166
0.22
Q2
2012
.
155,566
596
4,214
1,078
925
1.22
283
0.37
396
0.52
0.52
660
166
0.22
Q1.
2012.
.
156,850.
636.
4,564.
1,085.
904.
1.19.
340.
0.45.
426.
0.56.
0.56.
900.
166.
0.22.
Q4.
2011.
.
144,273.
660.
4,329.
1,019.
851.
1.12.
332.
0.44.
266.
0.35.
0.35.
903.
151.
0.20.
Q3.
2011.
.
133,496.
656.
3,858.
945.
793.
1.05.
303.
0.40.
510.
0.68.
0.67.
631.
150.
0.20.
Q2.
2011.
.
121,762.
654.
4,009.
1,064.
939.
1.24.
395.
0.52.
655.
0.87.
0.86.
476.
151.
0.20.
Q1.
2011.
.
137,355.
652.
3,500.
834.
693.
0.91.
209.
0.28.
47.
0.06.
0.06.
713.
151.
0.20.
Q4.
2010
129,593
688
3,363
815
645
0.85
147
0.19
78
0.10
0.10
701
151
0.20
(1).. Non-GAAP.measures.defined.in.the.Financial.Results.section.of.this.MD&A.
(2). Includes.expenditures.on.PP&E.and.E&E.assets.
FOURTH QUARTER 2012 RESULTS OF OPERATIONS
Partially.offset.by:
In.the.fourth.quarter,.our.financial.results.were.negatively.impacted.
by.lower.crude.oil.and.natural.gas.prices,.with.significant.decreases.in.
crude.oil.benchmark.prices.in.the.month.of.December..The.average.
WTI-WCS.differential.in.December.was.US$30.37.per.barrel.as.compared.
to.US$11.72.per.barrel.for.the.same.period.last.year..The.fourth.quarter.
was.also.impacted.by.a.$393.million.goodwill.impairment.charge,.
resulting.primarily.from.the.decline.in.future.natural.gas.and.crude.oil.
prices.and.increased.operating.costs.at.our.Suffield.property.within.our.
Conventional.segment..In.addition,.low.refinery.utilization.as.a.result.of.
planned.turnaround.activities,.negatively.impacted.our.financial.results.
Realized.price.decreases.were.partially.offset.by.crude.oil.and.NGLs.
production.increases.of.23.percent,.with.the.most.significant.increase.at.
Christina.Lake.mainly.due.to.phase.C.reaching.full.production.capacity.
in.the.second.quarter.of.2012.and.the.start.of.production.at.phase.
D.in.the.third.quarter.of.2012..In.2012,.we.achieved.a.new.single.day.
production.high.of.93,936.gross.barrels.at.Christina.Lake..At.Narrows.
Lake.we.received.final.partner.approval.for.the.first.phase.
Natural.gas.production.in.the.fourth.quarter.of.2012.was.566.MMcf.per.
day,.a.decrease.of.14.percent.from.2011,.mainly.due.to.expected.declines.
in.production.from.limited.capital.investment.
FOURTH QUARTER 2012 FINANCIAL RESULTS
Operating Cash Flow
Operating.cash.flow.decreased.$56.million.in.the.fourth.quarter.of.2012,.
as.compared.to.the.same.period.in.2011,.primarily.due.to:
•.
•.
.A.decrease.of.$116.million.in.Refining.and.Marketing.operating.cash.
flow.due.to.lower.refinery.utilization.during.planned.turnarounds.and.
higher.operating.costs.related.to.those.activities;.and
.A.25.percent.decrease.in.our.average.sales.price.of.crude.oil.
and.NGLs.to.$60.13.per.barrel,.caused.mainly.by.the.increase.in.
benchmark.price.differentials.
•.
•.
.Crude.oil.and.NGLs.sales.volumes.increasing.31.percent,.primarily.
resulting.from.an.increase.in.production.volumes.at.Christina.Lake;
.Realized.risk.management.gains.before.tax,.excluding.Refining.and.
Marketing,.of.$102.million.compared.to.gains.of.$29.million.in.2011;.
and
•.
.A.decrease.in.crude.oil.and.NGLs.royalties.of.48.percent.due.mainly.
to.an.increase.in.capital.investments.
Cash Flow
Our.cash.flow.decreased.$154.million.in.the.fourth.quarter.of.2012.
primarily.due.to.decreases.in.operating.cash.flow.as.discussed.above;.
and
•.
.An.increase.in.current.tax.expense,.excluding.tax.on.divestitures,.of.
$74.million.in.the.fourth.quarter.of.2012.primarily.due.to.withholding.
tax.on.U.S..dividends.
Operating Earnings
Our.operating.earnings.decreased.$521.million.in.the.fourth.quarter.of.
2012.primarily.due.to:.
•.
.Goodwill.impairment.of.$393.million.in.our.Conventional.segment,.
resulting.primarily.from.declining.future.natural.gas.and.crude.oil.
prices.and.increased.operating.costs..In.addition,.we.had.minimal.
levels.of.capital.spending.for.natural.gas.such.that.production.has.
exceeded.reserve.replacement.in.the.area..With.the.lower.future.
cash.flows.and.decreasing.volumes,.the.carrying.amount.of.the.
goodwill.exceeded.its.fair.value;
•. Decreased.cash.flow.as.discussed.above;.and
•.
Increased.DD&A.as.a.result.of.higher.production.and.higher.DD&A.rates..
CEN OV US EN ERGY 2012 ANNUAL RE PORT / MA NAGEM ENT ’S DISCU SSION AND AN ALYSIS
53
Partially.offset.by:
•. Unrealized.foreign.exchange.losses.in.2012.as.compared.to.gains.in.2011.
•.
.A.decrease.in.deferred.income.tax,.excluding.deferred.tax.on.gains.
and.losses.on.unrealized.risk.management,.non-operating.foreign.
exchange.and.divestitures.of.$20.million.
Partially.offset.by:
•.
.Unrealized.risk.management.gains,.after-tax,.of.$87.million.as.
compared.to.losses.of.$180.million.in.the.fourth.quarter.of.2011.
Net Earnings
Capital Investment
In.the.fourth.quarter.of.2012,.our.net.earnings.decreased.$384.million..
The.factors.discussed.above.that.decreased.our.operating.earnings.also.
impacted.net.earnings.in.addition.to:
•.
.No.divestitures.in.2012.as.compared.to.an.after-tax.gain.on.
divestiture.of.$89.million.in.the.same.period.in.2011;.and
Capital.investment.in.the.fourth.quarter.of.2012.was.$978.million,.an.
increase.of.$75.million.from.the.same.period.in.2011..The.fourth.quarter.
was.busy.with.construction.on.three.phases.at.Foster.Creek,.two.phases.
at.Christina.Lake.and.our.drilling.and.completions.programs.across.the.
other.areas.
OI L AN D GAS RESE RVES AND RESO URC ES
As.a.Canadian.issuer,.we.are.subject.to.the.reporting.requirements.of.
Canadian.securities.regulatory.authorities,.including.the.reporting.of.
our.reserves.in.accordance.with.National.Instrument.51-101,.Standards of
Disclosure for Oil and Gas Activities.(“NI.51-101”).
Our.reserves.are.primarily.located.in.Alberta.and.Saskatchewan,.Canada..
We.retained.two.independent.qualified.reserves.evaluators.(“IQREs”),.
McDaniel.&.Associates.Consultants.Ltd..(“McDaniel”).and.GLJ.Petroleum.
Consultants.Ltd..(“GLJ”),.to.evaluate.and.prepare.reports.on.100.percent.
of.our.bitumen,.heavy.oil,.light.and.medium.oil,.NGLs,.natural.gas.and.
CBM.reserves..McDaniel.also.evaluated.100.percent.of.our.bitumen.
contingent.and.prospective.resources..
The.Reserves.Committee.of.the.Board,.composed.of.independent.
directors,.annually.reviews.the.qualifications.and.selection.of.the.
IQREs,.the.procedures.relating.to.the.disclosure.of.information.with.
respect.to.crude.oil.and.natural.gas.activities.and.the.procedures.for.
providing.information.to.the.IQREs..The.Reserves.Committee.meets.
independently.with.Management.and.with.each.IQRE.to.determine.
whether.any.restrictions.affect.the.ability.of.the.IQRE.to.report.on.
the.reserves.data.without.reservation,.to.review.the.reserves.data.and.
the.report.of.the.IQRE.thereon,.and.to.provide.a.recommendation.on.
approval.of.the.reserves.and.resources.disclosure.to.the.Board.
Highlights.in.2012.include:
•.
.Proved.bitumen.reserves.increased.approximately.18.percent.and.
proved.plus.probable.reserves.increased.approximately.23.percent;.
.
•.
.
•.
.Regulatory.approval.for.phases.A,.B.and.C,.and.partner.approval.
for.phase.A.of.the.Narrows.Lake.project.added.proved.reserves.of.
222.million.barrels.and.proved.plus.probable.reserves.of..
359.million.barrels,.transitioning.contingent.resources.to..
proved.reserves;
.Christina.Lake.added.proved.reserves.of.41.million.barrels.while.
proved.plus.probable.reserves.increased.by.42.million.barrels..
Increases.at.Christina.Lake.were.a.result.of.increasing.well.density.
through.most.of.the.project.area.and.improving.steam.to.oil..
ratio.performance;
.
•.
.Foster.Creek.added.proved.reserves.of.32.million.barrels.and.
proved.plus.probable.reserves.of.80.million.barrels..Increases.at.
Foster.Creek.were.a.result.of.improved.recovery.due.to.improving.
steam.to.oil.ratio.performance.and.more.efficient.drainage.of.
bitumen.in.the.steam.chamber;
•.
•.
•.
•.
•.
.Heavy.oil.proved.reserves.increased.approximately.five.percent.and.
proved.plus.probable.reserves.increased.approximately.two.percent..
These.increases.were.a.result.of.expanding.polymer.flood.areas.and.
the.successful.performance.of.those.flood.areas.at.Pelican.Lake;.
.Light.and.medium.crude.oil.and.NGLs.proved.reserves.remained.
unchanged.and.proved.plus.probable.reserves.increased.by.
approximately.three.percent,.as.a.result.of.expanding.waterflood.and.
carbon.dioxide.flood.areas.at.Weyburn;
.Natural.gas.proved.reserves.declined.approximately.21.percent.and.
proved.plus.probable.reserves.declined.approximately.19.percent.
as.reduced.extensions.and.technical.revisions.from.lower.capital.
investment.did.not.offset.production.and.dispositions..Also.included.
in.the.decline,.is.a.loss.of.58.Bcf.of.gas.reserves.due.to.lower.
gas.prices.in.the.forecast.causing.some.gas.reserves.to.become.
uneconomic.to.produce;
.Economic.bitumen.best.estimate.contingent.resources.increased..
1.4.billion.barrels.or.approximately.17.percent..This.increase.is.a.result.
of.our.significant.stratigraphic.test.well.drilling.program.successfully.
converting.prospective.resources.to.contingent.resources,.the.
recognition.of.SAGD.feasibility.in.the.Wabiskaw.formation.adjacent.
to.Foster.Creek.and.the.recognition.of.contingent.resources.on.the.
acquired.land.near.Telephone.Lake;.and
.Bitumen.best.estimate.prospective.resources.declined.1.5.billion.
barrels.or.approximately.15.percent,.as.a.result.of.the.reclassification.
of.prospective.resources.to.contingent.resources.resulting.from.
stratigraphic.test.well.drilling.and.the.sterilization.of.lands.through.
approval.of.the.Lower.Athabasca.Regional.Plan.(“LARP”).
The.reserves.and.resources.data.that.follows.is.presented.as.at.
December.31,.2012.using.McDaniel’s.January.1,.2013.forecast.prices.
and.costs.and.comparative.information.as.at.December.31,.2011.using.
McDaniel’s.January.1,.2012.forecast.prices.and.costs..We.hold.significant.
fee.title.rights.which.generate.production.for.Cenovus.from.third.
parties.leasing.those.lands..The.before.royalty.volumes,.as.follows,.do.
not.include.reserves.associated.with.this.production..
54
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
RESERVES AS AT DECEMBER 31
.
.
.
.
.
.
.
Before Royal ties.
Proved.
Probable.
Proved plus Probable.
.
Bitumen.
(MMbb ls)
2012.
1,717.
676.
2,393.
2011.
1,455.
490.
1,945.
.
Heavy.Oil.
(MMbb ls)
2012.
184.
105.
289.
2011.
175.
109.
284.
Light.&.Medium.
Oil.&.NGLs.
(MMbb ls)
2012.
115.
56.
171.
2011.
115.
51
166.
Natural.Gas.
&.CBM.
(Bc f )
2012.
955.
338.
1,293.
2011
1,203
391
1,594
.
.
.
.
RECONCILIATION OF PROVED RESERVES
.
.
Before Royal ties
December.31,.2011.
. Extensions.and.Improved.Recovery.
. Discoveries.
. Technical.Revisions.
. Economic.Factors.
. Acquisitions.
. Dispositions.
. Production.
December 31, 2012.
Year.Over.Year.Change..
.
.
.
.
.
.
.
RECONCILIATION OF PROBABLE RESERVES
.
.
B e fo re R oyal ties
December.31,.2011.
. Extensions.and.Improved.Recovery.
. Discoveries.
. Technical.Revisions.
. Economic.Factors.
. Acquisitions.
. Dispositions.
. Production.
December 31, 2012.
Year.Over.Year.Change..
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
ECONOMIC CONTINGENT AND PROSPECTIVE RESOURCES AS AT DECEMBER 31
.
(bil lions of bar rel s, b efo re royal ties).
Economic Contingent Resources (1).
. Low.Estimate.
. Best.Estimate.
. High.Estimate.
Prospective Resources (1)(2).
. Low.Estimate.
. Best.Estimate.
. High.Estimate.
.
Bitumen.
(MMbb ls)
Heavy.Oil.
(MMbb ls )
. Light.&.Medium.
Oil.&.NGLs.
(MMb bls)
Natural.Gas.
&.CBM
(Bc f )
1,455
265
–
30
–
–
–
(33)
1,717
262
18%
175
17
–
6
–
–
–
(14)
184
9
5%
115
13
–
(2)
–
1
–
(12)
115
–
0%
1,203
29
–
51
(58)
1
(59)
(212)
955
(248)
(21%)
.
Bitumen.
(MMbb ls)
Heavy.Oil.
(MMbb ls )
. Light.&.Medium.
Oil.&.NGLs.
(MMb bls)
Natural.Gas.
&.CBM
(Bc f )
490
140
–
46
–
–
–
–
676
186
38%
109
11
–
(15)
–
–
–
–
105
(4)
(4%)
.
.
.
.
.
.
.
.
.
51
5
–
–
–
–
–
–
56
5
10%
2012.
7.1.
9.6.
12.8.
5.0.
8.5.
14.8.
391
8
–
(30)
(4)
–
(27)
–
338
(53)
(14%)
2011
6.0
8.2
10.8
5.7
10.0
17.9
Bitumen
(1). .See.Oil.and.Gas.Information.in.the.Advisory.for.definitions.of.contingent.resources,.economic.contingent.resources,.prospective.resources.and.low,.best.and.high.estimates..There.is.no.certainty.
that.it.will.be.commercially.viable.to.produce.any.portion.of.the.contingent.resources..
(2). .There.is.no.certainty.that.any.portion.of.the.prospective.resources.will.be.discovered..If.discovered,.there.is.no.certainty.that.it.will.be.commercially.viable.to.produce.any.portion.of.the.
resources..Prospective.resources.are.not.screened.for.economic.viability.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / MA NAGEM ENT ’S DISCU SSION AN D A NALYSI S
55
Contingent.and.prospective.resources.are.estimated.using.volumetric.
calculations.of.the.in-place.quantities,.combined.with.performance.
from.analog.reservoirs..Existing.SAGD.projects.that.are.producing.from.
the.McMurray-Wabiskaw.formations.are.used.as.performance.analogs.
at.Foster.Creek.and.Christina.Lake..Other.regional.analogs.are.used.for.
contingent.and.prospective.resources.estimation.in.the.Cretaceous.
Grand.Rapids.formation.at.the.Grand.Rapids.property.in.the.Pelican.
Lake.Region,.in.the.McMurray.formation.at.the.Telephone.Lake.property.
in.the.Borealis.Region.and.in.the.Clearwater.formation.in.the.Foster.
Creek.Region..
Contingencies.which.must.be.overcome.to.enable.the.reclassification.of.
contingent.resources.as.reserves.can.be.categorized.as.economic,.non-
technical.and.technical..The.Canadian.Oil.and.Gas.Evaluation.Handbook.
identifies.non-technical.contingencies.as.legal,.environmental,.
political.and.regulatory.matters.or.a.lack.of.markets..Technical.
contingencies.include.available.infrastructure.and.project.justification..
The.outstanding.contingencies.applicable.to.our.disclosed.contingent.
resources.do.not.include.economic.contingencies..Our.bitumen.
contingent.resources.are.located.in.four.general.regions:.Foster.Creek,.
Christina.Lake,.Borealis.and.Greater.Pelican.
At.Foster.Creek.and.Christina.Lake.we.have.economic.contingent.
resources.located.outside.the.currently.approved.development.project.
areas..Regulatory.approval.of.development.project.area.expansion.is.
necessary.to.enable.the.reclassification.of.these.economic.contingent.
resources.as.reserves..The.rate.at.which.we.submit.applications.for.
development.area.expansion.is.dependent.on.the.rate.of.development.
drilling,.which.ties.to.an.orderly.development.plan.that.maximizes.
utilization.of.steam.generation.facilities.and.ultimately.optimizes.
production,.capital.utilization.and.value.
In.the.Borealis.Region.we.have.submitted.an.application.for.a.
development.project.at.the.Telephone.Lake.property.which,.if.
LIQUI DI TY AN D CAP ITAL RESO URC ES
approved,.would.enable.the.reclassification.of.certain.economic.
contingent.resources.in.the.area.to.reserves..Other.areas.in.the.Borealis.
Region.require.additional.results.from.delineation.drilling.and.seismic.
activity.in.order.to.submit.regulatory.applications.for.development.
projects..Stratigraphic.test.well.drilling.and.seismic.activity.is.continuing.
in.these.areas.to.bring.them.to.project.readiness..Currently,.sufficient.
pipeline.capacity.is.also.considered.a.contingency.
In.the.Greater.Pelican.Region.we.submitted.an.application.in.the.fourth.
quarter.of.2011.for.development.project.approval.at.the.Grand.Rapids.
property..Provided.all.regulatory.requirements.are.met,.we.anticipate.
receiving.regulatory.approval.in.2013..Pilot.project.work.is.underway.to.
examine.optimal.development.strategies.
We.are.systematically.progressing.our.bitumen.prospective.resources.
to.contingent.resources.and.then.to.reserves,.and.ultimately.to.
production..For.example,.approval.of.the.Narrows.Lake.project.resulted.
in.the.movement.of.some.contingent.resources.to.proved.and.probable.
reserves..Similarly,.the.stratigraphic.test.well.program.in.the.Borealis.
Region.moved.some.prospective.resources.to.contingent.resources..
The.overall.reduction.to.prospective.resources.is.the.expected.
outcome.of.a.successful.stratigraphic.test.well.program,.which.converts.
undiscovered.resources.to.discovered.resources.
Analysis.of.core.data.in.the.steamed.portions.of.the.reservoir.has.
revealed.that.the.efficiency.of.the.SAGD.process.in.extracting.bitumen.
from.the.reservoir.is.greater.than.previously.anticipated..We.expect.
to.continue.to.improve.overall.recovery.from.our.bitumen.assets.as.
technology.develops.
Information.with.respect.to.pricing.as.well.as.additional.reserves.
and.other.oil.and.gas.information,.including.the.material.risks.and.
uncertainties.associated.with.reserves.and.resource.estimates,.is.
contained.in.our.AIF.for.the.year.ended.December.31,.2012.
($ mil lions).
Net Cash From (Used In).
. Operating.Activities.
Investing.Activities.
.
Net Cash Provided before Financing Activities.
.
.
Increase in Cash and Cash Equivalents.
Financing.Activities.
Foreign.Exchange.Gains.(Losses).on.Cash.and.Cash.Equivalents.Held.in.Foreign.Currency.
2012.
.
3,420.
(3,336).
84.
592.
(11).
665.
2011.
.
3,273.
(2,530).
743.
(558).
10.
195.
2010
.
2,591
(1,793)
798
(631)
(22)
145
.
56
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
OPERATING ACTIVITIES
Cash.from.operating.activities.was.$147.million.higher.in.2012.mainly.
due.to.the.$367.million.increase.in.cash.flow,.partially.offset.by.the.
net.change.in.non-cash.working.capital..Cash.flow.is.discussed.in.the.
Financial.Results.section.of.this.MD&A..Cash.from.operating.activities.is.
also.impacted.by.the.net.change.in.other.assets.and.liabilities.
Excluding.risk.management.assets.and.liabilities.and.assets.and.liabilities.
held.for.sale,.we.had.working.capital.of.$1,043.million.at.December.31,.
2012.compared.to.$283.million.at.December.31,.2011..We.anticipate.that.
we.will.continue.to.meet.our.payment.obligations.as.they.come.due.
INVESTING ACTIVITIES
Cash.used.for.investing.activities.in.2012.was.$806.million.higher.than.
2011..The.increase.is.primarily.due.to.higher.capital.expenditures.of.
$3.4.billion.in.2012..Capital.expenditures.are.further.discussed.under.
Net.Capital.Investment.within.the.Financial.Results.section.and.Capital.
Investment.within.the.Reportable.Segments.section.of.this.MD&A.
FINANCING ACTIVITIES
Our.disciplined.approach.to.capital.investment.decisions.means.that.
we.prioritize.our.use.of.cash.flow.first.to.committed.capital.investment,.
then.to.paying.a.meaningful.dividend.and.finally.to.growth.capital..In.
2012,.we.paid.a.dividend.of.$0.88.per.share.(2011.–.$0.80.per.share)..
Total.dividend.payments.in.2012.were.$665.million.(2011.–.$603.million)..
The.declaration.of.dividends.is.at.the.sole.discretion.of.the.Board.and.
is.considered.quarterly..
Cash.from.financing.activities.in.2012.increased.$1.15.billion.as.a.result.of.
the.issuance.of.US$1.25.billion.of.senior.unsecured.notes.on.August.17,.2012,.
offset.by.increased.dividends.paid.and.the.repayment.of.short-term.
borrowings.throughout.the.year.
Our.long-term.debt.was.$4,679.million.at.December.31,.2012.with.no.
payments.of.principal.due.until.September.2014.(US$800.million)..We.
had.cash.and.cash.equivalents.of.$1,160.million.at.December.31,.2012..
Long-term.debt.and.cash.and.cash.equivalents.increased.with.the.
issuance.of.senior.unsecured.notes.in.2012..
U.S. Senior Unsecured Notes
On.August.17,.2012,.we.completed.a.public.offering.in.the.U.S..of.senior.
unsecured.notes.in.the.aggregate.principal.amount.of.US$1.25.billion.
under.our.U.S..base.shelf.prospectus..We.issued.US$500.million.of.
senior.unsecured.notes.with.a.coupon.rate.of.3.00.percent.due..
August.15,.2022.(10.year).and.US$750.million.of.senior.unsecured.notes.
with.a.coupon.rate.of.4.45.percent.due.September.15,.2042.(30.year)..
The.net.proceeds.will.be.used.for.general.corporate.purposes,.including.
repayment.of.commercial.paper.indebtedness.
AVAILABLE SOURCES OF LIQUIDITY
( $ m il li o n s ).
Cash.and.Cash.Equivalents.
Committed.Credit.Facility.
Canadian.Base.Shelf.Prospectus.(1).
U.S..Base.Shelf.Prospectus.(1).
(1). Availability.is.subject.to.market.conditions.
Amount.
1,160.
3,000.
1,500.
US$ 750.
.
Term
. Not.applicable
. November.2016
June.2014
.
July.2014
.
As.at.December.31,.2012,.we.are.in.compliance.with.all.of.the.terms.of.our.debt.agreements.
Committed Credit Facility
Canadian Base Shelf Prospectus
In.September.2012,.we.renegotiated.our.existing.$3.0.billion.committed.
credit.facility,.extending.the.maturity.date.to.November.30,.2016.and.
reducing.both.the.standby.fees.to.maintain.the.facility.as.well.as.the.
cost.of.future.borrowings..We.also.have.a.commercial.paper.program.
which,.together.with.the.committed.credit.facility,.is.used.to.manage.
our.short-term.cash.requirements..We.reserve.capacity.under.our.
committed.credit.facility.for.amounts.of.commercial.paper.outstanding..
As.of.December.31,.2012,.no.amounts.were.drawn.on.our.committed.
credit.facility.and.there.was.no.commercial.paper.outstanding.
On.May.24,.2012,.we.filed.a.Canadian.base.shelf.prospectus.for.
unsecured.medium-term.notes.in.the.amount.of.$1.5.billion..The.
Canadian.shelf.prospectus.allows.for.the.issuance.of.medium-term.
notes.in.Canadian.dollars.or.other.foreign.currencies.from.time.to.time.
in.one.or.more.offerings.with.availability.subject.to.market.conditions..
Terms.of.the.notes,.including,.but.not.limited.to,.the.principal.amount,.
interest.at.either.fixed.or.floating.rates.and.maturity.dates.will.be.
determined.at.the.date.of.issue..As.at.December.31,.2012,.no.medium-
term.notes.have.been.issued.under.this.Canadian.shelf.prospectus...
The.Canadian.shelf.prospectus.expires.in.June.2014.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / MA NAGEM ENT ’S DISCU SSION AN D A NALYSI S
57
U.S. Base Shelf Prospectus
On.June.6,.2012,.we.filed.a.U.S..base.shelf.prospectus.for.senior.
unsecured.notes.in.the.amount.of.US$2.0.billion..The.U.S..shelf.
prospectus.allows.for.the.issuance.of.debt.securities.in.U.S..dollars.or.
other.foreign.currencies.from.time.to.time.in.one.or.more.offerings.
with.availability.subject.to.market.conditions..Terms.of.the.notes,.
including,.but.not.limited.to,.the.principal.amount,.interest.at.either.
fixed.or.floating.rates.and.maturity.dates.will.be.determined.at.the.
date.of.issue..As.at.December.31,.2012,.US$750.million.remains.available.
under.our.U.S..base.shelf.prospectus..The.U.S..base.shelf.prospectus.
expires.in.July.2014..
FINANCIAL METRICS
We.monitor.our.capital.structure.and.financing.requirements.using,.
among.other.things,.non-GAAP.financial.metrics.consisting.of.Debt..
to.Capitalization.and.Debt.to.Adjusted.EBITDA..We.define.our.non-
GAAP.measure.of.Debt.as.short-term.borrowings.and.the.current.and.
long-term.portions.of.long-term.debt.excluding.any.amounts.with.
respect.to.the.Partnership.Contribution.Payable.or.Receivable..We.
define.Capitalization.as.Debt.plus.Shareholders’.Equity..We.define.
Adjusted.EBITDA.as.earnings.before.finance.costs,.interest.income,.
income.tax.expense,.DD&A,.goodwill.impairment,.exploration.expense,.
unrealized.gain.(loss).on.risk.management,.foreign.exchange.gains.
(losses),.gain.(loss).on.divestiture.of.assets.and.other.income.(loss),.net..
These.metrics.are.used.to.steward.our.overall.debt.position.and.as.
measures.of.our.overall.financial.strength..
.
.
.
.
.
.
Debt.to.Capitalization.
Debt.to.Adjusted.EBITDA ( tim es).
Debt.to.Capitalization.is.calculated.as.follows:.
As a t December 31, .
Debt..
Shareholders’.Equity.
Capitalization.
Debt to Capitalization.
The.following.is.a.reconciliation.of.Adjusted.EBITDA.and.the.calculation.of.Debt.to.Adjusted.EBITDA:
Finance.Costs.
Interest.Income.
Income.Tax.Expense.
As a t D e cem b er 3 1 , .
Debt..
Net Earnings.
Add.(Deduct):.
.
.
.
. DD&A.
. Goodwill.Impairment.
. Exploration.Expense.
. Unrealized.Gain.on.Risk.Management.
Foreign.Exchange.(Gain).Loss,.net.
.
.
(Gain).Loss.on.Divestiture.of.Assets.
. Other.(Income).Loss,.net.
Adjusted EBITDA .
Debt to Adjusted EBITDA.
.
2012.
32%.
1.1x.
2012.
4,679.
9,806.
14,485.
32%.
2012.
4,679.
993.
.
455.
(109).
783.
1,585.
393.
68.
(57).
(20).
–.
(5).
4,086.
1.1x.
.
2011.
27%.
1.0x.
2011.
3,527.
9,406.
12,933.
27%.
2011.
3,527.
1,478.
.
447.
(124).
729.
1,295.
–.
–.
(180).
26.
(107).
4.
3,568.
1.0x.
.
2010
29%
1.3x.
2010
3,432
8,395
11,827
29%
2010
3,432
1,081
.
498
(144)
223
1,302
–
–
(46)
(51)
(116)
(13)
2,734
1.3x
We.continue.to.have.long-term.targets.for.a.Debt.to.Capitalization.
ratio.of.between.30.to.40.percent.and.a.Debt.to.Adjusted.EBITDA.
of.between.1.0.to.2.0.times..At.December.31,.2012,.our.Debt.to.
Capitalization.and.Debt.to.Adjusted.EBITDA.metrics.were.near.the.low.
end.of.our.target.ranges..
Our.debt.levels.at.December.31,.2012.were.higher.than.at.December.31,.
2011.as.a.result.of.the.public.offering.in.the.U.S..of.senior.unsecured.
notes.in.the.third.quarter.of.2012..Additional.information.regarding..
our.financial.metrics.and.capital.structure.can.be.found.in.the.notes.to.
the.Consolidated.Financial.Statements.
OUTSTANDING SHARE DATA AND STOCK-BASED
COMPENSATION PLANS
Cenovus.is.authorized.to.issue.an.unlimited.number.of.common.shares,.
an.unlimited.number.of.first.preferred.shares.and.an.unlimited.number.
of.second.preferred.shares..At.December.31,.2012,.no.preferred.shares.
were.outstanding.
58
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
As.part.of.our.long-term.incentive.program,.Cenovus.has.an.employee.
Stock.Option.Plan.that.provides.employees.with.the.opportunity.to.
exercise.an.option.to.purchase.common.shares.of.Cenovus..Options.
issued.by.Cenovus.prior.to.February.24,.2011,.have.associated.tandem.
stock.appreciation.rights.(“TSARs”).and.options.issued.after.February.24,.
2011.have.associated.net.settlement.rights.(“NSRs”)..
In.addition.to.its.Stock.Option.Plan,.Cenovus.has.a.Performance.Share.
Unit.(“PSU”).Plan.and.two.Deferred.Share.Unit.(“DSU”).Plans..PSUs.are.
whole.share.units.which.entitle.the.holder.to.receive.upon.vesting.
either.a.Cenovus.common.share.or.a.cash.payment.equal.to.the.value.
of.a.Cenovus.common.share..DSUs.vest.immediately.and.are.equivalent.
in.value.to.a.Cenovus.common.share.on.the.date.of.redemption.
Our.stock.options.are.measured.at.fair.value.using.the.Black-Scholes-
Merton.valuation.model.and.other.stock-based.compensation.plans.
are.measured.at.fair.value.based.on.the.market.value.of.our.common.
shares..The.fair.value.of.our.TSARs,.PSUs.and.DSUs.are.measured.at.
each.reporting.date.and.therefore.are.sensitive.to.fluctuations.in.our.
common.share.price..The.fair.value.of.NSRs.is.determined.at.the.date.of.
grant.and.is.not.re-measured.at.each.reporting.date..As.NSRs.become.
a.higher.proportion.of.our.long-term.incentive.grants,.our.long-term.
incentive.costs.will.become.less.sensitive.to.common.share.price.
fluctuations..The.weighted.average.remaining.contractual.life.of.the.
TSARs,.NSR’s.and.PSU’s.are.1.42,.5.85.and.1.24.years,.respectively...
See.the.notes.to.the.Consolidated.Financial.Statements.for.details.of.
our.stock-based.compensation.plans.
Total Outstanding Common Shares and Stock-Based Compensation Plans
(thousands of units).
Common Shares.
Stock Options.
. NSRs.
. TSARs.
. Cenovus.Replacement.TSARs.
. Encana.Replacement.TSARs.
Other Stock-Based Compensation Plans.
. PSUs.
. DSUs.
.
.
.
.
.
.
.
.
December 31, 2012
755,843
.
.
.
.
15,074
11,251
5,229
7,722
5,258
1,084
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The.below.contractual.obligations.have.been.grouped.as.operating,.investing.and.financing,.relating.to.the.type.of.cash.outflow.that.will.arise:
.
.
.
2013.
($ mil lions).
.
Operating.
. Pipeline.Transportation.(1).
145.
109.
. Operating.Leases.(Building.Leases).
81.
. Product.Purchases.
32.
. Other.Long-term.Commitments.
Interest.on.Long-term.Debt.
.
254.
Interest.on.Partnership.Contribution.Payable. 100.
.
721.
Total Operating.
.
Investing.
. Capital.Commitments.(2).
320.
. Other.Long-term.Commitments.
1.
85.
. Decommissioning.Liabilities.
406.
Total Investing.
Financing.
.
–.
. Long-term.Debt.
386.
. Partnership.Contribution.Payable.
386.
Total Financing.
Total Payments (3).
1,513.
50.
.
471.
. Partnership.Contribution.Receivable.
Fixed.Price.Product.Sales.
2014.
.
209.
106.
18.
25.
252.
76.
686.
.
54.
–.
142.
196.
.
796.
410.
1,206.
2,088.
52.
471.
Expected.Payment.Date
2016.
.
403.
110.
6.
7.
216.
25.
767.
.
53.
–.
128.
181.
.
–.
462.
462.
1,410.
55.
471.
2017.
.
675.
104.
–.
6.
216.
2.
1,003.
.
6.
–.
137.
143.
.
–.
120.
120.
1,266.
3.
118.
2015.
.
378.
112.
18.
18.
216.
51.
793.
.
61.
–.
125.
186.
.
–.
435.
435.
1,414.
54.
471.
2018+.
.
8,130.
1,602.
–.
10.
3,120.
–.
12,862.
.
2.
–.
6,248.
6,250.
.
3,930.
–.
3,930.
23,042.
–.
–.
Total
9,940
2,143
123
98
4,274
254
16,832
496
1
6,865
7,362
4,726
1,813
6,539
30,733
214
2,002
(1).. Certain.transportation.commitments.included.are.subject.to.regulatory.approval.
(2)..Includes.commitments.related.to.joint.operations.
(3)..Contracts.on.behalf.of.the.FCCL.Partnership.(“FCCL”).and.WRB.Refining.LP.(“WRB”).are.reflected.at.our.50.percent.interest.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / MA NAGEM ENT ’S DISCU SSION AND AN ALYSIS
59
Cenovus.has.entered.into.various.commitments.in.the.normal.course.of.
operations.primarily.related.to.demand.charges.on.firm.transportation.
agreements.(which.include.amounts.for.projects.awaiting.regulatory.
approval),.debt,.future.building.leases,.marketing.agreements.and.capital.
commitments..In.addition,.we.have.commitments.related.to.our.risk.
management.program.and.an.obligation.to.fund.our.defined.benefit.
pension.and.other.post-employment.benefit.plans..For.further.information.
please.see.the.notes.to.the.Consolidated.Financial.Statements.
As.at.December.31,.2012,.Cenovus.remained.a.party.to.long-term,.
fixed.price,.physical.contracts.for.natural.gas.with.a.current.delivery.
of.approximately.33.MMcf.per.day,.with.varying.terms.and.volumes.
through.2017..The.total.volume.to.be.delivered.within.the.terms.of.
these.contracts.is.49.Bcf.of.natural.gas.at.a.weighted.average.price.of.
$4.38.per.Mcf.
In.the.normal.course.of.business,.we.also.lease.office.space.for.
personnel.who.support.field.operations.and.for.corporate.purposes.
LEGAL PROCEEDINGS
We.are.involved.in.a.limited.number.of.legal.claims.associated.with.the.
normal.course.of.operations.and.we.believe.we.have.made.adequate.
provisions.for.such.claims..There.are.no.individually.or.collectively.
significant.claims.
RISK M AN AGEMENT
The.Canadian.Institute.of.Chartered.Accountants.issued.new.guidance.
in.2012,.which.suggested.that.corporate.reporting.would.be.enhanced.
with.further.disclosures.of.how.companies.approach.and.mitigate.risks.
generally..Cenovus.is.exposed.to.a.number.of.risks.through.the.pursuit.
of.our.strategic.objectives..Some.of.these.risks.impact.the.oil.and.
gas.industry.as.a.whole.and.others.that.are.unique.to.our.operations..
Actively.managing.these.risks.improves.our.ability.to.effectively.execute.
our.business.strategy..We.manage.risk.within.our.risk.appetite.ultimately.
determined.by.Management.and.confirmed.by.the.Board..
RISK GOVERNANCE
Through.our.Enterprise.Risk.Management.(“ERM”).program,.we.have.
established.a.systematic.process.for.identifying,.measuring,.prioritizing.
and.managing.risk.across.Cenovus..
The.ERM.Policy,.approved.by.our.Board,.outlines.our.risk.management.
principles.and.expectations.as.well.as.the.roles.and.responsibilities.of.all.
staff..Building.on.the.ERM.Policy,.we.have.established.Risk.Management.
Practices,.a.Risk.Management.Framework.and.Risk.Assessment.Tools..Our.
Risk.Management.Framework.contains.the.key.attributes.recommended.
by.the.International.Standards.Organization.(“ISO”).in.their.ISO 31000
– Risk Management Principles and Guidelines..The.results.of.our.ERM.
program.are.documented.in.an.Annual.Risk.Report.presented.to.the.
Board.as.well.as.through.quarterly.updates.. .
ERM
POLICY
RISK MANAGEMENT
PRACTICES
RISK MANAGEMENT
FRAMEWORK
RISK ASSESSMENT TOOLS
RISK
MATRIX
IMPACT &
PROBABILITY
ASSESSMENTS
RISK
ASSESSMENT
WORKSHEET
RISK
GLOSSARY
RISK
TREATMENT
STRATEGIES
RISK ASSESSMENT
All.risks.are.assessed.for.their.potential.impact.on.the.achievement.
of.Cenovus’s.strategic.objectives.as.well.as.their.likelihood.of.
occurring..Risks.are.analyzed.through.the.use.of.a.Risk.Matrix.and.other.
standardized.assessment.tools..
Using.the.Risk.Matrix,.each.risk.is.classified.on.a.continuum.ranging.
from.“Marginal”.to.“Catastrophic”.based.on.the.potential.impact.and.
likelihood.of.occurrence..Risks.are.first.evaluated.on.an.inherent.basis,.
without.considering.the.presence.of.controls.or.mitigating.measures..
Risks.are.then.re-evaluated.based.on.their.residual.risk.ranking,.
reflecting.the.risk.that.remains.after.mitigation.and.control.measures.
are.considered..
Management.determines.if.additional.risk.treatment.is.required.
based.on.the.residual.risk.ranking.and.there.are.prescribed.actions.for.
elevating.these.exposures.to.the.right.decision.makers..
RISK MANAGEMENT ROLES AND RESPONSIBILITIES
The.roles.and.responsibilities.of.the.various.participants.of.our.ERM.
Program.are:
Board:
•.
.Oversees.the.implementation.of.the.ERM.program.by.Management.
and.provides.oversight.for.risk.management.activities;.and
•.
.The.Audit.Committee.of.the.Board.reviews.our.Risk.Management.
Framework.and.related.processes.on.an.annual.basis.to.ensure.
processes.remain.current.and.relevant.
Senior Management:
•.
.Confirms.our.corporate.risk.appetite.with.the.Board..The.executive.team.
is.interviewed.annually.and.collaborative.workshops.are.held.with.SVP’s.
and.VP’s.to.support.the.development.of.the.Annual.Risk.Report..
The.Financial.&.Enterprise.Risk.Team.reports.to.the.Executive.Vice.
President.&.Chief.Financial.Officer.and.is.responsible.for.managing.our.
ERM.program.and.the.related.risk.reporting..
60
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
PRINCIPAL AND STRATEGIC RISKS
Cenovus’s.operations,.financial.condition.and.in.some.cases.our.
reputation,.may.be.impacted.by.principal.and.strategic.risks..Cenovus.
defines.principal.risks.as.those.risks.that.when.measured.in.terms.
of.likelihood.and.impact,.may.adversely.affect.the.achievement.of.
our.strategic.or.major.business.objectives..Strategic.risk.is.the.risk.of.
loss.resulting.from.the.inability.to.adequately.plan.or.implement.an.
appropriate.business.strategy,.or.to.adapt.to.changes.in.the.external.
business,.political.or.regulatory.environment.
Principal.and.strategic.risks.are.categorized.into:
•. Financial.risks,.which.includes.commodity.price.risk.and.liquidity.risk;
•.
.Operational.risks.such.as.risks.related.to.safety,.the.environment,.
transportation.restrictions,.project.execution.and.reserves.
replacement;.and
•.
.Regulatory.risks.from.the.regulatory.approval.process.and.changes.to.
or.introduction.of.environmental.regulations.
A.description.of.the.risk.factors.and.uncertainties.affecting.Cenovus.
can.be.found.in.the.Advisory.and.a.full.discussion.of.the.material.risk.
factors.affecting.Cenovus.can.be.found.in.our.AIF.for.the.year.ended.
December.31,.2012.
The.following.is.a.discussion.of.how.some.of.the.material.principal.and.
strategic.risks.impact.our.business:
Financial Risk
Financial.risk.is.the.risk.of.loss.or.lost.opportunity.resulting.from.
financial.management.and.market.conditions..From.time.to.time,.
Management.may.enter.into.contracts.to.mitigate.risk.associated.with.
fluctuations.in.commodity.prices,.interest.rates.and.foreign.exchange.
rates..We.have.the.flexibility.to.partially.mitigate.our.exposure.to.
interest.rate.changes.by.maintaining.a.mix.of.fixed.and.floating.rate.
debt..Credit.is.managed.through.our.Board.approved.credit.policy.
COMMODiTY PRiCE RiSk
Fluctuations.in.future.commodity.prices.create.volatility.in.our.financial.
performance..Commodity.prices.are.impacted.by.a.number.of.factors.
including.global.and.regional.supply.and.demand,.transportation.
constraints.and.alternative.fuels,.all.of.which.are.beyond.our.control.
and.can.result.in.a.high.degree.of.price.volatility..
Changes.in.future.commodity.prices.will.affect.the.revenue.generated.
by.the.sale.of.our.crude.oil,.NGLs,.natural.gas.production.from.our.Oil.
Sands.and.Conventional.segments.and.sale.of.refined.products.from.
our.refining.operations..Our.financial.performance.is.also.affected.by.
price.differentials.since.our.upstream.production.differs.in.quality.and.
location.from.underlying.benchmark.commodity.prices.quoted.on.
financial.exchanges.
We.anticipate.commodity.prices.and.refining.margins.will.continue.to.
be.volatile.over.the.next.few.years..If.crude.oil.and.natural.gas.prices.
decline.significantly.and.remained.at.low.levels.for.an.extended.period.
of.time,.the.carrying.value.of.our.assets.may.be.subject.to.impairment,.
future.capital.programs.could.be.delayed.or.cancelled.and.production.
could.be.curtailed,.among.other.impacts..However,.lower.commodity.
prices.would.reduce.the.cost.of.natural.gas.and.crude.oil.feedstock.
used.in.our.refining.operations..
We.manage.our.commodity.price.exposure.through.a.combination.
of.activities.including.integration,.financial.hedges.and.physical.
contracts..Our.business.model.partially.mitigates.our.exposure.to.light/
heavy.differentials.and.refinery.margins.through.our.upstream.and.
downstream.integration..In.addition,.our.natural.gas.production.acts.as.
an.economic.hedge.for.the.natural.gas.required.as.a.fuel.source.at.both.
our.upstream.and.refining.operations.
We.further.reduce.our.exposure.to.commodity.price.risk.through.the.
use.of.various.financial.instruments.and.select.physical.contracts..These.
transactions.protect.a.portion.of.the.budgeted.cash.flow.and.ensure.
funds.are.available.for.capital.projects..These.activities.are.reviewed.
and.approved.by.the.Risk.Management.Committee.which.is.comprised.
of.the.President.&.Chief.Executive.Officer,.Executive.Vice.President.&.
Chief.Financial.Officer.and.one.other.EVP..These.activities.are.governed.
through.our.Market.Risk.Mitigation.Policy,.which.contains.prescribed.
hedging.protocols.and.limits..We.have.partially.mitigated.our.exposure.
to.the.following:
•.
•.
•.
.Crude.oil.commodity.price.risk.on.our.crude.oil.sales.with.fixed.price.
commodity.swaps;
.Natural.gas.commodity.price.risk.on.our.natural.gas.sales.with.fixed.
price.swaps;
.Widening.location.or.quality.differentials.for.crude.oil.and.natural.
gas.with.fixed.price.differential.and.basis.swaps;.and
•. Electricity.consumption.costs.through.a.derivative.power.contract.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / MA NAGEM ENT ’S DISCU SSION AND AN ALYSIS
61
The.details.of.these.financial.instruments.as.at.December.31,.2012.are.disclosed.in.the.notes.to.the.Consolidated.Financial.Statements..The.financial.
impact.is.summarized.below:
.
Financial Impact of Risk Management Activities
.
.
($ mil lions).
Crude.Oil.and.NGLs.
Natural.Gas.
Refining.
Power.
Gains.(Losses).on.Risk.Management.
Income.Tax.Expense.
Gains.(Losses).on.Risk.Management,.after-tax.
2012.
Realized Unrealized
247
(176)
1
(15)
57
14
43
81
247
7
1
336
86
250
Total.
328.
71.
8.
(14).
393.
100.
293.
2011
Realized. Unrealized.
106.
38.
7.
29.
180.
46.
134.
(135).
210.
(14).
7.
68.
17.
51.
Total
(29)
248
(7)
36
248
63
185
In.2012,.our.strategy.to.manage.commodity.price.risk.resulted.in.realized.
gains.on.both.crude.oil.and.natural.gas.financial.instruments.as.contract.
benchmark.commodity.prices.settled.below.our.contract.prices...
We.recognized.unrealized.gains.on.our.crude.oil.financial.instruments.
as.a.result.of.the.decrease.in.forward.commodity.prices.and.the.
widening.of.light/heavy.differentials.at.the.end.of.2012.compared.to.
our.contract.prices..Natural.gas.financial.instruments.incurred.unrealized.
losses.as.a.result.of.increasing.forward.natural.gas.commodity.prices..
Details.of.contract.volumes.and.prices.can.be.found.in.the.notes.to.the.
Consolidated.Financial.Statements.
For.our.risk.management.activities,.we.take.an.integrated.view.of.our.
exposure.across.the.upstream.and.refining.businesses..We.recognize.
that.on.an.integrated.basis,.we.have.a.long.position.in.refined.products.
which.has.become.more.strongly.correlated.to.Brent.crude.rather.than.
WTI..To.better.align.our.corporate.risk.management.program.with.
this.exposure,.we.converted.all.existing.2013.WTI.crude.oil.financial.
instruments.to.Brent.pricing.during.2012..In.addition,.17,000.barrels.per.
day.were.executed.through.financial.instruments.at.fixed.Brent.pricing,.
resulting.in.a.total.of.37,000.barrels.per.day.locked.into.a.weighted.
average.Brent.price.of.US$111.32.per.barrel.
Commodity Price Sensitivities – Risk Management Positions
The.following.table.summarizes.the.sensitivities.of.the.fair.value.of.our.
risk.management.positions.to.fluctuations.in.commodity.prices.with.all.
other.variables.held.constant..Management.believes.the.price.fluctuations.
identified.in.the.table.below.are.a.reasonable.measure.of.volatility..
Fluctuations.in.commodity.prices.could.have.resulted.in.unrealized.gains.
(losses).for.the.year.impacting.earnings.before.income.tax.on.open.risk.
management.positions.as.at.December.31,.2012.as.follows:
Commodity
Crude.Oil.Commodity.Price.
Crude.Oil.Differential.Price.
Natural.Gas.Commodity.Price.
Natural.Gas.Basis.Price.
Power.Commodity.Price.
LiQUiDiTY RiSk
Sensitivity Range
± US$10.per.bbl.Applied.to.Brent.&.WTI.Hedges.
± US$5.per.bbl.Applied.to.Differential.Hedges.tied.to.Production.
± $1.per.mcf.Applied.to.NYMEX.Natural.Gas.Hedges.
± $0.10.per.mcf.Applied.to.Natural.Gas.Basis.Hedges.
± $25.per.MWHr.Applied.to.Power.Hedge.
increase
(156)
111
(55)
1
19
Decrease
156
(111)
55
(1)
(19)
Liquidity.risk.is.the.risk.we.will.not.be.able.to.meet.all.our.financial.
obligations.as.they.come.due..Liquidity.risk.also.includes.the.risk.of.not.
being.able.to.liquidate.assets.in.a.timely.manner.at.a.reasonable.price..
In.depressed.economic.times.or.due.to.unforeseen.events,.Cenovus’s.
liquidity.risk.could.become.heightened..If.we.were.unable.to.meet.our.
financial.obligations.as.they.became.due.this.would.have.a.material.
adverse.effect.on.our.financial.condition,.results.of.operations,.cash.
flows.and.reputation..
We.manage.our.liquidity.risk.through.the.active.management.of.cash.
and.debt.by.ensuring.that.we.have.access.to.multiple.sources.of.capital.
including.cash.and.cash.equivalents,.cash.from.operating.activities,.
undrawn.credit.facilities,.commercial.paper.and.availability.under.our.shelf.
prospectuses..At.December.31,.2012,.we.had.cash.and.cash.equivalents.
of.$1.2.billion,.no.amounts.were.drawn.on.our.committed.credit.facility.
and.no.commercial.paper.was.outstanding..In.addition,.we.had.$1.5.billion.
in.unused.capacity.under.our.Canadian.base.shelf.prospectus.and.
US$750.million.in.unused.capacity.under.our.U.S..base.shelf.prospectus,..
the.availability.of.which.are.dependent.on.market.conditions..
We.believe.that.our.current.liquidity.position.is.sufficient.to.protect.us.
in.the.near-term.from.unforeseen.economic.events.that.could.create.
further.volatility.in.cash.flow.
62
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
Operational Risk
CAPiTAL PROjECT ExECUTiON AND OPERATiNG RiSk
Operational.risk.is.the.risk.of.loss.or.lost.opportunity.resulting.from.
operating.and.capital.activities.that.could.impact.the.achievement.of.
our.objectives.
SAFETY RiSk
Crude.oil.and.natural.gas.development,.production.and.refining.are,.
by.their.nature,.high.risk.activities.that.may.cause.personal.injury..
The.inability.to.operate.safely.has.the.potential.to.have.a.material.
adverse.impact.on.Cenovus’s.reputation,.financial.condition,.results.of.
operations.and.cash.flow..
We.are.committed.to.safety.in.our.operations..We.take.an.active.role.
with.our.refining.partner.in.ensuring.safety.is.the.first.priority..Our.
safety.policies.and.standards.comply.with.government.regulations.and.
industry.standards..To.partially.mitigate.safety.risk,.we.have.a.system.
of.standards,.practices.and.procedures.called.the.Cenovus.Operations.
Management.System.to.identify,.assess.and.control.safety,.security.and.
environmental.risk.across.our.operations..In.order.to.ensure.we.engage.
contractors.who.share.the.same.commitment.to.safety,.Cenovus.uses.a.
third.party.online.safety.prequalification.system.and.safety.performance.
data.management.tool..Prevention.of.occupational.diseases.and.
illnesses.is.also.an.integral.part.of.our.health.and.safety.focus..We.take.
a.risk-based.approach.to.systematically.identify,.evaluate,.and.manage.
health.hazards.of.all.workers.at.our.sites..
The.Safety,.Environment.and.Responsibility.Committee.of.our.Board.
reviews.and.recommends.policies.for.approval.by.our.Board.and.
oversees.compliance.with.government.laws.and.regulations..
TRANSPORTATiON RESTRiCTiONS
Our.ability.to.efficiently.access.end.markets.may.be.affected.by.
insufficient.transportation.capacity.for.our.production..Transportation.
restrictions.can.negatively.impact.financial.performance.by.way.of.
higher.transportation.costs,.wider.price.differentials,.lower.realized.
prices.at.specific.locations.or.for.specific.grades.and,.in.extreme.
situations,.production.curtailment..While.this.risk.may.impact.our.
natural.gas.production,.it.has.the.greatest.potential.to.impact.our.
crude.oil.production,.which.could.negatively.affect.our.financial.
position,.results.of.operations.and.cash.flows.within.our.Oil.Sands.and.
Conventional.segments..
To.help.mitigate.these.risks,.we.employ.a.diversified.sales.strategy.
which.includes.sales.at.multiple.market.hubs.to.a.variety.of.
creditworthy.counterparties.utilizing.multiple.transportation.options..In.
addition,.we.support.and.are.prepared.to.commit.to.new.and.expanding.
transportation.infrastructure.with.access.to.additional.markets.for.our.
production,.including.cargo.and.railcar.transportation.methods..
We.anticipate.transportation.constraints.will.continue.in.the.near.
term..The.Keystone.XL.project.and.the.Northern.Gateway.Pipeline.
project,.if.approved,.will.benefit.heavy.oil.producers..The.Keystone.XL.
project.will.connect.Alberta’s.oil.sands.with.refineries.in.the.U.S..Gulf.
Coast..The.Northern.Gateway.pipeline.project.in.its.current.form.will.
connect.Alberta’s.oil.sands.to.the.western.Canada.coast,.allowing.for.
transportation.to.new.markets,.such.as.Asia..Other.industry.options.are.
being.developed.and.we.are.actively.participating.in.those.developments..
There.are.risks.associated.with.the.execution.and.operations.of.our.
upstream.and.refining.projects..Over.the.next.10.years,.we.will.be.required.
to.concurrently.manage.multiple.projects..Successful.project.execution.
will.be.highly.dependent.upon.the.weather,.price.escalations.and.
availability.of.skilled.labour,.key.components.or.other.scarce.resources,.
any.of.which.could.have.a.material.adverse.effect.on.Cenovus.
We.are.also.mindful.of.the.need.to.maintain.financial.resiliency...
Our.capital.programs.are.scalable.in.most.cases,.and.if.necessary,.there.
are.areas.where.we.could.defer.spending.in.response.to.reduced.cash.
flows.from.operations.or.liquidity.challenges..When.making.operating.
and.investing.decisions,.capital.allocation.is.focused.on.strategic.fit,.
mitigation.of.risk.and.optimization.of.project.returns..Our.capital.
approval.process.requires.projects.to.be.presented.on.a.fully.risked.
basis.which.considers.potential.construction,.commercial,.operational.
and/or.regulatory.risk.exposures..
Operational.risks.affect.our.ability.to.continue.operations.in.the.
ordinary.course.of.business..Our.operations.are.subject.to.risks.generally.
affecting.the.oil.and.gas.and.refining.industries..Our.operational.risks.
include,.but.are.not.limited.to.safety.considerations,.environmental.
challenges,.transportation.capacity.and.interruptions,.uncertainty.of.
reserves.and.resources.estimates,.phased.growth.execution.of.oil.sands.
projects.and.partner.risks..We.attempt.to.partially.mitigate.operational.
risks.by.maintaining.a.comprehensive.insurance.program.in.respect.of.
our.assets.and.operations.
RESERVES REPLACEMENT RiSk
If.we.fail.to.acquire,.develop.or.find.additional.crude.oil.and.natural.
gas.reserves,.our.reserves.and.production.will.decline.materially.from.
their.current.levels..Our.financial.position,.results.of.operations.and.
cash.flows.are.highly.dependent.upon.successfully.producing.current.
reserves.and.acquiring,.discovering.or.developing.additional.reserves.
To.mitigate.the.risk.associated.with.replacing.reserves,.we.evaluate.
projects.on.a.fully.risked.basis.including.geological.risk.and.engineering.
risk..In.addition,.our.asset.teams.undertake.a.project.look-back.process,.
whereby.each.asset.team.undertakes.a.thorough.review.of.its.previous.
capital.program.to.identify.key.learnings,.which.often.include.technical.
and.operational.issues.that.impacted.the.project’s.results..Mitigation.
plans.are.developed.for.the.issues.that.had.a.negative.impact.on.results.
and.are.incorporated.into.the.current.year’s.plan..On.an.annual.basis,.
look-back.results.are.analyzed.in.relation.to.our.capital.program,.with.
the.results.and.identified.learnings.shared.across.our.company.
To.date.our.ability.to.find,.acquire.and.develop.additional.crude.oil.
and.natural.gas.reserves.has.been.in.line.with.our.10.year.strategic.plan..
See.the.Oil.and.Gas.Reserves.and.Resources.section.of.this.MD&A.
for.further.details.of.our.proved.and.probable.reserves.and.economic.
bitumen.contingent.and.prospective.resources.at.December.31,.2012..
CEN OV US EN ERGY 2012 ANNUAL RE PORT / MA NAGEM ENT ’S DISCU SSION AN D A NALYSI S
63
ENViRONMENTAL RiSk
Developing.and.operating.our.projects.is.subject.to.hazards.of.recovering,.
transporting.and.processing.hydrocarbons.which.can.cause.damage.to.
the.environment..We.take.our.responsibility.for.the.environment.very.
seriously..To.manage.these.risks,.we.strive.to.use,.recycle.and.dispose.
of.water.safely,.manage.air.emissions,.limit.our.physical.footprint.and.
minimize.our.impact.on.habitat,.including.wildlife..Working.with.our.
stakeholders,.we.identify.the.unique.needs.of.the.different.areas.where.
we.operate..Employees,.contractors.and.third-party.service.providers.
receive.the.appropriate.training.they.need.to.comply.with.regulations.
and.be.responsible.environmental.stewards..Our.environmental.impact.is.
measured.using.the.Cenovus.Operations.Management.System.to.monitor,.
manage.and.accurately.report.our.activities.
The.Safety,.Environment.and.Responsibility.Committee.of.our.Board.
reviews.and.recommends.policies.pertaining.to.corporate.responsibility,.
including.the.environment,.and.oversees.compliance.with.government.
laws.and.regulations..Monitoring.and.reporting.programs.for.
environmental,.health.and.safety.performance.in.day-to-day.operations,.
as.well.as.inspections.and.assessments,.have.been.designed.to.provide.
assurance.that.environmental.and.regulatory.standards.are.met..
Contingency.plans.have.been.put.in.place.for.a.timely.response.to.an.
environmental.event.and.remediation/reclamation.programs.have.been.
put.in.place.and.utilized.to.restore.the.environment.
Regulatory Risk
Regulatory.risk.is.the.risk.of.loss.or.lost.opportunity.resulting.from.the.
introduction.of,.or.changes.in,.regulatory.requirements.or.the.failure.to.
secure.regulatory.approval.for.a.crude.oil.or.natural.gas.development.
project..The.implementation.of.new.regulations.or.the.modification.of.
existing.regulations.could.impact.our.existing.and.planned.projects.as.
well.as.impose.a.cost.of.compliance,.adversely.impacting.our.financial.
condition,.results.of.operations.and.cash.flows..
ENViRONMENTAL REGULATiON RiSk
The.complexities.of.changes.in.environmental.regulation.make.it.
difficult.to.predict.the.potential.future.impact.to.Cenovus..We.
anticipate.that.future.capital.expenditures.and.operating.expenses.
could.continue.to.increase.as.a.result.of.the.implementation.of.new.
environmental.regulations..However,.we.expect.that.the.cost.of.meeting.
new.environmental.and.climate.change.regulations.will.not.be.so.high.
as.to.cause.a.material.disadvantage.to.our.competitive.position..Non-
compliance.with.environmental.regulations.could.also.have.an.adverse.
impact.on.Cenovus’s.reputation..
Further.discussion.on.specific.areas.that.currently.have,.and.are.
reasonably.likely.to.have,.an.impact.on.Cenovus’s.operations.is.below..
Water Use Impacts
To.operate.our.SAGD.facilities.we.rely.on.water,.which.is.obtained.
under.licenses.from.Alberta.Environment.and.Sustainable.Resource.
Development..Currently,.we.are.not.required.to.pay.for.the.water.
we.use.under.these.licenses..If.a.change.to.the.requirements.under.
these.licenses.reduces.the.amount.of.water.available.for.our.use,.our.
production.could.decline.or.operating.costs.could.increase,.both.of.
which.may.have.a.material.adverse.effect.on.our.business.and.financial.
performance..There.can.be.no.assurance.that.the.licenses.to.withdraw.
water.will.not.be.rescinded.or.that.additional.conditions.will.not.be.
added.to.these.licenses..There.can.be.no.assurance.that.we.will.not.
have.to.pay.a.fee.for.the.use.of.water.in.the.future.or.that.any.such.fees.
will.be.reasonable..In.addition,.the.expansion.of.our.projects.rely.on.
securing.licenses.for.additional.water.withdrawal,.and.there.can.be.no.
assurance.that.these.licenses.will.be.granted.on.terms.favourable.to.us.
or.at.all,.or.that.such.additional.water.will.in.fact.be.available.to.divert.
under.such.licenses..While.we.currently.re-use.a.percentage.of.the.
water.which.we.withdraw.under.license,.there.are.no.guarantees.that.
our.operations.will.continue.to.efficiently.use.water.
Greenhouse Gases & Air Pollutants
Various.federal,.provincial.and.state.governments.have.announced.
intentions.to.regulate.greenhouse.gas.(“GHG”).emissions.and.other.air.
pollutants..A.number.of.legislative.and.regulatory.measures.to.address.
GHG.emission.reductions.are.in.various.phases.of.review,.discussion.or.
implementation.in.Canada.and.the.U.S..
If.comprehensive.GHG.regulation.is.enacted.in.any.jurisdiction.in.which.
we.operate,.adverse.impacts.to.our.business.may.include,.among.other.
things,.increased.compliance.costs,.loss.of.markets,.permitting.delays,.
substantial.costs.to.generate.or.purchase.emission.credits.or.allowances,.
all.of.which.may.increase.operating.costs.and.reduce.demand.for.crude.
oil,.natural.gas.and.certain.refined.products..Beyond.existing.legal.
requirements,.the.extent.and.magnitude.of.any.adverse.impacts.of.any.
of.these.additional.programs.cannot.be.reliably.or.accurately.estimated.
at.this.time.because.specific.legislative.and.regulatory.requirements.have.
not.been.finalized.and.uncertainty.exists.with.respect.to.the.additional.
measures.being.considered.and.the.time.frames.for.compliance..
Our.approach.to.emissions.management.is.demonstrated.by.our.
industry.leadership.focusing.on.energy.efficiency,.developing.oil.sands.
technology.to.reduce.GHG.emissions.and.carbon.dioxide.sequestration..
Cenovus.was.recognized.for.leadership.in.GHG.emissions.reporting.
by.being.included.in.the.2012.Carbon.Disclosure.Leadership.Index.for.
Canada..We.incorporate.the.potential.costs.of.carbon,.ranging.from.
$15-$65.per.tonne.of.CO2,.into.future.planning.which.guides.the.capital.
allocation.process..We.intend.to.continue.using.scenario.planning.
to.anticipate.the.future.impact.of.regulations,.reduce.our.emissions.
intensity.and.improve.our.energy.efficiency.
Land Use, Habitat and Biodiversity
Alberta’s.Land-Use.Framework.has.been.implemented.under.the.Alberta.
Land.Stewardship.Act.(“ALSA”).which.sets.out.the.Government.of.
Alberta’s.approach.to.managing.Alberta’s.land.and.natural.resources.
to.achieve.long-term.economic,.environmental.and.social.goals..In.
64
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
some.cases,.ALSA.amends.or.extinguishes.previously.issued.consents.
such.as.regulatory.permits,.licenses,.approvals.and.authorizations.in.
order.to.achieve.or.maintain.an.objective.or.policy.resulting.from.the.
implementation.of.a.regional.plan..On.August.22,.2012,.the.Government.
of.Alberta.approved.its.LARP,.which.was.issued.under.the.ALSA,.and.
came.into.effect.on.September.1,.2012.
The.LARP.identifies.management.frameworks.for.air,.land.and.
water.that.will.incorporate.cumulative.limits.and.triggers.as.well.as.
identifying.areas.related.to.conservation,.tourism.and.recreation..
Some.of.our.Oil.Sands.tenures.may.be.cancelled,.subject.to.
compensation.negotiations.with.the.Government.of.Alberta..Access.
to.some.parts.of.our.current.resource.properties.may.be.restricted.
limiting.the.pace.of.development.due.to.environmental.limits.and.
thresholds..The.areas.identified.have.no.direct.impact.on.our.strategic.
plan,.on.our.current.operations.at.Foster.Creek.and.Christina.Lake,.or.
any.of.our.filed.applications..
C RIT I C AL ACCOUNTING J UDGMENTS , ESTIMATES AND ACCOUN TING P OLICIES
We.are.required.to.make.judgments,.estimates.and.assumptions.in.the.
application.of.accounting.policies.that.could.have.a.significant.impact.
on.our.financial.results..Actual.results.may.differ.from.those.estimates.
and.those.differences.may.be.material..The.estimates.and.assumptions.
used.are.subject.to.updates.based.on.experience.and.the.application.
of.new.information..Our.critical.accounting.policies.and.estimates.are.
reviewed.annually.by.the.Audit.Committee.of.the.Board..Further.details.
on.the.basis.of.presentation.and.our.significant.accounting.policies.can.
be.found.in.the.notes.to.the.Consolidated.Financial.Statements.
cash.flows.from.other.assets.or.groups.of.assets..The.classification.of.
assets.and.allocation.of.corporate.assets.into.CGUs.requires.significant.
judgment.and.interpretations..Factors.considered.in.the.classification.
include.the.integration.between.assets,.shared.infrastructures,.the.
existence.of.common.sales.points,.geography,.geologic.structure.and.
the.manner.in.which.Management.monitors.and.makes.decisions.about.
its.operations..The.recoverability.of.the.Cenovus’s.upstream,.refining.
and.corporate.assets.are.assessed.at.the.CGU.level.and.therefore.could.
have.a.significant.impact.on.impairment.losses.
CRITICAL ACCOUNTING JUDGMENTS IN APPLYING
ACCOUNTING POLICIES
Critical.judgments.are.those.judgments.made.by.Management.in.the.
process.of.applying.accounting.policies.that.have.the.most.significant.
effect.on.the.amounts.recognized.in.Cenovus’s.Consolidated..
Financial.Statements.
Exploration and Evaluation Assets
The.application.of.Cenovus’s.accounting.policy.for.exploration.and.
evaluation.expenditures.requires.judgment.in.determining.whether.it.
is.likely.that.future.economic.benefit.exists.when.activities.have.not.
reached.a.stage.where.technical.feasibility.and.commercial.viability.can.
be.reasonably.determined..Factors.such.as.drilling.results,.future.capital.
programs,.future.operating.costs.as.well.as.estimated.economically.
recoverable.reserves.are.considered..If.it.is.determined.that.an.E&E.asset.
is.no.longer.technically.feasible.or.commercially.viable.or.Management.
decides.not.to.continue.the.exploration.and.evaluation.activity,.the.
unrecoverable.costs.are.charged.to.exploration.expense..
Identification of CGUs
Cenovus’s.upstream.and.refining.assets.are.grouped.into.CGUs..CGUs.
are.defined.as.the.lowest.level.of.integrated.assets.for.which.there.
are.separately.identifiable.cash.flows.that.are.largely.independent.of.
KEY SOURCES OF ESTIMATION UNCERTAINTY
Critical.accounting.estimates.are.those.estimates.that.require.
Management.to.make.particularly.subjective.or.complex.judgments.
about.matters.that.are.inherently.uncertain..Estimates.and.underlying.
assumptions.are.reviewed.on.an.ongoing.basis.and.any.revisions.
to.accounting.estimates.are.recognized.in.the.period.in.which.the.
estimates.are.revised..The.following.are.the.key.assumptions.about.the.
future.and.other.key.sources.of.estimation.at.the.end.of.the.reporting.
period.that.changes.to.could.result.in.a.material.adjustment.to.the.
carrying.amount.of.assets.and.liabilities.within.the.next.financial.year.
Reserves
There.are.a.number.of.inherent.uncertainties.associated.with.estimating.
reserves..Reserve.estimates.are.dependent.upon.variables.including.the.
recoverable.quantities.of.hydrocarbons,.the.cost.of.the.development.
of.the.required.infrastructure.to.recover.the.hydrocarbons,.production.
costs,.estimated.selling.price.of.the.hydrocarbons.produced,.royalty.
payments.and.taxes..Changes.in.these.variables.could.significantly.
impact.the.reserve.estimates.which.would.have.a.significant.impact.
on.the.impairment.test.and.depreciation,.depletion.and.amortization.
expense.of.Cenovus’s.crude.oil.and.natural.gas.assets..Cenovus’s.
crude.oil.and.natural.gas.reserves.are.evaluated.and.reported.to.us.by.
independent.qualified.reserves.evaluators.
CEN OV US EN ERGY 2012 AN NUAL R EPORT / MAN AGE MEN T ’S DISC USSIO N AND A NA LYS IS
65
Impairment of Assets
Property,.plant.and.equipment,.E&E.assets.and.goodwill.are.assessed.
for.impairment.at.least.annually.and.when.circumstances.suggest.that.
the.carrying.amount.may.exceed.the.recoverable.amount..Assets.are.
tested.for.impairment.at.the.CGU.level..These.calculations.require.
the.use.of.estimates.and.assumptions.and.are.subject.to.change.as.
new.information.becomes.available..For.the.Company’s.upstream.
assets,.these.estimates.include.future.commodity.prices,.expected.
production.volumes,.quantity.of.reserves.and.discount.rates.as.well.
as.future.development.and.operating.costs..Recoverable.amounts.for.
the.Company’s.refining.assets.utilizes.assumptions.such.as.refinery.
throughput,.future.commodity.prices,.operating.costs,.transportation.
capacity.and.supply.and.demand.conditions..Changes.in.assumptions.
used.in.determining.the.recoverable.amount.could.affect.the.carrying.
value.of.the.related.assets..
For.impairment.testing.purposes,.goodwill.has.been.allocated.to.each.
of.the.CGUs.to.which.it.relates.
At.December.31,.2012,.the.recoverable.amounts.of.Cenovus’s.upstream.
CGUs.were.determined.based.on.fair.value.less.costs.to.sell..Key.
assumptions.in.the.determination.of.cash.flows.from.reserves.include.
reserves.as.estimated.by.Cenovus’s.independent.qualified.reserves.
evaluators,.crude.oil.and.natural.gas.prices.and.the.discount.rate.
OiL AND NATURAL GAS PRiCES
The.future.prices.used.to.determine.cash.flows.from.oil.and.gas.reserves.are.as.follows:
.
.
.
.
.
.
.
.
.
.
.
..
WTI (US$/barrel).
AECO ($ / M c f ).
.
.
.
2013.
92.50.
3.35.
.
.
.
2014.
92.50.
3.85.
.
.
.
2015.
93.60.
4.35.
.
.
.
2016.
95.50.
4.70.
. Average.Annual.
Percent.
.
Change.to.
.
2024
2017.
2%
97.40.
3%
5.10.
DiSCOUNT RATE
Evaluations.of.discounted.future.cash.flow.generally.use,.as.a.starting.
point,.the.discount.rate.of.10.percent.which.is.an.industry.standard.
rate.used.by.independent.qualified.reserve.evaluators.in.preparing.
their.reserve.reports..Based.on.the.individual.characteristics.of.the.
asset,.other.economic.and.operating.factors.are.also.considered.
which.may.increase.or.decrease.the.implied.discount.rate..Changes.
in.the.economic.conditions.could.significantly.change.the.estimated.
recoverable.amount..
Decommissioning Costs
Provisions.are.recognized.for.the.future.decommissioning.and.
restoration.of.Cenovus’s.upstream.crude.oil.and.natural.gas.assets.and.
refining.assets.at.the.end.of.their.economic.lives..Assumptions.have.
been.made.to.estimate.the.future.liability.based.on.past.experience.and.
current.economic.factors.which.Management.believes.are.reasonable..
However,.the.actual.cost.of.decommissioning.is.uncertain.and.cost.
estimates.may.change.in.response.to.numerous.factors.including.
changes.in.legal.requirements,.technological.advances,.inflation.and.
the.timing.of.expected.decommissioning.and.restoration..In.addition,.
Management.determines.the.appropriate.discount.rate.at.the.end.of.
each.reporting.period..This.discount.rate,.which.is.credit.adjusted,.
is.used.to.determine.the.present.value.of.the.estimated.future.cash.
outflows.required.to.settle.the.obligation.and.may.change.in.response.
to.numerous.market.factors..During.the.year.ended.December.31,.
2012,.the.decommissioning.liability.increased.$417.million.as.a.
result.of.changes.in.the.discount.rate,.the.timing.of.settlement.and.
the.estimated.costs.that.will.arise.on.settlement..Details.on.the.
assumptions.used.in.determining.decommissioning.liabilities.can.be.
found.in.the.notes.to.the.Consolidated.Financial.Statements..
Income Tax Provisions
Tax.regulations.and.legislation.and.the.interpretations.thereof.in.the.
various.jurisdictions.in.which.Cenovus.operates.are.subject.to.change..
As.a.result,.there.are.usually.a.number.of.tax.matters.under.review...
As.such,.income.taxes.are.subject.to.measurement.uncertainty..
Deferred.income.tax.assets.are.recognized.to.the.extent.that.it.is.
probable.that.the.deductible.temporary.differences.will.be.recoverable.
in.future.periods..The.recoverability.assessment.involves.a.significant.
amount.of.estimation.including.an.evaluation.of.when.the.temporary.
differences.will.reverse,.an.analysis.of.the.amount.of.future.taxable.
earnings,.the.availability.of.cash.flow.to.offset.the.tax.assets.when.
the.reversal.occurs.and.the.application.of.tax.laws..There.are.some.
transactions.for.which.the.ultimate.tax.determination.is.uncertain..
To.the.extent.that.assumptions.used.in.the.recoverability.assessment.
change,.there.may.be.a.significant.impact.on.the.Consolidated.Financial.
Statements.of.future.periods.
66
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
CHANGES IN ACCOUNTING POLICIES AND FUTURE
ACCOUNTING PRONOUNCEMENTS
During.the.year.ended.December.31,.2012,.Cenovus.did.not.adopt.any.
new.accounting.policies..
The.following.summarizes.the.future.accounting.pronouncements.that.
will.impact.Cenovus..We.will.adopt.each.of.the.following.accounting.
pronouncements.on.the.effective.date..Unless.otherwise.stated.below,.
the.impact.of.the.initial.application.of.the.standards.listed.was.not.
known.or.reasonably.estimable.at.the.time.of.authorization.of.the.
Consolidated.Financial.Statements.
Joint Arrangements, Consolidation, Associates and Disclosures
In.May.2011,.the.International.Accounting.Standards.Board.(“IASB”).
issued.the.following.new.and.amended.standards:
•.
•.
.IFRS.10,.“Consolidated Financial Statements”.(“IFRS.10”).replaces..
IAS.27,.“Consolidated and Separate Financial Statements”.(“IAS.27”).
and.Standing.Interpretations.Committee.(“SIC”).12,.“Consolidation –
Special Purpose Entities”..IFRS.10.revises.the.definition.of.control.to.
include.three.elements:.(1).power.over.an.investee,.(2).exposure.to.
variable.returns.from.its.involvement.with.the.investee.and.(3).the.
ability.to.use.its.power.to.affect.returns.from.the.investee..IFRS.10.
provides.guidance.on.participating.and.protective.rights.and.also.
addresses.the.notion.of.“de.facto”.control..It.also.includes.guidance.
related.to.an.investor.with.decision.making.rights.to.determine.if.it.is.
acting.as.a.principal.or.agent..
.IFRS.11,.“Joint Arrangements”.(“IFRS.11”).replaces.IAS.31,.“Interest in
Joint Ventures”.(“IAS.31”).and.SIC.13,.“Jointly Controlled Entities –
Non-Monetary Contributions by Venturers”..Under.IFRS.11,.a.joint.
arrangement.is.classified.as.either.a.“joint.operation”.or.a.“joint.
venture”.depending.on.the.rights.and.obligations.of.the.parties.to.
the.arrangement..Under.a.joint.operation,.parties.have.rights.to.
the.assets.and.obligations.for.the.liabilities.of.the.arrangement.and.
account.for.their.share.of.assets,.liabilities,.revenues.and.expenses..
Under.a.joint.venture,.parties.have.the.rights.to.the.net.assets.of.the.
arrangement.and.account.for.the.arrangement.as.an.investment.using.
the.equity.method.
•.
.IFRS.12,.“Disclosure of Interest in Other Entities”.(“IFRS.12”).replaces.
the.disclosure.requirements.previously.included.in.IAS.27,.IAS.31.and.
IAS.28,.“Investments in Associates”..It.sets.out.the.extensive.disclosure.
requirements.relating.to.an.entity’s.interests.in.subsidiaries,.joint.
arrangements,.associates.and.unconsolidated.structured.entities.
•.
.IAS.27,.“Separate Financial Statements”.has.been.amended.to.
conform.to.the.changes.made.in.IFRS.10,.but.retains.the.current.
guidance.for.separate.financial.statements.
•.
.IAS.28,.“Investments in Associates and Joint Ventures”.has.been.
amended.to.conform.to.the.changes.made.in.IFRS.10.and.IFRS.11.
The.above.standards.are.effective.for.annual.periods.beginning.on.or.
after.January.1,.2013.and.must.be.adopted.concurrently..It.is.anticipated.
that.the.application.of.these.five.standards.will.not.have.a.significant.
impact.on.the.Consolidated.Financial.Statements.
Cenovus.performed.a.comprehensive.review.of.its.interest.in.other.
entities.and.identified.two.individually.significant.interests,.FCCL.
and.WRB,.for.which.it.shares.joint.control..Cenovus.reviewed.these.
joint.arrangements.considering.their.structure,.the.legal.forms.of.any.
separate.vehicles,.the.contractual.terms.of.the.arrangements.and.other.
facts.and.circumstances..The.application.of.Cenovus’s.accounting.policy.
under.IFRS.11.requires.judgment.in.determining.the.classification.of.its.
joint.arrangements..It.was.determined.that.Cenovus.has.rights.to.the.
assets.and.obligations.for.the.liabilities.of.FCCL.and.WRB..As.a.result,.
these.joint.arrangements.will.be.classified.as.joint.operations.under..
IFRS.11.and.Cenovus’s.share.of.the.assets,.liabilities,.revenues.and.
expenses.will.be.recognized.in.the.Consolidated.Financial.Statements.
In.determining.the.classification.of.its.joint.arrangements.under.IFRS.11,.
Cenovus.considered.the.following:
•.
•.
•.
•.
.The.intention.of.the.transaction.creating.FCCL.and.WRB.was.to.form.
an.integrated.North.American.heavy.oil.business..The.integrated.
business.was.structured,.initially.on.a.tax.neutral.basis,.through.two.
partnerships.due.to.the.assets.residing.in.different.tax.jurisdictions..
Partnerships.are.“flow-through”.entities.which.have.a.limited.life.
.The.Partnership.agreements.require.the.partners.(Cenovus.and.
ConocoPhillips.or.Phillips.66).to.make.contributions.if.funds.are.
insufficient.to.meet.the.obligations.or.liabilities.of.the.partnership..
The.past.and.future.development.of.FCCL.and.WRB.is.dependent.on.
funding.from.the.partners.by.way.of.partnership.notes.payable.and.
loans..The.partnerships.do.not.have.any.third.party.borrowings.
.FCCL.operates.like.most.typical.western.Canadian.working.interest.
relationships.where.the.operating.partner.takes.product.on.behalf.of.
the.participants..WRB.has.a.very.similar.structure.modified.only.to.
account.for.the.operating.environment.of.the.refining.business..
.Cenovus.and.Phillips.66,.through.wholly-owned.subsidiaries,.provide.
marketing.services,.purchase.necessary.feedstock.and.arrange.for.
transportation.and.storage.on.the.partners’.behalf.as.the.agreements.
prohibit.the.partnerships.from.undertaking.these.roles.themselves..
In.addition,.the.partnerships.do.not.have.employees.and.as.such.are.
not.capable.of.performing.these.roles.
•.
.In.each.arrangement,.output.is.taken.by.one.of.the.partners,.indicating.
that.the.partners.have.rights.to.the.economic.benefits.of.the.assets.
and.the.obligation.for.funding.the.liabilities.of.the.arrangements..
CEN OV US EN ERGY 2012 AN NUAL R EPORT / MAN AGE MEN T ’S DISC USSIO N AND A NA LYS IS
67
Employee Benefits
In.June.2011,.the.IASB.amended.IAS.19,.“Employee Benefits”.(“IAS.19”)..
The.amendments.require.the.recognition.of.changes.in.defined.benefit.
obligations.and.fair.value.of.plan.assets.when.they.occur,.eliminating.
the.‘corridor.approach’,.and.accelerates.the.recognition.of.past.service.
costs..In.order.for.the.net.defined.benefit.liability.or.asset.to.reflect.the.
full.value.of.the.plan.deficit.or.surplus,.all.actuarial.gains.and.losses.are.
to.be.recognized.immediately.through.Other.Comprehensive.Income.
(“OCI”)..In.addition,.entities.will.be.required.to.calculate.net.interest.on.
the.net.defined.benefit.liability.or.asset.using.the.same.discount.rate.
used.to.measure.the.defined.benefit.obligation..The.amendments.also.
enhance.financial.statement.disclosures..
The.amendments.to.IAS.19.require.retrospective.application..Based.on.
Cenovus’s.preliminary.assessment,.when.the.amendments.are.applied.
for.the.first.time.for.the.year.ending.December.31,.2013,.net.earnings.
for.the.year.ended.December.31,.2012.would.increase.$1.million.and.
other.comprehensive.income.after.tax.would.decrease.by.$3.million.
(2011.–.$nil.and.decrease.$12.million,.respectively)..Shareholders’.equity.
as.at.December.31,.2012.would.decrease.$24.million.(January.1,.2012.–.
decrease.$22.million).with.corresponding.adjustments.being.recognized.
in.other.liabilities.and.deferred.income.tax.liability.
Fair Value Measurement
In.May.2011,.the.IASB.issued.IFRS.13,.“Fair Value Measurement”..
(“IFRS.13”).which.provides.a.consistent.and.less.complex.definition.of.
fair.value,.establishes.a.single.source.for.determining.fair.value.and.
introduces.consistent.requirements.for.disclosures.related.to.fair.value.
measurement..IFRS.13.is.effective.for.annual.periods.beginning.on.or.
after.January.1,.2013.and.applies.prospectively.from.the.beginning.of.
the.annual.period.in.which.the.standard.is.adopted..Early.adoption.is.
permitted..IFRS.13.will.not.have.a.significant.impact.on.the.Consolidated.
Financial.Statements.
Financial Instruments
The.IASB.intends.to.replace.IAS.39,.“Financial Instruments: Recognition
and Measurement”.(“IAS.39”).with.IFRS.9,.“Financial Instruments”..
(“IFRS.9”)..IFRS.9.will.be.published.in.three.phases,.of.which.the.first.
phase.has.been.published..
The.first.phase.addresses.the.accounting.for.financial.assets.and.
financial.liabilities..The.second.phase.will.address.the.impairment.of.
financial.instruments.and.the.third.phase.will.address.hedge.accounting.
For.financial.assets,.IFRS.9.uses.a.single.approach.to.determine.whether.
a.financial.asset.is.measured.at.amortized.cost.or.fair.value.and.replaces.
the.multiple.rules.in.IAS.39..The.approach.in.IFRS.9.is.based.on.how.an.
entity.manages.its.financial.instruments.in.the.context.of.its.business.
model.and.the.contractual.cash.flow.characteristics.of.the.financial.
assets..The.new.standard.also.requires.a.single.impairment.method..
to.be.used,.replacing.the.multiple.impairment.methods.in.IAS.39...
For.financial.liabilities,.although.the.classification.criteria.for.financial.
liabilities.will.not.change.under.IFRS.9,.the.approach.to.the.fair.value.
option.for.financial.liabilities.may.require.different.accounting.for.
changes.to.the.fair.value.of.a.financial.liability.as.a.result.of.changes..
to.an.entity’s.own.credit.risk..
IFRS.9.is.effective.for.annual.periods.beginning.on.or.after.January.1,.
2015.with.different.transitional.arrangements.depending.on.the.date.
of.initial.application..Cenovus.is.currently.evaluating.the.impact.of.
adopting.IFRS.9.on.its.Consolidated.Financial.Statements.
Presentation of Items of Other Comprehensive Income
In.June.2011,.the.IASB.issued.an.amendment.to.IAS.1,.“Presentation of
Financial Statements”.(“IAS.1”).requiring.companies.to.group.items.
presented.within.Other.Comprehensive.Income.based.on.whether.they.
may.be.subsequently.reclassified.to.profit.or.loss..This.amendment.to.
IAS.1.is.effective.for.annual.periods.beginning.on.or.after.July.1,.2012.
with.full.retrospective.application..Early.adoption.is.permitted..The.
adoption.of.this.amendment.will.not.have.a.significant.impact.on.the.
Consolidated.Financial.Statements.
Offsetting Financial Assets and Financial Liabilities
In.December.2011,.the.IASB.issued.the.following.amended.standards:
•.
•.
.IFRS.7,.“Financial Instruments: Disclosures”.(“IFRS.7”),.has.been.
amended.to.provide.more.extensive.quantitative.disclosures.for.
financial.instruments.that.are.offset.in.the.statement.of.financial.
position.or.that.are.subject.to.enforceable.master.netting.or..
similar.arrangements.
.IAS.32,.“Financial Instruments: Presentation”.(“IAS.32”),.has.been.
amended.to.clarify.the.requirements.for.offsetting.financial.assets.
and.liabilities..The.amendments.clarify.that.the.right.to.offset.must.
be.available.on.the.current.date.and.cannot.be.contingent.on.a.
future.event.
The.amendments.to.IFRS.7.are.effective.for.annual.periods.beginning.
on.or.after.January.1,.2013.and.the.amendments.to.IAS.32.are.effective.
for.annual.periods.beginning.on.or.after.January.1,.2014,.both.requiring.
retrospective.application..It.is.anticipated.that.IFRS.7.and.IAS.32.will.not.
have.significant.impacts.on.the.Consolidated.Financial.Statements..
68
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
CO NT ROL ENVIRONMENT
Management,.including.our.President.&.Chief.Executive.Officer.and.
Executive.Vice-President.&.Chief.Financial.Officer,.has.assessed.the.design.
and.effectiveness.of.internal.control.over.financial.reporting.(“ICFR”).and.
disclosure.controls.and.procedures.(“DC&P”).as.at.December.31,.2012..
Based.on.their.evaluation,.Management.has.concluded.that.both.ICFR.
and.DC&P.were.effective.as.at.December.31,.2012.
The.effectiveness.of.our.ICFR.was.audited.by.PricewaterhouseCoopers.
LLP,.an.independent.firm.of.chartered.accountants,.as.stated.in.their.
Independent.Auditor’s.Report,.which.is.included.in.our.audited.
Consolidated.Financial.Statements.for.the.year.ended.December.31,.2012.
There.have.been.no.changes.to.ICFR.during.the.year.ended.December.31,.
2012.that.have.materially.affected,.or.are.reasonably.likely.to.materially.
affect,.ICFR.
Internal.control.systems,.no.matter.how.well.designed,.have.inherent.
limitations..Therefore,.even.those.systems.determined.to.be.effective.can.
provide.only.reasonable.assurance.with.respect.to.financial.statement.
preparation.and.presentation..Also,.projections.of.any.evaluation.of.
effectiveness.to.future.periods.are.subject.to.the.risk.that.controls.may.
become.inadequate.because.of.changes.in.conditions,.or.that.the.degree.
of.compliance.with.the.policies.or.procedures.may.deteriorate.
T RAN S PARENC Y AND CORP ORATE RESPON SIB ILITY
We.are.committed.to.operating.in.a.responsible.manner.and.to.
integrating.our.corporate.responsibility.principles.into.the.way.we.
conduct.our.business..We.recognize.the.importance.of.reporting.to.
stakeholders.in.a.transparent.and.accountable.manner..We.disclose.
not.only.the.information.we.are.required.to.disclose.by.legislation.or.
regulatory.authorities,.but.also.information.that.more.broadly.describes.
our.activities,.policies,.opportunities.and.risks..
Our.Corporate.Responsibility.(“CR”).policy.continues.to.drive.our.
commitments,.strategy.and.reporting,.and.enables.alignment.with.our.
business.objectives.and.processes..Our.future.CR.reporting.activities.
will.be.guided.by.this.policy.and.will.focus.on.improving.performance.
by.continuing.to.track,.measure.and.monitor.our.CR.performance.
indicators..This.policy.is.available.on.our.website.at.www.cenovus.com.
Our.CR.policy.focuses.on.six.commitment.areas:.(i).Leadership;..
(ii).Corporate.Governance.and.Business.Practices;.(iii).People;..
(iv).Environmental.Performance;.(v).Stakeholder.and.Aboriginal.
Engagement.and.(vi).Community.Involvement.and.Investment..We.
will.continue.to.externally.report.on.our.performance.in.these.areas.
through.our.annual.CR.report..
The.CR.policy.emphasizes.our.commitment.to.protect.the.health.
and.safety.of.all.individuals.affected.by.our.activities,.including.our.
workforce.and.the.communities.where.we.operate..We.will.not.
compromise.the.health.and.safety.of.any.individual.in.the.conduct.
of.our.activities..We.will.strive.to.provide.a.safe.and.healthy.work.
environment.and.we.expect.our.workers.to.comply.with.the.health.
and.safety.practices.established.for.their.protection..Additionally,.the.
CR.policy.includes.reference.to.emergency.response.management,.
investment.in.efficiency.projects,.new.technologies.and.research.and.
support.of.the.principles.of.the.Universal.Declaration.of.Human.Rights.
As.our.CR.reporting.process.matures,.indicators.will.be.developed.and.
integrated.in.our.CR.reporting.that.better.reflect.Cenovus’s.operations.
and.challenges..Our.online.presence.will.be.expanded.through.the.
corporate.responsibility.section.of.our.website..Our.Corporate.
Responsibility.Report.can.be.found.on.our.website.at.www.cenovus.com..
This.report.was.aligned.with.the.Global.Reporting.Initiative.guidelines.
and.the.standards.set.by.the.Canadian.Association.of.Petroleum.
Producers.in.its.Responsible.Canadian.Energy.program.
In.September.2012,.we.were.named.to.the.Dow.Jones.Sustainability.
World.Index.(“DJSI.World”).for.the.first.time.and.to.the.Dow.Jones.
Sustainability.North.America.Index.for.the.third.year.in.a.row..We.were.
the.only.Canadian.integrated.oil.and.gas.company.listed.to.the.DJSI.
World.in.2012..DJSI.World.recognizes.the.top.10.percent.of.the.2,500.
largest.companies.in.the.Dow.Jones.Global.Total.Stock.Market.Index.
that.lead.the.field.in.terms.of.corporate.responsibility.performance..In.
October.2012,.for.the.third.year.in.a.row,.Cenovus.was.recognized.for.
leadership.in.GHG.emissions.reporting.by.being.included.in.the.2012.
Carbon.Disclosure.Leadership.Index.for.Canada..In.January.2013,.we.
were.named.for.the.first.time.to.the.Corporate.Knights.Global.100.list.
for.2013,.which.recognizes.the.world’s.most.sustainable.corporations.
CEN OV US EN ERGY 2012 AN NUAL R EPORT / MAN AGE MEN T ’S DISC USSIO N A ND ANALYSI S
69
OUT LO OK
We.continue.to.move.forward.on.our.10.year.strategic.plan.targeting.
net.oil.sands.bitumen.production.of.approximately.400,000.barrels.per.
day.and.total.net.oil.production.of.approximately.500,000.barrels.per.
day.by.the.end.of.2021..To.achieve.our.development.plans,.additional.
expansions.are.planned.at.Foster.Creek,.Christina.Lake.and.Narrows.
Lake,.as.well.as.new.projects.at.Grand.Rapids.and.Telephone.Lake..We.
will.continue.the.development.of.our.oil.sands.resources.in.multiple.
phases.using.a.low.cost.manufacturing-like.approach.enabled.by.
technology,.innovation.and.continued.respect.for.the.health.and.safety.
of.our.employees.with.an.emphasis.on.environmental.performance.and.
meaningful.dialogue.with.our.stakeholders.
COMMODITY PRICES UNDERLYING OUR FINANCIAL RESULTS
Our.crude.oil.pricing.outlook.is.influenced.by.the.following:.
•.
•.
•.
•.
•.
.The.general.outlook.for.crude.oil.prices.will.continue.to.be.tied..
to.global.economic.growth.and.production.interruptions...
Short-term.prices.are.likely.to.remain.volatile.and.be.impacted..
by.market.expectations;
.Brent-WTI.differentials.are.expected.to.narrow.over.the.first.half.
of.2013.as.new.pipeline.capacity.is.added.to.move.crude.oil.from.
Cushing.to.U.S..Gulf.Coast.markets;
.WCS.prices.should.weaken.relative.to.U.S..Gulf.Coast.pricing.as.
inland.crude.oil.supply.continues.to.grow.at.a.faster.pace.than.
rail.and.pipeline.takeaway.capacity..Although.all.WCSB.crude.oil.
should.show.downward.price.pressure,.heavy.grades.should.perform.
somewhat.better.in.the.latter.half.of.2013.once.new.coking.capacity.
is.added.in.the.U.S..Midwest;. .
.Refining.crack.margins.are.projected.to.soften.in.2013.when.new.
pipeline.capacity.out.of.Cushing.should.cause.WTI.crude.oil.
discounts.to.moderate..Refiners.processing.WCSB.crude.oil.should.
continue.to.see.strong.margins;.and
.Natural.gas.prices.should.continue.to.firm,.provided.weather.remains.
near.historic.norms,.as.supply.growth.moderates.with.reduced.
activity.and.demand.growth.continues.due.to.still.very.competitive.
North.American.gas.pricing.
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.
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120
11 0
10 0
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70
60
50
40
Q4 20 12
Q1 20 13
Q2 2013
Q3 2013
Q 4 2013
FORWARD PRICES AT DECEMBER 31 , 20 12
BRENT
C5 @ EDMONTON
W TI
WCS
While.we.expect.to.see.volatility.in.crude.prices.we.mitigate.our.
exposure.to.light/heavy.price.differentials.through.the.following:
•.
•.
•.
•.
.Integration.–.having.heavy.oil.refining.capacity.able.to.process.
Canadian.heavy.crudes..From.a.value.perspective,.our.refining.
business.is.able.to.capture.value.from.both.the.WTI-WCS.differential.
for.Canadian.crude.and.the.Brent-WTI.differential.from.the.sale.of.
refined.products.which.are.closely.tied.to.Brent.pricing;
.Financial.hedge.transactions.–.protecting.our.upstream.crude.prices.
from.downside.risk.by.entering.into.financial.transactions.that.fix.the.
WTI-WCS.differential;
.Marketing.arrangements.–.protecting.our.upstream.crude.prices.
by.entering.into.physical.supply.transactions.with.fixed.price.
components.directly.with.refiners;.and.
.Transportation.commitments.–.supporting.transportation.projects.
that.move.crude.oil.from.our.production.areas.to.consuming.markets.
and.also.to.tidewater.markets.
70
CENOVUS ENERGY 2012 ANNUAL RE PO RT / MANAG EM ENT ’S DISCUSSIO N AN D A NALYSIS
Protection Against Canadian Congestion
Other Key Challenges
)
y
a
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/
s
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b
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M
(
240
200
160
120
80
40
0
Transportation
commitments
Managed price exposure
• hedging contracts
• marketing arrangements
Integrated volumes
• heavy oil processing
capacity
2011
2012
2013F (1)
BLENDED BITUMEN
BLENDED CONVENTIONA L HE AVY
(1). Expected.gross.production.capacity
KEY PRIORITIES FOR 2013
Market Access
We.are.focused.on.near.and.mid-term.strategies.to.broaden.market.
access.for.Canadian.oil..This.will.allow.us.to.build.on.our.successful.
marketing.and.transportation.strategy.and.broaden.the.portfolio.of.
market.opportunities.for.our.growing.production..This.will.include.
increasing.our.rail.shipping.capacity.for.oil.to.approximately.10,000.
barrels.per.day,.committing.to.industry.transportation.projects.as.well.
as.new.and.expanded.market.development.initiatives.for.our.crude.oil.
Attacking Cost Structures
We.have.a.track.record.of.cost.efficiency..To.continue.to.meet.our.
business.plan,.we.must.ensure.that,.over.the.long.term,.we.maintain.
an.efficient.and.sustainable.cost.structure.and.take.advantage.of.our.
business.model..For.example,.we.have.a.number.of.opportunities.to.
improve.our.cost.efficiency.by.further.leveraging.our.supply.chain.
management.to.improve.capital.and.operating.costs.
We.will.need.to.effectively.manage.our.business.to.support.our.
development.plans.including.timely.regulatory.and.partner.approvals,.
environmental.regulations.and.competitive.pressures.within.our.
industry..Additional.details.regarding.the.impact.of.these.factors.on.our.
financial.results.are.discussed.in.the.Risk.Management.section.of.this.
MD&A..We.also.direct.our.shareholders.to.review.the.guidance.for.2013.
that.we.published.on.our.website,.www.cenovus.com,.in.connection.
with.our.December.2012.news.release.
CAPITAL ALLOCATION IN THE FUTURE
We.will.continue.to.develop.our.strategy.with.respect.to.capital.
investment.and.returns.to.shareholders..We.believe.that.strong.
operational.performance.will.translate.into.solid.financial.performance..
Future.cash.flow.will.continue.to.be.allocated.using.a.disciplined.
approached,.focusing.on.the.following.priorities:
•.
•.
•.
.First,.to.committed.capital,.which.is.the.capital.spending.required.
for.continued.progress.on.approved.expansions.at.our.multi-phase.
projects,.and.capital.for.our.existing.business.operations;
.Second.to.paying.a.meaningful.dividend.as.part.of.providing.strong.
total.shareholder.return;.and
.Third.for.growth.capital,.which.is.the.capital.spending.for.projects.
beyond.our.committed.capital.projects.
This.capital.allocation.process.includes.evaluating.all.opportunities.
using.specific.rigorous.criteria.as.well.as.achieving.our.objectives.of.
maintaining.a.prudent.and.flexible.capital.structure.and.strong.balance.
sheet.metrics.which.allow.us.to.be.financially.resilient.in.times.of..
lower.cash.flow..
Future.dividends.are.at.the.sole.discretion.of.the.Board.and..
considered.quarterly.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / MA NAGEM ENT ’S DISCU SSION AND AN ALYSIS
7 1
CON SOLIDATED
F I NA NCIAL STATEMENTS
R EPORT OF M A NAGEM ENT
MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
The.accompanying.Consolidated.Financial.Statements.of.Cenovus.
Energy.Inc..are.the.responsibility.of.Management..The.Consolidated.
Financial.Statements.have.been.prepared.by.Management.in.Canadian.
dollars.in.accordance.with.International.Financial.Reporting.Standards.
as.issued.by.the.International.Accounting.Standards.Board.and.include.
certain.estimates.that.reflect.Management’s.best.judgments..
The.Board.of.Directors.has.approved.the.information.contained.in.the.
Consolidated.Financial.Statements..The.Board.of.Directors.fulfills.its.
responsibility.regarding.the.financial.statements.mainly.through.its..
Audit.Committee.which.is.made.up.of.three.independent.directors...
The.Audit.Committee.has.a.written.mandate.that.complies.with.the.
current.requirements.of.Canadian.securities.legislation.and.the.United.
States.Sarbanes-Oxley Act of 2002.and.voluntarily.complies,.in.principle,.
with.the.Audit.Committee.guidelines.of.the.New.York.Stock.Exchange..
The.Audit.Committee.meets.with.Management.and.the.independent.
auditors.on.at.least.a.quarterly.basis.to.review.and.approve.interim.
Consolidated.Financial.Statements.and.Management’s.Discussion.and.
Analysis.prior.to.their.public.release.as.well.as.annually.to.review.the.
annual.Consolidated.Financial.Statements.and.Management’s.Discussion.
and.Analysis.and.recommend.their.approval.to.the.Board.of.Directors.
MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING
Management.is.also.responsible.for.establishing.and.maintaining.
adequate.internal.control.over.financial.reporting..The.internal.control.
system.was.designed.to.provide.reasonable.assurance.to.Management.
regarding.the.preparation.and.presentation.of.the.Consolidated.
Financial.Statements.
Internal.control.systems,.no.matter.how.well.designed,.have.inherent.
limitations..Therefore,.even.those.systems.determined.to.be.effective.
can.provide.only.reasonable.assurance.with.respect.to.financial.
statement.preparation.and.presentation..Also,.projections.of.any.
evaluation.of.effectiveness.to.future.periods.are.subject.to.the.risk.that.
controls.may.become.inadequate.because.of.changes.in.conditions,.or.
that.the.degree.of.compliance.with.the.policies.or.procedures..
may.deteriorate.
Management.has.assessed.the.design.and.effectiveness.of.internal.
control.over.financial.reporting.as.at.December.31,.2012..In.making.
its.assessment,.Management.has.used.the.Committee.of.Sponsoring.
Organizations.of.the.Treadway.Commission.(“COSO”).framework.in.
Internal.Control.–.Integrated.Framework.to.evaluate.the.design.and.
effectiveness.of.internal.control.over.financial.reporting..Based.on.
our.evaluation,.Management.has.concluded.that.internal.control.over.
financial.reporting.was.effective.as.at.December.31,.2012.
PricewaterhouseCoopers.LLP,.an.independent.firm.of.Chartered.
Accountants,.was.appointed.to.audit.and.provide.independent.opinions.
on.both.the.Consolidated.Financial.Statements.and.internal.control.
over.financial.reporting.as.at.December.31,.2012,.as.stated.in.their.
Auditor’s.Report.dated.February.13,.2013..PricewaterhouseCoopers.LLP.
has.provided.such.opinions.
BR iAN C . F ERGUSON
President.&.
Chief.Executive.Officer.
Cenovus.Energy.Inc..
February.13,.2013.
iVO R M. RUSTE
Executive.Vice-President.&
Chief.Financial.Officer
Cenovus.Energy.Inc.
72
CENOVUS ENERGY 2012 ANNUAL RE PO RT / CONSOLIDATED FINANCIAL STATEMEN TS
I N DE P ENDENT A UDI TOR’S R EPORT
TO THE SHAREHOLDERS OF CENOVUS ENERGY INC.
We.have.completed.an.integrated.audit.of.Cenovus.Energy.Inc.’s.2012.and.2011.Consolidated.Financial.Statements.and.its.internal.control.over.
financial.reporting.as.at.December.31,.2012.and.an.audit.of.its.2010.Consolidated.Financial.Statements..Our.opinions,.based.on.our.audits,.are.
presented.below.
REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
We.have.audited.the.accompanying.Consolidated.Financial.Statements.
of.Cenovus.Energy.Inc.,.which.comprise.the.Consolidated.Balance.
Sheets.as.at.December.31,.2012.and.December.31,.2011.and.the.
Consolidated.Statements.of.Earnings.and.Comprehensive.Income,.
Shareholders’.Equity.and.Cash.Flows.for.each.of.the.three.years.in.the.
period.ended.December.31,.2012,.and.the.related.notes,.which..
comprise.a.summary.of.significant.accounting.policies.and.other.
explanatory.information.
MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED
FINANCIAL STATEMENTS
Management.is.responsible.for.the.preparation.and.fair.presentation.
of.these.Consolidated.Financial.Statements.in.accordance.with.
International.Financial.Reporting.Standards.as.issued.by.the.
International.Accounting.Standards.Board.and.for.such.internal.control.
as.management.determines.is.necessary.to.enable.the.preparation.
of.consolidated.financial.statements.that.are.free.from.material.
misstatement,.whether.due.to.fraud.or.error.
AUDITOR’S RESPONSIBILITY
Our.responsibility.is.to.express.an.opinion.on.these.Consolidated.
Financial.Statements.based.on.our.audits..We.conducted.our.audits.
in.accordance.with.Canadian.generally.accepted.auditing.standards.
and.the.standards.of.the.Public.Company.Accounting.Oversight.Board.
(United.States)..Those.standards.require.that.we.plan.and.perform.an.
audit.to.obtain.reasonable.assurance.about.whether.the.consolidated.
financial.statements.are.free.from.material.misstatement..Canadian.
generally.accepted.auditing.standards.require.that.we.comply.with.
ethical.requirements.
An.audit.involves.performing.procedures.to.obtain.audit.evidence,.on.
a.test.basis,.about.the.amounts.and.disclosures.in.the.consolidated.
financial.statements..The.procedures.selected.depend.on.the.
auditor’s.judgment,.including.the.assessment.of.the.risks.of.material.
misstatement.of.the.consolidated.financial.statements,.whether.due.to.
fraud.or.error..In.making.those.risk.assessments,.the.auditor.considers.
internal.control.relevant.to.the.company’s.preparation.and.fair.
presentation.of.the.consolidated.financial.statements.in.order.to.design.
audit.procedures.that.are.appropriate.in.the.circumstances..An.audit.
also.includes.evaluating.the.appropriateness.of.accounting.principles.
and.policies.used.and.the.reasonableness.of.accounting.estimates.made.
by.management,.as.well.as.evaluating.the.overall.presentation.of.the.
consolidated.financial.statements.
We.believe.that.the.audit.evidence.we.have.obtained.in.our.audits.is.
sufficient.and.appropriate.to.provide.a.basis.for.our.audit.opinion.on.
the.Consolidated.Financial.Statements.
OPINION
In.our.opinion,.the.Consolidated.Financial.Statements.present.fairly,.in.
all.material.respects,.the.financial.position.of.Cenovus.Energy.Inc..as.at.
December.31,.2012.and.December.31,.2011.and.its.financial.performance.
and.cash.flows.for.each.of.the.three.years.in.the.period.ended.
December.31,.2012.in.accordance.with.International.Financial.Reporting.
Standards.as.issued.by.the.International.Accounting.Standards.Board.
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
We.have.also.audited.Cenovus.Energy.Inc.’s.internal.control.over.
financial.reporting.as.at.December.31,.2012,.based.on.criteria.established.
in.Internal.Control.–.Integrated.Framework,.issued.by.the.Committee.of.
Sponsoring.Organizations.of.the.Treadway.Commission.(“COSO”)..
MANAGEMENT’S RESPONSIBILITY FOR INTERNAL CONTROL
OVER FINANCIAL REPORTING
Management.is.responsible.for.maintaining.effective.internal.control.
over.financial.reporting.and.for.its.assessment.of.the.effectiveness.of.
internal.control.over.financial.reporting.included.in.the.accompanying.
Report.of.Management.
AUDITOR’S RESPONSIBILITY
Our.responsibility.is.to.express.an.opinion.on.the.Company’s.internal.
control.over.financial.reporting.based.on.our.audit..We.conducted.our.
audit.of.internal.control.over.financial.reporting.in.accordance.with.the.
standards.of.the.Public.Company.Accounting.Oversight.Board.(United.
States)..Those.standards.require.that.we.plan.and.perform.the.audit.to.
obtain.reasonable.assurance.about.whether.effective.internal.control.
over.financial.reporting.was.maintained.in.all.material.respects.
An.audit.of.internal.control.over.financial.reporting.includes.obtaining.
an.understanding.of.internal.control.over.financial.reporting,.assessing.
the.risk.that.a.material.weakness.exists,.testing.and.evaluating.the.
design.and.operating.effectiveness.of.internal.control,.based.on.the.
assessed.risk,.and.performing.such.other.procedures.as.we.consider.
necessary.in.the.circumstances.
We.believe.that.our.audit.provides.a.reasonable.basis.for.our.audit.
opinion.on.the.Company’s.internal.control.over.financial.reporting..
CEN OV US EN ERGY 2012 AN NUAL R EPORT / CO NSOLIDATED FINA NCIA L STATE MENTS
73
DEFINITION OF INTERNAL CONTROL OVER
FINANCIAL REPORTING
A.company’s.internal.control.over.financial.reporting.is.a.process.
designed.to.provide.reasonable.assurance.regarding.the.reliability.of.
financial.reporting.and.the.preparation.of.financial.statements.for.
external.purposes.in.accordance.with.generally.accepted.accounting.
principles..A.company’s.internal.control.over.financial.reporting.includes.
those.policies.and.procedures.that:.(i).pertain.to.the.maintenance.
of.records.that,.in.reasonable.detail,.accurately.and.fairly.reflect.the.
transactions.and.dispositions.of.the.assets.of.the.company;.(ii).provide.
reasonable.assurance.that.transactions.are.recorded.as.necessary.to.
permit.preparation.of.financial.statements.in.accordance.with.generally.
accepted.accounting.principles,.and.that.receipts.and.expenditures.of.
the.company.are.being.made.only.in.accordance.with.authorizations.of.
management.and.directors.of.the.company;.and.(iii).provide.reasonable.
assurance.regarding.prevention.or.timely.detection.of.unauthorized.
acquisition,.use,.or.disposition.of.the.company’s.assets.that.could.have.
a.material.effect.on.the.financial.statements.
INHERENT LIMITATIONS
Because.of.its.inherent.limitations,.internal.control.over.financial.
reporting.may.not.prevent.or.detect.misstatements..Also,.projections.of.
any.evaluation.of.effectiveness.to.future.periods.are.subject.to.the.risk.
that.controls.may.become.inadequate.because.of.changes.in.conditions.
or.that.the.degree.of.compliance.with.the.policies.or.procedures..
may.deteriorate.
OPINION
In.our.opinion,.Cenovus.Energy.Inc..maintained,.in.all.material.respects,.
effective.internal.control.over.financial.reporting.as.at.December.31,.
2012.based.on.criteria.established.in.Internal.Control.–.Integrated.
Framework,.issued.by.COSO.
PR iCEWATER h O USE CO OPE RS L LP
Chartered.Accountants
Calgary,.Alberta,.Canada
February.13,.2013
74
CENOVUS ENERGY 2012 ANNUAL RE PO RT / CONSOLIDATED FINANCIAL STATEMEN TS
CON SOLIDATED STATEMENTS OF E ARN INGS AND CO MPREHENSIV E INCOME
.
(Gain).Loss.on.Risk.Management..
For the year s end ed Dece m ber 3 1,.
($ mil lions, except p er share am o unts ).
Revenues.
. Gross.Sales.
. Less:.Royalties.
.
.
Expenses.
. Purchased.Product.
. Transportation.and.Blending.
. Operating.
. Production.and.Mineral.Taxes.
.
. Depreciation,.Depletion.and.Amortization.
. Goodwill.Impairment.
. Exploration.Expense.
. General.and.Administrative.
.
.
.
.
. Other.(Income).Loss,.net..
Earnings Before Income Tax.
.
Income.Tax.Expense.
Net Earnings.
Other Comprehensive Income (Loss), Net of Tax.
Foreign.Currency.Translation.Adjustment.
.
Comprehensive Income.
Finance.Costs.
Interest.Income.
Foreign.Exchange.(Gain).Loss,.net.
(Gain).Loss.on.Divestiture.of.Assets..
Net Earnings per Common Share.
. Basic.
. Diluted.
See.accompanying.Notes.to.Consolidated.Financial.Statements.
Notes.
1.
.
.
.
1.
.
.
.
.
31.
16.
19.
15.
.
5.
6.
7.
17.
.
.
8.
.
.
.
.
9.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012.
.
17,229.
387.
16,842.
.
9,223.
1,798.
1,682.
37.
(393).
1,585.
393.
68.
352.
455.
(109)
(20).
–.
(5).
1,776.
783.
993.
.
(24).
969
.
$ 1.31.
$ 1.31.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2011.
2010
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
16,185.
489.
15,696.
9,090.
1,369.
1,406.
36.
(248).
1,295.
–.
–.
295.
447.
(124).
26.
(107).
4.
2,207.
729.
1,478.
48.
1,526.
$..1.96.
$..1.95.
13,090
449
12,641
7,551
1,065
1,286
34
(324)
1,302
–
3
246
498
(144)
(51)
(116)
(13)
1,304
223
1,081
71
1,152
$..1.44
$..1.43
CEN OV US EN ERGY 2012 AN NUAL R EPORT / CO NSOLIDATED FINA NCIA L STATE MENTS
75
CON SOL IDAT ED BAL ANCE SH EETS
. Cash.and.Cash.Equivalents.
. Accounts.Receivable.and.Accrued.Revenues.
. Current.Portion.of.Partnership.Contribution.Receivable.
.
. Risk.Management.
. Assets.Held.for.Sale.
Inventories.
As a t December 31,
($ mil lions).
Assets.
Current Assets.
.
.
.
.
.
..
Current Assets.
. Exploration.and.Evaluation.Assets.
. Property,.Plant.and.Equipment,.net.
. Partnership.Contribution.Receivable.
. Risk.Management.
.
. Other.Assets.
. Goodwill.
Total Assets.
Income.Tax.Receivable.
. Accounts.Payable.and.Accrued.Liabilities.
.
. Current.Portion.of.Partnership.Contribution.Payable.
. Risk.Management.
. Liabilities.Related.to.Assets.Held.for.Sale.
Income.Tax.Payable.
Liabilities and Shareholders’ Equity .
. Current Liabilities.
..
.
.
.
.
Current Liabilities.
. Long-Term.Debt.
. Partnership.Contribution.Payable.
. Risk.Management.
. Decommissioning.Liabilities.
. Other.Liabilities.
. Deferred.Income.Taxes.
Total Liabilities.
. Shareholders’.Equity.
Total Liabilities and Shareholders’ Equity.
.
Commitments.and.Contingencies.
.
.
.
.
.
Notes.
.
.
10.
11.
12.
13.
31.
14.
.
1,.15.
1,.16.
12.
31.
.
18.
1,.19.
.
.
.
20.
.
12.
31.
14.
.
21.
12.
31.
22.
23.
8.
.
.
.
.
33.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012.
.
.
1,160.
1,464.
384.
1,288.
283.
–.
4,579.
1,285.
16,152.
1,398.
5.
–.
58 .
739.
24,216.
2,650.
217.
386.
17.
–.
3,270.
4,679.
1,426.
1.
2,315.
151.
2,568.
14,410.
9,806.
24,216.
2011
495
1,405
372
1,291
232
116
3,911
880
14,324
1,822
52
29
44
1,132
22,194
2,579
329
372
54
54
3,388
3,527
1,853
14
1,777
128
2,101
12,788
9,406
22,194
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
See.accompanying.Notes.to.Consolidated.Financial.Statements.
Approved.by.the.Board.of.Directors
Mi Ch AEL A . G RAND iN
Director.
Cenovus.Energy.Inc..
.
.
CO LiN TAYLO R
Director
Cenovus.Energy.Inc.
76
CENOVUS ENERGY 2012 ANNUAL RE PO RT / CONSOLIDATED FINANCIAL STATEMEN TS
CON SOLIDATED STATEMENTS OF SHAREHOLDERS’ EQ UITY
.
.
.
($ mil lions).
Balance as at January 1, 2010.
Net.Earnings.
Other.Comprehensive.Income.(Loss).
Total.Comprehensive.Income.for.the.Year..
Common.Shares.Issued.Under.Option.Plans.
Dividends.on.Common.Shares..
Balance as at December 31, 2010.
Net.Earnings.
Other.Comprehensive.Income.(Loss).
Total.Comprehensive.Income.for.the.Year..
Common.Shares.Issued.Under.Option.Plans.
Stock-Based.Compensation.Expense.
Dividends.on.Common.Shares.
Balance as at December 31, 2011.
Net.Earnings.
Other.Comprehensive.Income.(Loss).
Total.Comprehensive.Income.for.the.Year..
Common.Shares.Issued.Under.Option.Plans.
Stock-Based.Compensation.Expense.
Dividends.on.Common.Shares.
Balance as at December 31, 2012.
(1).Accumulated.Other.Comprehensive.Income.
See.accompanying.Notes.to.Consolidated.Financial.Statements.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Share.Capital.
(Note.25).
3,681.
–.
–.
–.
35.
–.
3,716.
–.
–.
–.
64.
–.
–.
3,780.
–.
–.
–.
49.
–.
–.
3,829
..Paid.in.Surplus.
(Note.25).
4,083.
–.
–.
–.
–.
–.
4,083.
–.
–.
–.
–.
24.
–.
4,107.
–.
–.
–.
–.
47.
–.
4,154
Retained
Earnings.
45.
1,081.
–.
1,081.
–.
(601).
525.
1,478.
–.
1,478.
–.
–.
(603).
1,400.
993.
–.
993.
–.
–.
(665).
1,728
.AOCI.(1).
–.
–.
71.
71.
–.
–.
71.
–.
48.
48.
–.
–.
–.
119.
–.
(24).
(24).
–.
–.
–.
95
Total
7,809
1,081
71
1,152
35
(601)
8,395
1,478
48
1,526
64
24
(603)
9,406
993
(24)
969
49
47
(665)
9,806
CEN OV US EN ERGY 2012 AN NUAL R EPORT / CO NSOLIDATED FINA NCIA L STATE MENTS
7 7
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012.
.
993.
1,585.
393.
68.
474.
–.
(57).
(70).
–.
86.
171.
3,643.
(113).
(110).
3,420.
.
.
(654).
(2,795).
76.
–.
(13).
50.
(3,336).
.
84.
.
3.
–.
1,219.
37.
(665).
(2).
592.
.
(11).
665.
495.
1,160.
.
2011.
.
1,478.
1,295.
–.
–.
575.
13.
(180).
(42).
(107).
75.
169.
3,276.
(82).
79.
3,273.
.
.
(527).
(2,265).
173.
(13).
(28).
130.
(2,530).
.
743.
.
(9).
–.
–.
48.
(603).
6.
(558).
.
10.
195.
300.
495.
.
2010.
.
1,081
1,302
–
–
141
–
(46)
(69)
(116)
75
44
2,412
(55)
234
2,591
.
(350)
(1,851)
309
–
4
95
(1,793)
798
.
–
(58)
–
28
(601)
–
(631)
(22)
145
155
300
.
CON SOL IDAT ED STATEMENTS OF C AS H FLOWS
.
For the years ended Decem b er 3 1,
($ mil lions).
Operating Activities.
. Net.Earnings..
. Depreciation,.Depletion.and.Amortization.
. Goodwill.Impairment.
. Exploration.Expense.
. Deferred.Income.Taxes.
. Cash.Tax.on.Divestiture.of.Assets.
. Unrealized.(Gain).Loss.on.Risk.Management.
. Unrealized.Foreign.Exchange.(Gain).Loss.
.
(Gain).Loss.on.Divestiture.of.Assets..
. Unwinding.of.Discount.on.Decommissioning.Liabilities.
. Other.
.
.
. Net.Change.in.Other.Assets.and.Liabilities.
. Net.Change.in.Non-Cash.Working.Capital.
Cash From Operating Activities.
.
Investing Activities.
. Capital.Expenditures.–.Exploration.and.Evaluation.Assets.
. Capital.Expenditures.–.Property,.Plant.and.Equipment.
. Proceeds.From.Divestiture.of.Assets.
. Cash.Tax.on.Divestiture.of.Assets.
. Net.Change.in.Investments.and.Other..
. Net.Change.in.Non-Cash.Working.Capital.
Cash (Used in) Investing Activities.
.
Net Cash Provided (Used) before Financing Activities.
.
.
.
.
.Notes.
.
.
.
.
.
8.
.
31.
7.
17.
5,.22.
.
.
.
.
.
.
.
15.
16.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Issuance.of.Long-Term.Debt.
Financing Activities.
.
. Net.Issuance.(Repayment).of.Short-Term.Borrowings.
.
. Net.Issuance.(Repayment).of.Revolving.Long-Term.Debt.
.
.
.
. Proceeds.on.Issuance.of.Common.Shares.
.
. Dividends.Paid.on.Common.Shares.
.
. Other.
.
Cash From (Used in) Financing Activities.
.
.
.
Foreign Exchange Gain (Loss) on Cash and Cash Equivalents Held in Foreign Currency
.
Increase (Decrease) in Cash and Cash Equivalents.
.
Cash and Cash Equivalents, Beginning of Year.
.
Cash and Cash Equivalents, End of Year.
.
.
.
.
.
9.
.
.
.
.
.
.
.
.
Supplementary.Cash.Flow.Information.
.
See.accompanying.Notes.to.Consolidated.Financial.Statements.
32.
.
78
CENOVUS ENERGY 2012 ANNUAL RE PO RT / CONSOLIDATED FINANCIAL STATEMEN TS
NOT ES TO CONSOLIDATED
FI NA NC IAL STATEMENTS
Al l amounts in $ m il l io ns, unl ess otherw ise ind ica ted
For the year end ed Decemb er 3 1, 2 012
1. DE SCR IP TIO N OF B USINESS AND SEG MEN TED DISCLOS URES
Cenovus.Energy.Inc.,.and.its.subsidiaries,.(together.“Cenovus”.or.the.
“Company”).are.in.the.business.of.the.development,.production.and.
marketing.of.crude.oil,.natural.gas.and.natural.gas.liquids.(“NGLs”).in.
Canada.with.refining.operations.in.the.United.States.(“U.S.”).
Cenovus.began.independent.operations.on.December.1,.2009,.as.a.
result.of.the.plan.of.arrangement.(“Arrangement”).involving.Encana.
Corporation.(“Encana”).whereby.Encana.was.split.into.two.independent.
energy.companies,.one.a.natural.gas.company,.Encana,.and.the.other.
an.oil.company,.Cenovus..In.connection.with.the.Arrangement,.Encana.
common.shareholders.received.one.share.in.each.of.the.new.Encana.
and.Cenovus.in.exchange.for.each.Encana.share.held.
Cenovus.was.incorporated.under.the.Canada Business Corporations
Act and.its.shares.are.publicly.traded.on.the.Toronto.(“TSX”).and.New.
York.(“NYSE”).stock.exchanges..The.executive.and.registered.office.
is.located.at.2600,.500.Centre.Street.S.E.,.Calgary,.Alberta,.Canada,.
T2G.1A6..Information.on.the.Company’s.basis.of.presentation.for.these.
Consolidated.Financial.Statements.is.found.in.Note.2..
The.Company’s.reportable.segments.are.as.follows:
•.
Oil Sands,.includes.the.development.and.production.of.Cenovus’s.
bitumen.assets.at.Foster.Creek,.Christina.Lake.and.Narrows.Lake.as.
well.as.heavy.oil.assets.at.Pelican.Lake..This.segment.also.includes.
the.Athabasca.natural.gas.assets.and.projects.in.the.early.stages.of.
development.such.as.Grand.Rapids.and.Telephone.Lake..Certain.
of.the.Company’s.operated.oil.sands.properties,.notably.Foster.
Creek,.Christina.Lake.and.Narrows.Lake,.are.jointly.owned.with.
ConocoPhillips,.an.unrelated.U.S..public.company..
•.
•.
•.
Conventional,.which.includes.the.development.and.production.
of.conventional.crude.oil,.NGLs.and.natural.gas.in.Alberta.and.
Saskatchewan,.including.the.carbon.dioxide.enhanced.oil.recovery.
project.at.Weyburn.and.emerging.tight.oil.opportunities..
Refining and Marketing,.which.is.focused.on.the.refining.of.crude.
oil.products.into.petroleum.and.chemical.products.at.two.refineries.
located.in.the.U.S..The.refineries.are.jointly.owned.with.and.operated.
by.Phillips.66,.an.unrelated.U.S..public.company..This.segment.also.
markets.Cenovus’s.crude.oil.and.natural.gas,.as.well.as.third-party.
purchases.and.sales.of.product.that.provide.operational.flexibility.
for.transportation.commitments,.product.type,.delivery.points.and.
customer.diversification..
Corporate and Eliminations,.which.primarily.includes.unrealized..
gains.and.losses.recorded.on.derivative.financial.instruments,.gains.
and.losses.on.divestiture.of.assets,.as.well.as.other.Cenovus-wide.
costs.for.general.and.administrative.and.financing.activities..As.
financial.instruments.are.settled,.the.realized.gains.and.losses.
are.recorded.in.the.operating.segment.to.which.the.derivative.
instrument.relates..Eliminations.relate.to.sales.and.operating.
revenues.and.purchased.product.between.segments,.recorded.at.
transfer.prices.based.on.current.market.prices,.and.to.unrealized.
intersegment.profits.in.inventory..
The.tabular.financial.information.which.follows.presents.the.segmented.
information.first.by.segment,.then.by.product.and.geographic.location..
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOLIDATED FINA NCI AL STAT EMENTS
7 9
A) RESULTS OF OPERATIONS – SEGMENT AND OPERATIONAL INFORMATION
.
.
.
.
.
.
.
.
(Gain).Loss.on.Risk.Management.
.
For the years ended Decem b er 3 1,.
Revenues.
. Gross.Sales.
. Less:.Royalties.
.
.
Expenses.
. Purchased.Product.
. Transportation.and.Blending.
. Operating.
. Production.and.Mineral.Taxes.
.
Operating Cash Flow.
. Depreciation,.Depletion.and.Amortization.
. Goodwill.Impairment.
. Exploration.Expense.
Segment Income (Loss).
.
.
.
For the years ended Decem b er 3 1,.
Revenues.
. Gross.Sales.
. Less:.Royalties.
.
.
Expenses.
. Purchased.Product.
. Transportation.and.Blending.
. Operating.
. Production.and.Mineral.Taxes.
.
.
. Depreciation,.Depletion.and.Amortization.
. Goodwill.Impairment.
. Exploration.Expense.
Segment Income (Loss).
. General.and.Administrative.
.
.
.
.
. Other.(Income).Loss,.net.
.
Earnings Before Income Tax.
.
Income.Tax.Expense.
Net Earnings.
Finance.Costs.
Interest.Income.
Foreign.Exchange.(Gain).Loss,.net.
(Gain).Loss.on.Divestiture.of.Assets.
(Gain).Loss.on.Risk.Management.
.
.
.
.
.
Oil.Sands.
2011.
.
3,291.
284.
3,007.
.
–.
1,231.
438.
–.
70.
1,268.
347.
–.
–.
921.
2010.
.
2,702.
279.
2,423.
.
–.
935.
367.
–.
(10).
1,131.
375.
–.
3.
753.
2012.
.
4,088.
215.
3,873.
.
–.
1,653.
584.
–.
(80).
1,716.
482.
–.
–.
1,234.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Conventional.
2011.
.
2,328.
205.
2,123.
.
–.
138.
488.
36.
(152).
1,613.
778.
–.
–.
835.
2010.
.
2,284.
170.
2,114.
.
–.
130.
434.
34.
(258).
1,774.
799.
–.
–.
975.
2012.
.
2,068.
172.
1,896.
.
–.
145.
513.
37.
(252).
1,453.
905.
393.
68.
87.
.
Corporate.and.Eliminations.
2010.
..2011.
2012.
.
.
.
(124).
(59).
(283).
–.
–.
–.
(124).
(59).
(283).
.
.
.
(123).
(59).
(283).
–.
–.
–.
(3).
(1).
(2).
–.
–.
–.
(46).
(180).
(57).
48.
181.
59.
32.
40.
52.
–.
–.
–.
–.
–.
–.
141.
7.
16.
246.
295.
352.
498.
447.
455.
(144).
(124).
(109).
(51).
26.
(20).
(116).
(107).
–.
4.
(5).
(13).
420.
541.
673.
.
.
.
.
.
.
.
.
.
Refining.and.Marketing
2011.
.
10,625.
–.
10,625.
.
9,149.
–.
481.
–.
14.
981.
130.
–.
–.
851.
2010
.
8,228
–
8,228
.
7,674
–
488
–
(10)
76
96
–
–
(20)
2012.
.
11,356.
–.
11,356.
.
9,506.
–.
587.
–.
(4).
1,267.
146.
–.
–.
1,121.
.
Consolidated
2011.
.
16,185.
489.
15,696.
.
9,090.
1,369.
1,406.
36.
(248).
4,043.
1,295.
–.
–.
2,748.
295.
447.
(124).
26.
(107).
4.
541.
2,207.
729.
1,478.
.
2010
.
13,090
449
12,641
.
7,551
1,065
1,286
34
(324)
3,029
1,302
–
3
1,724
246
498
(144)
(51)
(116)
(13)
420
1,304
223
1,081
2012.
.
17,229.
387.
16,842.
.
9,223.
1,798.
1,682.
37.
(393).
4,495.
1,585.
393.
68.
2,449.
352.
455.
(109).
(20).
–.
(5).
673.
1,776.
783.
993.
80
CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
2012.
.
4,037.
215.
3,822.
.
1,651.
548.
–.
(62).
1,685.
.
.
.
.
.
.
.
.
.
.
.
(Gain).Loss.on.Risk.Management.
(Gain).Loss.on.Risk.Management.
B) FINANCIAL RESULTS BY UPSTREAM PRODUCT
.
.
For the year s end ed Dece m ber 3 1,.
Revenues.
. Gross.Sales.
. Less:.Royalties.
.
.
Expenses.
. Transportation.and.Blending.
. Operating.
. Production.and.Mineral.Taxes.
.
Operating Cash Flow.
.
.
.
For the year s end ed Dece m ber 3 1,.
Revenues.
. Gross.Sales.
. Less:.Royalties.
.
.
Expenses.
. Transportation.and.Blending.
. Operating.
. Production.and.Mineral.Taxes.
.
Operating Cash Flow.
.
.
.
For the year s end ed Dece m ber 3 1,.
Revenues.
. Gross.Sales.
. Less:.Royalties.
.
.
Expenses.
. Transportation.and.Blending.
. Operating.
. Production.and.Mineral.Taxes.
.
Operating Cash Flow.
.
.
.
For the year s end ed Dece m ber 3 1,.
Revenues.
. Gross.Sales.
. Less:.Royalties.
.
.
Expenses.
. Transportation.and.Blending.
. Operating.
. Production.and.Mineral.Taxes.
.
Operating Cash Flow.
(Gain).Loss.on.Risk.Management.
(Gain).Loss.on.Risk.Management.
.
.
.
.
.
.
.
.
.
.
.
.
2012.
.
40.
–.
40.
.
2.
25.
–.
(18)
31.
2012.
.
11.
–.
11.
.
–.
11.
–.
–.
–.
2012.
.
4,088.
215.
3,873.
.
1,653.
584.
–.
(80).
1,716.
.
Oil.Sands.
2011.
.
3,217.
282.
2,935.
.
1,229.
409.
–.
87.
1,210.
.
Oil.Sands.
2011.
.
63.
2.
61.
.
2.
24.
–.
(17).
52.
.
Oil.Sands.
2011.
.
11.
–.
11.
.
–.
5.
–.
–.
6.
.
Oil.Sands.
2011.
.
3,291.
284.
3,007.
.
1,231.
438.
–.
70.
1,268.
2010.
.
2,610.
276.
2,334
.
934.
339.
–.
14.
1,047.
2010.
.
78.
1.
77.
.
1.
23.
–.
(24).
77.
2010.
.
14.
2.
12.
.
–.
5.
–.
–.
7.
2010.
.
2,702.
279.
2,423.
.
935.
367.
–.
(10).
1,131.
Crude.Oil.and.NGLs.
Conventional.
2011.
.
1,492.
193.
1,299.
.
104.
244.
27.
43.
881.
2010.
.
1,229.
153.
1,076.
.
86.
199.
28.
5.
758.
2012.
.
1,559.
166.
1,393.
.
126.
294.
34.
(23).
962.
Natural.Gas.
Conventional.
2011.
.
825.
12.
813.
.
34.
240.
9.
(195).
725.
Other.
Conventional.
2011.
.
11.
–.
11.
.
–.
4.
–.
–.
7.
2010.
.
1,042.
17.
1,025.
.
44.
231.
6.
(263)
1,007.
2010.
.
13.
–.
13.
.
–.
4.
–.
–.
9.
Total.Upstream.
Conventional.
2011.
2010.
2,328.
205.
2,123.
.
138.
488.
36.
(152).
1,613.
2,284.
170.
2,114.
.
130.
434.
34.
(258).
1,774.
2012.
.
496.
6.
490.
.
19.
215.
3.
(229).
482.
2012.
.
13.
–.
13.
.
–.
4.
–.
–.
9.
2012.
.
2,068.
172.
1,896.
.
145
513.
37.
(252).
1,453.
2012.
.
5,596.
381.
5,215.
.
1,777.
842.
34.
(85).
2,647.
2012.
.
536.
6.
530.
.
21.
240.
3.
(247).
513.
2012.
.
24.
–.
24.
.
–.
15.
–.
–.
9.
2012.
6,156.
387.
5,769.
.
1,798.
1,097.
37.
(332).
3,169.
Total
2011.
.
4,709.
475.
4,234.
.
1,333.
653.
27.
130.
2,091.
Total
2011.
.
888.
14.
874.
.
36.
264.
9.
(212).
777.
Total
2011.
.
22.
–.
22.
.
–.
9.
–.
–.
13.
Total
2011.
5,619.
489.
5,130.
.
1,369.
926.
36.
(82).
2,881.
2010
.
3,839
429
3,410
.
1,020
538
28
19
1,805
2010
.
1,120
18
1,102
.
45
254
6
(287)
1,084
2010
.
.
27
2
25
–
9
–
–
16
2010
4,986
449
4,537
.
1,065
801
34
(268)
2,905
CEN OV US EN ERGY 2012 AN NUAL R EPORT / NOTES TO CO NSOLIDATED FINA NCI AL STAT EMENTS
8 1
.
.
.
C) GEOGRAPHIC INFORMATION
.
For the years ended Decem b er 3 1,.
Revenues.
. Gross.Sales.
. Less:.Royalties.
.
.
Expenses.
. Purchased.Product.
. Transportation.and.Blending.
. Operating.
. Production.and.Mineral.Taxes.
.
.
. Depreciation,.Depletion.and.Amortization.
. Goodwill.Impairment.
. Exploration.Expense.
Segment Income (Loss).
(Gain).Loss.on.Risk.Management.
.
.
2012.
.
8,069.
387.
7,682.
.
1,884.
1,798.
1,118.
37.
(385).
3,230.
1,439.
393.
68.
1,330.
Canada..
2011.
.
7,513.
489.
7,024.
.
1,867.
1,369.
947.
36.
(255).
3,060.
1,165.
–.
–.
1,895.
2010.
.
6,466.
449.
6,017.
.
1,456.
1,065.
814.
34.
(322).
2,970.
1,216.
–.
3.
1,751.
United.States.
2011.
.
8,672.
–.
8,672.
.
7,223.
–.
459.
–.
7.
983.
130.
–.
–.
853.
2010.
.
6,624.
–.
6,624.
.
6,095.
–.
472.
–.
(2).
59.
86.
–.
–.
(27).
2012.
.
9,160.
–.
9,160.
.
7,339.
–.
564.
–.
(8).
1,265.
146.
–.
–.
1,119.
Consolidated
2011.
.
16,185.
489.
15,696.
.
9,090.
1,369.
1,406.
36.
(248).
4,043.
1,295.
–.
–.
2,748.
2010
.
13,090
449
12,641
.
7,551
1,065
1,286
34
(324)
3,029
1,302
–
3
1,724
2012.
.
17,229.
.....387.
16,842.
.
9,223.
1,798.
1,682.
. 37.
(393).
. 4,495.
1,585.
393.
68.
2,449.
The.Oil.Sands.and.Conventional.segments.operate.in.Canada..Both.of.
Cenovus’s.refining.facilities.are.located.and.carry.on.business.in.the.
U.S..The.marketing.of.Cenovus’s.crude.oil.and.natural.gas.produced.in.
Canada,.as.well.as.the.third.party.purchases.and.sales.of.product,.is.
undertaken.in.Canada..Physical.product.sales.that.settle.in.the.U.S..are.
considered.to.be.export.sales.undertaken.by.a.Canadian.business..The.
Corporate.and.Eliminations.segment.is.attributed.to.Canada,.with.the.
exception.of.the.unrealized.risk.management.gains.and.losses,..
which.have.been.attributed.to.the.country.in.which.the.transacting.
entity.resides.
Export Sales
Sales.of.crude.oil,.natural.gas.and.NGLs.produced.or.purchased.in..
Canada.that.have.been.delivered.to.customers.outside.of.Canada.were.
$671.million.(2011.–.$700.million;.2010.–.$646.million).
D) ExPLORATION AND EVALUATION ASSETS, PROPERTY, PLANT AND EQUIPMENT, GOODWILL AND TOTAL ASSETS
.
.
By Segment
.
.
.
.
As a t December 31,.
Oil.Sands.
Conventional.
Refining.and.Marketing.
Corporate.and.Eliminations.
Consolidated.
.
.
.
As a t December 31,.
Oil.Sands.
Conventional.
Refining.and.Marketing.
Corporate.and.Eliminations.
Consolidated.
.
.
.
Exploration.and.
Evaluation.Assets.
2011.
741.
139.
–.
–.
880.
2012.
1,110.
175.
–.
–.
1,285.
Property,.Plant.and.
Equipment
2012.
7,764.
4,929.
3,088.
371.
16,152.
2011
6,224
4,668
3,200
232
14,324
Goodwill.
Total.Assets
2012.
739.
–.
–.
–.
739.
2011.
739.
393.
–
–.
1,132.
2012.
11,972.
5,304.
5,018.
1,922.
24,216.
2011
10,524
5,566
4,927
1,177
22,194
82
CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
.
.
.
.
By Geographic Region
.
.
As a t Decemb er 3 1,.
Canada..
United.States.
Consolidated.
.
.
.
As a t Decemb er 3 1,.
Canada..
United.States.
Consolidated.
E) CAPITAL ExPENDITURES
.
Fo r t h e ye ar s end ed Dece m ber 3 1,.
Capital .
. Oil.Sands.
. Conventional..
. Refining.and.Marketing.
. Corporate..
.
.
Acquisition Capital.
. Oil.Sands.(2).
. Conventional..
. Refining.and.Marketing.
. Corporate.
Total (1).
.
.
.
.
Exploration.and.
Evaluation.Assets.
2011.
880.
–.
880.
2012.
1,285.
–.
1,285.
Property,.Plant.and.
Equipment
2012.
13,065.
3,087.
16,152.
2011
11,124
3,200
14,324
Goodwill.
Total.Assets
2012.
739.
–.
739.
2011.
1,132.
–.
1,132.
2012.
19,744.
4,472.
24,216.
2011
17,536
4,658
22,194
2012.
.
2,211.
848.
118.
191.
3,368.
.
69.
45.
–.
–.
3,482.
...2011.
.
1,415.
788.
393.
127.
2,723.
.
44.
25.
–.
2.
2,794.
2010
857
526
656
76
2,115
.
.
23
25
38
–
2,201
(1). Includes.expenditures.on.property,.plant.and.equipment.and.exploration.&.evaluation.assets..
(2)..2012.asset.acquisition.included.the.assumption.of.a.decommissioning.liability.of.$33.million.
Major Customers
In.connection.with.the.marketing.and.sale.of.Cenovus’s.own.and.
purchased.crude.oil,.natural.gas.and.refined.products.for.the.year.ended.
December.31,.2012,.Cenovus.had.three.customers.(2011.–.two;.2010.–.
two).which.individually.accounted.for.more.than.10.percent.of.its.
consolidated.gross.sales..Sales.to.these.customers,.recognized.as.major.
international.energy.companies.with.investment.grade.credit.ratings,.
were.approximately.$3,928.million,.$3,300.million.and.$2,839.million,.
respectively.(2011.–.$7,324.million.and.$2,683.million;.2010.–.$5,376.million.
and.$2,295.million)..
2 . BASIS OF PR EPAR ATION AND STATEMEN T OF CO MPLIAN CE
In.these.Consolidated.Financial.Statements,.unless.otherwise.indicated,.
all.dollars.are.expressed.in.Canadian.dollars..All.references.to.C$.or.$.
are.to.Canadian.dollars.and.references.to.US$.are.to.U.S..dollars.
These.Consolidated.Financial.Statements.have.been.prepared.on.a.
historical.cost.basis,.except.as.detailed.in.the.Company’s.accounting.
policies.disclosed.in.Note.3..
These.Consolidated.Financial.Statements.have.been.prepared.in.
accordance.with.International.Financial.Reporting.Standards.(“IFRS”).
as.issued.by.the.International.Accounting.Standards.Board.(“IASB”).and.
interpretations.of.the.International.Financial.Reporting.Interpretations.
Committee.(“IFRIC”)..These.Consolidated.Financial.Statements.have.
been.prepared.in.compliance.with.IFRS.
These.Consolidated.Financial.Statements.of.Cenovus.were.approved.by.
the.Board.of.Directors.on.February.13,.2013.
.
.
.
.
.
.
CEN OV US EN ERGY 2012 AN NUAL R EPORT / NOTES TO CO NSOLIDATED FINA NCIA L STATE MENTS
83
3. S UM MARY OF SIGNIFICANT ACCO UNTIN G POLICIES
A) PRINCIPLES OF CONSOLIDATION
D) REVENUE AND INTEREST INCOME RECOGNITION
The.Consolidated.Financial.Statements.include.the.accounts.of.
Cenovus.and.its.subsidiaries..Subsidiaries.are.entities.over.which.the.
Company.has.the.power.to.govern.the.financial.and.operating.policies..
Subsidiaries.are.consolidated.from.the.date.of.acquisition.of.control.
and.continue.to.be.consolidated.until.the.date.that.there.is.a.loss..
of.control..All.intercompany.transactions,.balances.and.unrealized..
gains.and.losses.from.intercompany.transactions.are.eliminated..
on.consolidation.
Investments.in.jointly.controlled.partnerships.and.unincorporated.joint.
operations.carry.on.certain.of.Cenovus’s.development,.production.
and.crude.oil.refining.businesses.and.are.accounted.for.using.the.
proportionate.consolidation.method,.whereby.Cenovus’s.proportionate.
share.of.revenues,.expenses,.assets.and.liabilities.are.included.in.the.
consolidated.accounts..
B) SEGMENT REPORTING
Management.has.determined.the.operating.segments.based.on.
information.regularly.reviewed.for.the.purposes.of.decision.making,.
allocating.resources.and.assessing.performance.by.Cenovus’s.chief.
operating.decision.makers..The.Company.evaluates.the.financial.
performance.of.its.operating.segments.primarily.based.on.operating.
cash.flow.
C) FOREIGN CURRENCY TRANSLATION
Functional and Presentation Currency
The.Company’s.presentation.currency.is.Canadian.dollars..The.accounts.
of.the.Company’s.foreign.operations.that.have.a.functional.currency.
different.from.the.Company’s.presentation.currency.are.translated.into.
the.Company’s.presentation.currency.at.period.end.exchange.rates.for.
assets.and.liabilities.and.at.the.average.rate.over.the.period.for.revenues.
and.expenses..Translation.gains.and.losses.relating.to.the.foreign.
operations.are.recognized.in.other.comprehensive.income.(“OCI”).as.
cumulative.translation.adjustments.
When.the.Company.disposes.of.an.entire.interest.in.a.foreign.operation.
or.loses.control,.joint.control,.or.significant.influence.over.a.foreign.
operation,.the.foreign.currency.gains.or.losses.accumulated.in.OCI.
related.to.the.foreign.operation.are.recognized.in.net.earnings..When.
the.Company.disposes.of.part.of.an.interest.in.a.foreign.operation.
which.continues.to.be.a.subsidiary,.a.proportionate.amount.of.gains.and.
losses.accumulated.in.OCI.is.allocated.between.controlling.and.non-
controlling.interests.
Transactions and Balances
Transactions.in.foreign.currencies.are.translated.to.the.respective.
functional.currencies.at.exchange.rates.in.effect.at.the.dates.of.the.
transactions..Monetary.assets.and.liabilities.of.Cenovus.that.are.
denominated.in.foreign.currencies.are.translated.into.its.functional.
currency.at.the.rates.of.exchange.in.effect.at.the.period.end.date..Any.
gains.or.losses.are.recorded.in.the.Consolidated.Statements.of.Earnings.
and.Comprehensive.Income.
Sales of Product
Revenues.associated.with.the.sales.of.Cenovus’s.crude.oil,.natural.gas,.
NGLs.and.petroleum.and.refined.products.are.recognized.when.the.
significant.risks.and.rewards.of.ownership.have.been.transferred.to.the.
customer,.the.sales.price.and.costs.can.be.measured.reliably.and.it.is.
probable.that.the.economic.benefits.will.flow.to.the.Company..This.
is.generally.met.when.title.passes.from.the.Company.to.its.customer..
Revenues.from.crude.oil.and.natural.gas.production.represent.the.
Company’s.share,.net.of.royalty.payments.to.governments.and.other.
mineral.interest.owners.
Purchases.and.sales.of.products.that.are.entered.into.in.contemplation.
of.each.other.with.the.same.counterparty.are.recorded.on.a.net.basis..
Revenues.associated.with.the.services.provided.as.agent.are.recorded.as.
the.services.are.provided..
Interest Income
Interest.income.is.recognized.as.the.interest.accrues.using.the.effective.
interest.method..
E) TRANSPORTATION AND BLENDING
The.costs.associated.with.the.transportation.of.crude.oil,.natural.gas.
and.NGLs,.including.the.cost.of.diluent.used.in.blending,.are.recognized.
when.the.product.is.sold.
F) PRODUCTION AND MINERAL TAxES
Costs.paid.to.non-mineral.interest.owners.based.on.production.of.
crude.oil,.natural.gas.and.NGLs.are.recognized.when.the.product.is.sold.
G) ExPLORATION ExPENSE
Costs.incurred.prior.to.obtaining.the.legal.right.to.explore.(pre-
exploration.costs).are.expensed.in.the.period.in.which.they.are.incurred.
as.exploration.expense..
Costs.incurred.after.the.legal.right.to.explore.is.obtained,.are.
initially.capitalized..If.it.is.determined.that.the.field/project/area.is.
not.technically.feasible.or.commercially.viable.or.if.the.Company.
decides.not.to.continue.the.exploration.and.evaluation.activity,.the.
unrecoverable.accumulated.costs.are.expensed.as.exploration.expense.
H) EMPLOYEE BENEFIT PLANS
The.Company.provides.employees.with.a.pension.plan.that.includes.
either.a.defined.contribution.or.defined.benefit.component,.and.other.
post-employment.benefit.plans.(“OPEB”)..
Accruals.for.obligations.under.the.employee.defined.benefit.pension.
plan.and.the.related.costs.are.recorded.net.of.plan.assets.
The.cost.of.the.defined.benefit.pension.plan.and.other.post-
employment.benefits.is.actuarially.determined.using.the.projected.unit.
credit.method.based.on.length.of.service.and.reflects.Management’s.
best.estimate.of.expected.plan.investment.performance,.salary.
escalation,.retirement.ages.of.employees.and.expected.future.health.
care.costs..
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CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
Pension.expense.for.the.defined.benefit.pension.plan.includes.the.cost.
of.pension.benefits.earned.during.the.current.year,.the.interest.cost.on.
pension.obligations,.the.expected.return.on.pension.plan.assets,.the.
amortization.of.adjustments.arising.from.pension.plan.amendments.
and.the.amortization.of.the.excess.of.the.net.actuarial.gain.or.loss.over.
10.percent.of.the.greater.of.the.benefit.obligation.and.the.fair.value.
of.plan.assets..Amortization.is.calculated.on.a.straight-line.basis.over.
a.period.covering.the.non-vested.expected.average.remaining.service.
lives.of.employees.and.recognized.immediately.for.vested.benefits.
covered.by.the.plans.
Pension.expense.for.the.defined.contribution.pension.is.recorded.as.the.
benefits.are.earned..
I) INCOME TAxES
Income.taxes.comprise.current.and.deferred.taxes..Current.and.deferred.
income.taxes.are.provided.for.on.a.non-discounted.basis.at.amounts.
expected.to.be.paid.using.the.tax.rates.and.laws.that.have.been.enacted.
or.substantively.enacted.at.the.Consolidated.Balance.Sheet.date.
Cenovus.follows.the.liability.method.of.accounting.for.income.taxes,.
where.deferred.income.taxes.are.recorded.for.the.effect.of.any.
temporary.difference.between.the.accounting.and.income.tax.basis.of.
an.asset.or.liability,.using.the.substantively.enacted.income.tax.rates.
expected.to.apply.when.the.assets.are.realized.or.liabilities.are.settled..
Deferred.income.tax.balances.are.adjusted.to.reflect.changes.in.income.
tax.rates.that.are.substantively.enacted.with.the.adjustment.being.
recognized.in.net.earnings.in.the.period.that.the.change.occurs,.except.
when.it.relates.to.items.charged.or.credited.directly.to.equity.or.OCI,.in.
which.case.the.deferred.income.tax.is.also.recorded.in.equity.or..
OCI,.respectively.
Deferred.income.tax.is.provided.on.temporary.differences.arising.from.
investments.in.subsidiaries.except.in.the.case.where.the.timing.of.the.
reversal.of.the.temporary.difference.is.controlled.by.the.Company.
and.it.is.probable.that.the.temporary.difference.will.not.reverse.in.the.
foreseeable.future..
Deferred.income.tax.assets.are.recognized.only.to.the.extent.that.it.is.
probable.that.future.taxable.profit.will.be.available.against.which.the.
temporary.differences.can.be.utilized.
Deferred.income.tax.assets.and.liabilities.are.only.offset.where.they.
arise.within.the.same.entity.and.tax.jurisdiction..
Deferred.income.tax.assets.and.liabilities.are.presented.as.non-current.
J) NET EARNINGS PER SHARE AMOUNTS
Basic.net.earnings.per.common.share.is.computed.by.dividing.
net.earnings.by.the.weighted.average.number.of.common.shares.
outstanding.during.the.period..Diluted.net.earnings.per.share.is.
calculated.giving.effect.to.the.potential.dilution.that.would.occur.
if.stock.options.or.other.contracts.to.issue.common.shares.were.
exercised.or.converted.to.common.shares..The.treasury.stock.method.
is.used.to.determine.the.dilutive.effect.of.stock.options.and.other.
dilutive.instruments..The.treasury.stock.method.assumes.that.proceeds.
received.from.the.exercise.of.in-the-money.stock.options.are.used.
to.repurchase.common.shares.at.the.average.market.price..For.those.
contracts.that.may.be.settled.in.cash.or.in.shares.at.the.holder’s.option,.
the.more.dilutive.of.cash.settlement.and.share.settlement.is.used.in.
calculating.diluted.earnings.per.share.
K) CASH AND CASH EQUIVALENTS
Cash.and.cash.equivalents.include.short-term.investments,.such.as.
money.market.deposits.or.similar.type.instruments,.with.a.maturity.of.
three.months.or.less.
L) INVENTORIES
Product.inventories.are.valued.at.the.lower.of.cost.and.net.realizable.
value.on.a.first-in,.first-out.or.weighted.average.cost.basis..The.cost.of.
inventory.includes.all.costs.incurred.in.the.normal.course.of.business.to.
bring.each.product.to.its.present.location.and.condition..Net.realizable.
value.is.the.estimated.selling.price.in.the.ordinary.course.of.business.
less.any.expected.selling.costs..If.the.carrying.amount.exceeds.net.
realizable.value,.a.write-down.is.recognized..The.write-down.may.be.
reversed.in.a.subsequent.period.if.the.circumstances.which.caused.it.no.
longer.exist.
M) ASSETS (DISPOSAL GROUP) HELD FOR SALE
Non-current.assets.or.disposal.groups.are.classified.as.held.for.sale.
when.their.carrying.amount.will.be.principally.recovered.through.a.sales.
transaction.rather.than.through.continued.use.and.a.sales.transaction.
is.highly.probable..Assets.held.for.sale.are.recorded.at.the.lower.of.
carrying.value.and.fair.value.less.cost.to.sell.
N) ExPLORATION AND EVALUATION (“E&E”) ASSETS
Costs.incurred.after.the.legal.right.to.explore.an.area.has.been.
obtained.and.before.technical.feasibility.and.commercial.viability.of.
the.area.have.been.established.are.capitalized.as.E&E.assets..These.
costs.include.license.acquisition,.geological.and.geophysical,.drilling,.
sampling,.decommissioning.and.other.directly.attributable.internal.
costs..E&E.assets.are.not.depreciated.and.are.carried.forward.until.
technical.feasibility.and.commercial.viability.of.the.field/project/area.
is.established.or.the.assets.are.determined.to.be.impaired..
Once.technical.feasibility.and.commercial.viability.have.been.
established.for.a.field/project/area,.the.carrying.value.of.the.E&E.
assets.associated.with.that.field/area/project.is.tested.for.impairment..
The.carrying.value,.net.of.any.impairment.loss,.is.then.reclassified.as.
property,.plant.and.equipment..
E&E.costs.are.subject.to.regular.technical,.commercial.and.management.
review.to.confirm.the.continued.intent.to.develop.the.resources..If.a.
field/project/area.is.determined.to.no.longer.be.technically.feasible.
or.commercially.viable,.and.Management.decides.not.to.continue.the.
exploration.and.evaluation.activity,.the.unrecoverable.costs.are.charged.
to.exploration.expense.in.the.period.in.which.the.determination.occurs.
Any.gains.or.losses.from.the.divestiture.of.E&E.assets.are.recognized.in.
net.earnings.
O) PROPERTY, PLANT AND EQUIPMENT
Development and Production Assets
Development.and.production.assets.are.stated.at.cost.less.accumulated.
depreciation,.depletion,.amortization.and.net.impairment.losses..
Development.and.production.assets.are.capitalized.on.an.area-by-
area.basis.and.include.all.costs.associated.with.the.development.
and.production.of.the.crude.oil.and.natural.gas.properties,.as.well.
as.any.E&E.expenditures.incurred.in.finding.commercial.reserves.of.
crude.oil.or.natural.gas.transferred.from.E&E.assets..Capitalized.costs.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOLIDATED FINA NCIA L STAT EMENTS
85
include.internal.costs,.decommissioning.liabilities,.and,.for.qualifying.
assets,.borrowing.costs.directly.associated.with.the.acquisition.of,.the.
exploration.for,.and.the.development.of.crude.oil.and.natural..
gas.reserves..
Costs.accumulated.within.each.area.are.depleted.using.the.unit-of-
production.method.based.on.estimated.proved.reserves.determined.
using.estimated.future.prices.and.costs..For.the.purpose.of.this.
calculation,.natural.gas.is.converted.to.oil.on.an.energy.equivalent.
basis..Costs.subject.to.depletion.include.estimated.future.costs.to.be.
incurred.in.developing.proved.reserves..
Exchanges.of.development.and.production.assets.are.measured.at.
fair.value.unless.the.transaction.lacks.commercial.substance.or.the.
fair.value.of.neither.the.asset.received,.nor.the.asset.given.up,.can.be.
reliably.measured..When.fair.value.is.not.used,.the.carrying.amount.of.
the.asset.given.up.is.used.as.the.cost.of.the.asset.acquired..
Expenditures.related.to.renewals.or.betterments.that.improve.
the.productive.capacity.or.extend.the.life.of.an.asset.are.capitalized..
Maintenance.and.repairs.are.expensed.as.incurred..Land.is..
not.depreciated.
Any.gains.or.losses.from.the.divestiture.of.development.and.production.
assets.are.recognized.in.net.earnings.
Other Upstream Assets
Other.upstream.assets.include.pipelines.and.information.technology.assets.
used.to.support.the.upstream.business..These.assets.are.depreciated.on.a.
straight-line.basis.over.their.useful.lives.of.three.to.35.years..
Refining Assets
The.refining.assets.are.stated.at.cost.less.accumulated.depreciation.and.
net.impairment.losses..
The.initial.acquisition.costs.of.refining.property,.plant.and.equipment.
are.capitalized.when.incurred..Costs.include.the.cost.of.constructing.
or.otherwise.acquiring.the.equipment.or.facilities,.the.cost.of.installing.
the.asset.and.making.it.ready.for.its.intended.use,.the.associated.
decommissioning.costs.and,.for.qualifying.assets,.borrowing.costs..
Routine.maintenance.and.repair.costs.are.expensed.in.the.period.in.
which.they.are.incurred..
Capitalized.costs.are.not.subject.to.depreciation.until.the.asset.is.
available.for.use,.after.which.they.are.depreciated.on.a.straight-line.
basis.over.the.estimated.service.life.of.each.component.of.the.refinery..
The.major.components.are.depreciated.as.follows:.
.
.
.
. Land.Improvements.and.Buildings.
25.to.40.years
. Office.Equipment.and.Vehicles.
3.to.20.years
. Refining.Equipment.
5.to.35.years
which.range.from.three.to.25.years..The.residual.value,.method.of.
amortization.and.the.useful.lives.of.the.assets.are.reviewed.annually.
and.adjusted,.if.appropriate..Assets.under.construction.are.not.subject.
to.depreciation.until.they.are.available.for.use..Expenditures.related.
to.renewals.or.betterments.that.improve.the.productive.capacity.or.
extend.the.life.of.an.asset.are.capitalized..Maintenance.and.repairs.are.
expensed.as.incurred..Land.is.not.depreciated.
P) IMPAIRMENT
Non-Financial Assets
Property,.plant.and.equipment.and.E&E.assets.are.assessed.for.
impairment.at.least.annually.or.when.facts.and.circumstances.suggest.
that.the.carrying.amount.may.exceed.its.recoverable.amount..The.
recoverable.amount.is.determined.as.the.greater.of.an.asset’s.or..
cash-generating.unit’s.(“CGU”).value-in-use.(“VIU”).and.fair.value.less.
costs.to.sell.(“FVLCTS”)..VIU.is.estimated.as.the.discounted.present.
value.of.the.future.cash.flows.expected.to.arise.from.the.continuing..
use.of.a.CGU.or.asset..
The.impairment.test.is.performed.at.the.CGU.for.development.and.
production.assets.and.other.upstream.assets..E&E.assets.are.allocated.
to.a.related.CGU.containing.development.and.production.assets.for.the.
purposes.of.testing.for.impairment..Corporate.assets.are.allocated.to.
the.CGUs.to.which.they.contribute.to.the.future.cash.flows..For.refining.
assets,.the.impairment.test.is.performed.at.each.refinery.independently..
Impairment.losses.on.PP&E.are.recognized.in.the.Consolidated.
Statements.of.Earnings.and.Comprehensive.Income.as.additional.
depreciation,.depletion.and.amortization.and.are.separately.disclosed..
An.impairment.of.E&E.assets.is.recognized.as.exploration.expense.in.the.
Consolidated.Statements.of.Earnings.and.Comprehensive.Income..
Goodwill.is.assessed.for.impairment.at.least.annually..To.assess.
impairment,.the.recoverable.amount.of.the.CGU.to.which.the.goodwill.
relates.is.compared.to.the.carrying.amount..If.the.recoverable.amount.
of.the.CGU.is.less.than.the.carrying.amount,.an.impairment.loss.is.
recognized..An.impairment.loss.is.allocated.first.to.reduce.the.carrying.
amount.of.any.goodwill.allocated.to.the.CGU.and.then.to.reduce.the.
carrying.amounts.of.the.other.assets.in.the.CGU..Goodwill.impairments.
are.not.reversed.
Impairment.losses.recognized.in.prior.periods,.other.than.goodwill.
impairments,.are.assessed.at.each.reporting.date.for.any.indicators.that.
the.impairment.losses.may.no.longer.exist.or.may.have.decreased..In.
the.event.that.an.impairment.loss.reverses,.the.carrying.amount.of.the.
asset.is.increased.to.the.revised.estimate.of.its.recoverable.amount,.
but.only.to.the.extent.that.the.carrying.amount.does.not.exceed.the.
amount.that.would.have.been.determined.had.no.impairment.loss.been.
recognized.on.the.asset.in.prior.periods..The.amount.of.the.reversal.is.
recognized.in.net.earnings.
The.residual.value,.method.of.amortization.and.the.useful.life.of.each.
component.are.reviewed.annually.and.adjusted.if.appropriate..
Financial Assets
Other Assets
Costs.associated.with.office.furniture,.fixtures,.leasehold.improvements,.
information.technology.and.aircraft.are.carried.at.cost.and.depreciated.
on.a.straight-line.basis.over.the.estimated.service.lives.of.the.assets,.
At.each.reporting.date,.the.Company.assesses.whether.there.are..
any.indicators.that.its.financial.assets.are.impaired..An.impairment.loss.
is.only.recognized.if.there.is.objective.evidence.of.impairment,..
the.loss.event.has.an.impact.on.future.cash.flow.and.the.loss.can.be.
reliably.estimated.
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CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
Evidence.of.impairment.may.include.default.or.delinquency.by.a.
debtor.or.indicators.that.the.debtor.may.enter.bankruptcy..For.equity.
securities,.a.significant.or.prolonged.decline.in.the.fair.value.of.the.
security.below.cost.is.evidence.that.the.assets.are.impaired.
An.impairment.loss.on.a.financial.asset.carried.at.amortized.cost.is.
calculated.as.the.difference.between.the.amortized.cost.and.the.
present.value.of.the.future.cash.flows.discounted.at.the.asset’s.original.
effective.interest.rate..The.carrying.amount.of.the.asset.is.reduced.
through.the.use.of.an.allowance.account..Impairment.losses.on.financial.
assets.carried.at.amortized.cost.are.reversed.through.net.earnings.in.
subsequent.periods.if.the.amount.of.the.loss.decreases.
Q) BORROWING COSTS
Borrowing.costs.are.recognized.as.an.expense.in.the.period.in.which.
they.are.incurred.unless.there.is.a.qualifying.asset..Borrowing.costs.
directly.associated.with.the.acquisition,.construction.or.production.of.
a.qualifying.asset.are.capitalized.when.a.substantial.period.of.time.is.
required.to.make.the.asset.ready.for.its.intended.use..Capitalization.of.
borrowing.costs.ceases.when.the.asset.is.in.the.location.and.condition.
necessary.for.its.intended.use.
R) GOVERNMENT GRANTS
Government.grants.are.recognized.at.fair.value.when.there.is.reasonable.
assurance.that.the.grants.will.be.received.and.the.Company.will.comply.
with.the.conditions.of.the.grant..Grants.related.to.assets.are.recorded.
as.a.reduction.of.the.asset’s.carrying.value.and.are.depreciated.over.
the.useful.life.of.the.asset..Grants.related.to.income.are.treated.as.a.
reduction.of.the.related.expense.in.the.Consolidated.Statements.of.
Earnings.and.Comprehensive.Income..
S) LEASES
Leases.in.which.substantially.all.of.the.risks.and.rewards.of.ownership.
are.retained.by.the.lessor.are.classified.as.operating.leases..Operating.
lease.payments.are.recognized.as.an.expense.on.a.straight-line.basis.
over.the.lease.term.
Leases.where.the.Company.assumes.substantially.all.the.risks.and.
rewards.of.ownership.are.classified.as.finance.leases.within.property,.
plant.and.equipment.
T) BUSINESS COMBINATIONS AND GOODWILL
Business.combinations.are.accounted.for.using.the.acquisition.method.
of.accounting.in.which.the.identifiable.assets.acquired,.liabilities.
assumed.and.any.non-controlling.interest.are.recognized.and.measured.
at.their.fair.value.at.the.date.of.acquisition..Any.excess.of.the.purchase.
price.plus.any.non-controlling.interest.over.the.fair.value.of.the.
net.assets.acquired.is.recognized.as.goodwill..Any.deficiency.of.the.
purchase.price.over.the.fair.value.of.the.net.assets.acquired.is.credited.
to.net.earnings.
At.acquisition,.goodwill.is.allocated.to.each.of.the.CGUs.to.which.
it.relates..Subsequent.measurement.of.goodwill.is.at.cost.less.any.
accumulated.impairment.losses.
U) PROVISIONS
General
A.provision.is.recognized.if,.as.a.result.of.a.past.event,.the.Company.
has.a.present.obligation,.legal.or.constructive,.that.can.be.estimated.
reliably,.and.it.is.more.likely.than.not.that.an.outflow.of.economic.
benefits.will.be.required.to.settle.the.obligation..Where.applicable,.
provisions.are.determined.by.discounting.the.expected.future.cash.
flows.at.a.pre-tax.credit-adjusted.rate.that.reflects.the.current.market.
assessments.of.the.time.value.of.money.and.the.risks.specific.to.the.
liability..The.increase.in.the.provision.due.to.the.passage.of.time.is.
recognized.as.a.finance.cost.in.the.Consolidated.Statements.of.Earnings.
and.Comprehensive.Income.
Decommissioning Liabilities
Decommissioning.liabilities.include.those.legal.or.constructive.
obligations.where.the.Company.will.be.required.to.retire.tangible.
long-lived.assets.such.as.producing.well.sites,.crude.oil.and.natural.gas.
processing.facilities.and.refining.facilities..The.amount.recognized.is.the.
present.value.of.estimated.future.expenditures.required.to.settle.the.
obligation.using.a.credit-adjusted.risk-free.rate..A.corresponding.asset.
equal.to.the.initial.estimate.of.the.liability.is.capitalized.as.part.of.the.
cost.of.the.related.long-lived.asset..Changes.in.the.estimated.liability.
resulting.from.revisions.to.expected.timing.or.future.decommissioning.
costs.are.recognized.as.a.change.in.the.decommissioning.liability.and.
the.related.long-lived.asset..The.amount.capitalized.in.property,.plant.
and.equipment.is.depreciated.over.the.useful.life.of.the.related.asset..
Increases.in.the.decommissioning.liabilities.resulting.from.the.passage.
of.time.are.recognized.as.a.finance.cost.in.the.Consolidated.Statements.
of.Earnings.and.Comprehensive.Income..
Actual.expenditures.incurred.are.charged.against.the.accumulated.liability.
V) SHARE CAPITAL
Common.shares.are.classified.as.equity..Transaction.costs.directly.
attributable.to.the.issue.of.common.shares.are.recognized.as.a.
deduction.from.equity,.net.of.any.income.taxes.
W) DIVIDENDS
Dividends.are.accrued.when.declared.by.the.Board.of.Directors.
x) STOCK-BASED COMPENSATION
Cenovus.has.a.number.of.cash.and.stock-based.compensation.plans.
which.include.stock.options.with.associated.tandem.stock.appreciation.
rights,.stock.options.with.associated.net.settlement.rights,.performance.
share.units.and.deferred.share.units..
Tandem Stock Appreciation Rights
Stock.options.with.associated.tandem.stock.appreciation.rights.
(“TSARs”).are.accounted.for.as.liability.instruments.which.are.measured.
at.fair.value.at.each.period.end.using.the.Black-Scholes-Merton.
valuation.model..The.fair.value.is.recognized.as.compensation.costs.
over.the.vesting.period..When.options.are.settled.for.cash,.the.liability.
is.reduced.by.the.cash.settlement.paid..When.options.are.settled.for.
common.shares,.the.cash.consideration.received.by.the.Company.
and.the.previously.recorded.liability.associated.with.the.option.are.
recorded.as.share.capital.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOL IDATED FINA NCIA L STAT EMENTS
8 7
Net Settlement Rights
Stock.options.with.associated.net.settlement.rights.(“NSRs”).are.
accounted.for.as.equity.instruments.which.are.measured.at.fair.value.
on.the.grant.date.using.the.Black-Scholes-Merton.valuation.model.and.
are.not.revalued.at.each.reporting.date..The.fair.value.is.recognized.
as.compensation.costs.over.the.vesting.period.of.the.options,.with.
a.corresponding.increase.recorded.as.paid.in.surplus.in.Shareholders’.
Equity..On.exercise,.the.cash.consideration.received.by.the.Company.
and.the.associated.paid.in.surplus.are.recorded.as.share.capital..
Performance and Deferred Share Units
Performance.share.units.(“PSUs”).and.deferred.share.units.(“DSUs”).are.
accounted.for.as.liability.instruments.and.are.measured.at.fair.value.
based.on.the.market.value.of.Cenovus’s.common.shares.at.each.period.
end..The.fair.value.is.recognized.as.compensation.costs.over.the.vesting.
period..Fluctuations.in.the.fair.values.are.recognized.as.compensation.
costs.in.the.period.they.occur..
Y) FINANCIAL INSTRUMENTS
Financial.instruments.are.recognized.when.the.Company.becomes.a.
party.to.the.contractual.provisions.of.the.instrument..Financial.assets.
and.liabilities.are.not.offset.unless.the.Company.has.the.legal.right.
to.offset.and.intends.to.settle.on.a.net.basis.or.settle.the.asset.and.
liability.simultaneously..A.financial.asset.is.derecognized.when.the.
rights.to.receive.cash.flows.from.the.asset.have.expired.or.have.been.
transferred.and.the.Company.has.transferred.substantially.all.the.risks.
and.rewards.of.ownership..A.financial.liability.is.derecognized.when.
the.obligation.is.discharged,.cancelled.or.expired..When.an.existing.
financial.liability.is.replaced.by.another.from.the.same.counterparty.
with.substantially.different.terms,.or.the.terms.of.an.existing.liability.
are.substantially.modified,.this.exchange.or.modification.is.treated.
as.a.derecognition.of.the.original.liability.and.the.recognition.of.a.
new.liability..The.difference.in.the.carrying.amounts.of.the.liabilities.
is.recognized.in.the.Consolidated.Statements.of.Earnings.and.
Comprehensive.Income.
Financial.instruments.are.classified.as.either.“fair.value.through.profit.
and.loss”,.“loans.and.receivables”,.“held-to-maturity.investments”,.
“available.for.sale.financial.assets”.or.“financial.liabilities.measured.
at.amortized.cost”..The.Company.determines.the.classification.of.
its.financial.assets.at.initial.recognition..Financial.instruments.are.
initially.measured.at.fair.value.except.in.the.case.of.“financial.liabilities.
measured.at.amortized.cost”.which.are.initially.measured.at.fair.value.
net.of.directly.attributable.transaction.costs.
The.Company’s.consolidated.financial.assets.include.cash.and.cash.
equivalents,.accounts.receivable.and.accrued.revenues,.partner.loans.
receivable,.the.Partnership.Contribution.Receivable,.risk.management.
assets.and.long-term.receivables..The.Company’s.financial.liabilities.
include.accounts.payable.and.accrued.liabilities,.partner.loans.payable,.
the.Partnership.Contribution.Payable,.derivative.financial.instruments,.
short-term.borrowings.and.long-term.debt.
Fair Value through Profit or Loss
Financial.assets.and.financial.liabilities.at.“fair.value.through.profit.
or.loss”.are.either.“held-for-trading”.or.have.been.“designated.at.fair.
value.through.profit.or.loss”..In.both.cases.the.financial.assets.and.
financial.liabilities.are.measured.at.fair.value.with.changes.in.fair.value.
recognized.in.net.earnings..
Risk.management.assets.and.liabilities.are.derivative.financial.instruments.
classified.as.“held-for-trading”.unless.designated.for.hedge.accounting..
Derivative.instruments.that.do.not.qualify.as.hedges,.or.are.not.
designated.as.hedges,.are.recorded.using.mark-to-market.accounting.
whereby.instruments.are.recorded.in.the.Consolidated.Balance.Sheets.
as.either.an.asset.or.liability.with.changes.in.fair.value.recognized.in.net.
earnings.as.a.(gain).loss.on.risk.management..The.estimated.fair.value.of.
all.derivative.instruments.is.based.on.quoted.market.prices.or,.in.their.
absence,.third-party.market.indications.and.forecasts.
Derivative.financial.instruments.are.used.to.manage.economic.exposure.
to.market.risks.relating.to.commodity.prices,.foreign.currency.exchange.
rates.and.interest.rates..Derivative.financial.instruments.are.not.used.
for.speculative.purposes..Policies.and.procedures.are.in.place.with.
respect.to.required.documentation.and.approvals.for.the.use.of.
derivative.financial.instruments..Where.specific.financial.instruments.are.
executed,.the.Company.assesses,.both.at.the.time.of.purchase.and.on.
an.ongoing.basis,.whether.the.financial.instrument.used.in.the.particular.
transaction.is.effective.in.offsetting.changes.in.fair.values.or.cash.flows.
of.the.transaction.
Loans and Receivables
“Loans.and.receivables”.are.financial.assets.with.fixed.or.determinable.
payments.that.are.not.quoted.in.an.active.market..After.initial.
measurement,.these.assets.are.measured.at.amortized.cost.at.the.
settlement.date.using.the.effective.interest.method.of.amortization..
“Loans.and.receivables”.comprise.cash.and.cash.equivalents,.accounts.
receivable.and.accrued.revenue,.partner.loans.receivable,.the.
Partnership.Contribution.Receivable.and.long-term.receivables..Gains.
and.losses.on.“loans.and.receivables”.are.recognized.in.net.earnings.
when.the.“loans.and.receivables”.are.derecognized.or.impaired..
Held to Maturity Investments
“Held-to-maturity.investments”.are.measured.at.amortized.cost.using.
the.effective.interest.method.of.amortization.
Available for Sale Financial Assets
“Available.for.sale.financial.assets”.are.measured.at.fair.value,.with.
changes.in.the.fair.value.recognized.in.OCI..When.an.active.market.is.
non-existent,.fair.value.is.determined.using.valuation.techniques..When.
fair.value.cannot.be.reliably.measured,.such.assets.are.carried.at.cost..
Financial Liabilities Measured at Amortized Cost
These.financial.liabilities.are.measured.at.amortized.cost.at.the.
settlement.date.using.the.effective.interest.method.of.amortization..
Financial.liabilities.measured.at.amortized.cost.comprise.accounts.
payable.and.accrued.liabilities,.partner.loans.payable,.the.Partnership.
Contribution.Payable,.short-term.borrowings.and.long-term.debt..Long-
term.debt.transaction.costs,.premiums.and.discounts.are.capitalized.
within.long-term.debt.or.as.a.prepayment.and.amortized.using.the.
effective.interest.method.
88
CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
Z) RECLASSIFICATION
Certain.information.provided.for.prior.years.has.been.reclassified.to.
conform.to.the.presentation.adopted.in.2012.
AA) RECENT ACCOUNTING PRONOUNCEMENTS
New and Amended Standards Adopted
The.Company.did.not.adopt.any.new.standards,.amendments.or.
interpretations.effective.during.the.year.ended.December.31,.2012.
New Standards and Interpretations not Yet Adopted
A.number.of.new.standards,.amendments.to.standards.and.
interpretations.are.effective.for.annual.periods.beginning.after.January.1,.
2012,.and.have.not.been.applied.in.preparing.the.Consolidated.Financial.
Statements.for.the.year.ended.December.31,.2012..The.standards.and.
interpretations.applicable.to.the.Company.are.as.follows.and.will.be.
adopted.on.their.respective.effective.date:
jOiNT ARRANGEMENTS, CONSOLiDATiON, ASSOCiATES
AND DiSCLOSURES
In.May.2011,.the.IASB.issued.the.following.new.and.amended.standards:
•.
•.
.IFRS.10,.“Consolidated Financial Statements”.(“IFRS.10”).replaces.IAS.
27,.“Consolidated and Separate Financial Statements”.(“IAS.27”).and.
Standing.Interpretations.Committee.(“SIC”).12,.“Consolidation –
Special Purpose Entities”..IFRS.10.revises.the.definition.of.control.to.
include.three.elements:.(1).power.over.an.investee;.(2).exposure.to.
variable.returns.from.its.involvement.with.the.investee.and.(3).the.
ability.to.use.its.power.to.affect.returns.from.the.investee..IFRS.10.
provides.guidance.on.participating.and.protective.rights.and.also.
addresses.the.notion.of.“de.facto”.control..It.also.includes.guidance.
related.to.an.investor.with.decision.making.rights.to.determine.if.it.is.
acting.as.a.principal.or.agent..
.IFRS.11,.“Joint Arrangements”.(“IFRS.11”).replaces.IAS.31,.“Interest in
Joint Ventures”.(“IAS.31”).and.SIC.13,.“Jointly Controlled Entities –
Non-Monetary Contributions by Venturers”..Under.IFRS.11,.a.joint.
arrangement.is.classified.as.either.a.“joint.operation”.or.a.“joint.
venture”.depending.on.the.rights.and.obligations.of.the.parties.to.
the.arrangement..Under.a.joint.operation,.parties.have.rights.to.
the.assets.and.obligations.for.the.liabilities.of.the.arrangement.and.
account.for.their.share.of.assets,.liabilities,.revenues.and.expenses..
Under.a.joint.venture,.parties.have.the.rights.to.the.net.assets.of.the.
arrangement.and.account.for.the.arrangement.as.an.investment.using.
the.equity.method.
•.
.IFRS.12,.“Disclosure of Interest in Other Entities”.(“IFRS.12”).replaces.
the.disclosure.requirements.previously.included.in.IAS.27,.IAS.31,.and.
IAS.28,.“Investments in Associates”..It.sets.out.the.extensive.disclosure.
requirements.relating.to.an.entity’s.interests.in.subsidiaries,.joint.
arrangements,.associates.and.unconsolidated.structured.entities.
•.
.IAS.27,.“Separate Financial Statements”.has.been.amended.to.
conform.to.the.changes.made.in.IFRS.10,.but.retains.the.current.
guidance.for.separate.financial.statements.
•.
.IAS.28,.“Investments in Associates and Joint Ventures”.has.been.
amended.to.conform.to.the.changes.made.in.IFRS.10.and.IFRS.11.
The.above.standards.are.effective.for.annual.periods.beginning.on.or.
after.January.1,.2013.and.must.be.adopted.concurrently..It.is.anticipated.
that.the.application.of.these.five.standards.will.not.have.a.significant.
impact.on.the.Consolidated.Financial.Statements.
Cenovus.performed.a.comprehensive.review.of.its.interests.in.other.
entities.and.identified.two.individually.significant.interests,.FCCL.
Partnership.(“FCCL”).and.WRB.Refining.LP.(“WRB”),.for.which.it.shares.
joint.control..Cenovus.reviewed.these.joint.arrangements.considering.
their.structure,.the.legal.forms.of.any.separate.vehicles,.the.contractual.
terms.of.the.arrangements.and.other.facts.and.circumstances..The.
application.of.the.Company’s.accounting.policy.under.IFRS.11.requires.
judgment.in.determining.the.classification.of.its.joint.arrangements..
It.was.determined.that.Cenovus.has.the.rights.to.the.assets.and.
obligations.for.the.liabilities.of.FCCL.and.WRB..As.a.result,.these.joint.
arrangements.will.be.classified.as.joint.operations.under.IFRS.11.and.the.
Company’s.share.of.the.assets,.liabilities,.revenues.and.expenses.will.be.
recognized.in.the.Consolidated.Financial.Statements.
In.determining.the.classification.of.its.joint.arrangements.under.IFRS.11,.
the.Company.considered.the.following:
•.
•.
•.
•.
.The.intention.of.the.transaction.creating.FCCL.and.WRB.was.to.form.
an.integrated.North.American.heavy.oil.business..The.integrated.
business.was.structured,.initially.on.a.tax.neutral.basis,.through.two.
partnerships.due.to.the.assets.residing.in.different.tax.jurisdictions..
Partnerships.are.“flow-through”.entities.which.have.a.limited.life.
.The.partnership.agreements.require.the.partners.(Cenovus.and.
ConocoPhillips.or.Phillips.66.or.respective.subsidiaries).to.make.
contributions.if.funds.are.insufficient.to.meet.the.obligations.or.
liabilities.of.the.partnership..The.past.and.future.development.of.
FCCL.and.WRB.is.dependent.on.funding.from.the.partners.by.way.of.
partnership.notes.payable.and.loans..The.partnerships.do.not.have.
any.third.party.borrowings.
.FCCL.operates.like.most.typical.western.Canadian.working.interest.
relationships.where.the.operating.partner.takes.product.on.behalf.of.
the.participants..WRB.has.a.very.similar.structure.modified.only.to.
account.for.the.operating.environment.of.the.refining.business..
.Cenovus.and.Phillips.66,.either.directly.or.through.wholly-owned.
subsidiaries,.provide.marketing.services,.purchase.necessary.
feedstock,.and.arrange.for.transportation.and.storage.on.the.
partners’.behalf.as.the.agreements.prohibit.the.partnerships.from.
undertaking.these.roles.themselves..In.addition,.the.partnerships..
do.not.have.employees.and.as.such.are.not.capable.of.performing.
these.roles.
.•. .In.each.arrangement,.output.is.taken.by.one.of.the.partners,.
indicating.that.the.partners.have.rights.to.the.economic.benefits..
of.the.assets.and.the.obligation.for.funding.the.liabilities.of..
the.arrangements.
EMPLOYEE BENEFiTS
In.June.2011,.the.IASB.amended.IAS.19,.“Employee Benefits”.(“IAS.19”)..
The.amendments.require.the.recognition.of.changes.in.defined.benefit.
obligations.and.fair.value.of.plan.assets.when.they.occur,.eliminating.
the.“corridor.approach”,.and.accelerates.the.recognition.of.past.service.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOLIDATED FINA NCI AL STATE MENTS
89
costs..In.order.for.the.net.defined.benefit.liability.or.asset.to.reflect.the.
full.value.of.the.plan.deficit.or.surplus,.all.actuarial.gains.and.losses.are.
to.be.recognized.immediately.through.OCI..In.addition,.entities.will.be.
required.to.calculate.net.interest.on.the.net.defined.benefit.liability.or.
asset.using.the.same.discount.rate.used.to.measure.the.defined.benefit.
obligation..The.amendments.also.enhance.financial.statement.disclosures..
The.amendments.to.IAS.19.require.retrospective.application..Based.on.
Cenovus’s.preliminary.assessment,.when.the.amendments.are.applied.
for.the.first.time.for.the.year.ending.December.31,.2013,.net.earnings.
for.the.year.ended.December.31,.2012.would.increase.by.$1.million.and.
other.comprehensive.income.after.tax.would.decrease.by.$3.million.
(2011.–.$nil.and.decrease.$12.million,.respectively)..Shareholders’.equity.
as.at.December.31,.2012.would.decrease.by.$24.million.(January.1,.2012.–.
decrease.$22.million).with.corresponding.adjustments,.being.recognized.
in.other.liabilities.and.deferred.income.taxes.
FAiR VALUE MEASUREMENT
In.May.2011,.the.IASB.issued.IFRS.13,.“Fair Value Measurement”..
(“IFRS.13”).which.provides.a.consistent.and.less.complex.definition.of.
fair.value,.establishes.a.single.source.for.determining.fair.value.and.
introduces.consistent.requirements.for.disclosures.related.to.fair.value.
measurement..IFRS.13.is.effective.for.annual.periods.beginning.on.or.
after.January.1,.2013.and.applies.prospectively.from.the.beginning.of.
the.annual.period.in.which.the.standard.is.adopted..Early.adoption.is.
permitted..IFRS.13.will.not.have.a.significant.impact.on.the.Consolidated.
Financial.Statements.
FiNANCiAL iNSTRUMENTS
The.IASB.intends.to.replace.IAS.39,.“Financial Instruments: Recognition
and Measurement”.(“IAS.39”).with.IFRS.9,.“Financial Instruments”..
(“IFRS.9”)..IFRS.9.will.be.published.in.three.phases,.of.which.the.first.
phase.has.been.published..
The.first.phase.addresses.accounting.for.financial.assets.and.financial.
liabilities..The.second.phase.will.address.impairment.of.financial.
instruments.and.the.third.phase.will.address.hedge.accounting.
For.financial.assets,.IFRS.9.uses.a.single.approach.to.determine.whether.a.
financial.asset.is.measured.at.amortized.cost.or.fair.value.and.replaces.the.
multiple.rules.in.IAS.39..The.approach.in.IFRS.9.is.based.on.how.an.entity.
manages.its.financial.instruments.in.the.context.of.its.business.model.and.
the.contractual.cash.flow.characteristics.of.the.financial.assets..The.new.
standard.also.requires.a.single.impairment.method.to.be.used,.replacing.
the.multiple.impairment.methods.in.IAS.39..Although.the.classification.
criteria.for.financial.liabilities.will.not.change.under.IFRS.9,.the.approach.
to.the.fair.value.option.for.financial.liabilities.may.require.different.
accounting.for.changes.to.the.fair.value.of.a.financial.liability.as.a.result.
of.changes.to.an.entity’s.own.credit.risk..
IFRS.9.is.effective.for.annual.periods.beginning.on.or.after.January.1,.
2015.with.different.transitional.arrangements.depending.on.the.date.of.
initial.application..The.Company.is.currently.evaluating.the.impact.of.
adopting.IFRS.9.on.its.Consolidated.Financial.Statements.
PRESENTATiON OF iTEMS OF OThER COMPREhENSiVE iNCOME
In.June.2011,.the.IASB.issued.an.amendment.to.IAS.1,.“Presentation of
Financial Statements”.(“IAS.1”).requiring.companies.to.group.items.
presented.within.OCI.based.on.whether.they.may.be.subsequently.
reclassified.to.profit.or.loss..This.amendment.to.IAS.1.is.effective.for.
annual.periods.beginning.on.or.after.July.1,.2012.with.full.retrospective.
application..Early.adoption.is.permitted..The.adoption.of.this.
amendment.will.not.have.a.significant.impact.on.the.Consolidated.
Financial.Statements.
OFFSETTiNG FiNANCiAL ASSETS AND FiNANCiAL LiABiLiTiES
In.December.2011,.the.IASB.issued.the.following.amended.standards:
•.
•.
.IFRS.7,.“Financial Instruments: Disclosures”.(“IFRS.7”),.has.been.
amended.to.provide.more.extensive.quantitative.disclosures.for.
financial.instruments.that.are.offset.in.the.Consolidated.Balance.
Sheets.or.that.are.subject.to.enforceable.master.netting.or..
similar.arrangements.
.IAS.32,.“Financial Instruments: Presentation”.(“IAS.32”),.has.been.
amended.to.clarify.the.requirements.for.offsetting.financial.assets.
and.liabilities..The.amendments.clarify.that.the.right.to.offset.must.
be.available.on.the.current.date.and.cannot.be.contingent.on.a.
future.event.
The.amendments.to.IFRS.7.are.effective.for.annual.periods.beginning.
on.or.after.January.1,.2013.and.the.amendments.to.IAS.32.are.effective.
for.annual.periods.beginning.on.or.after.January.1,.2014,.both.requiring.
retrospective.application..It.is.anticipated.that.IFRS.7.and.IAS.32.will.not.
have.significant.impacts.on.the.Consolidated.Financial.Statements..
4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
The.timely.preparation.of.the.Consolidated.Financial.Statements.in.
accordance.with.IFRS.requires.that.Management.make.estimates.and.
assumptions.and.use.judgment.regarding.the.reported.amounts.of.
assets.and.liabilities.and.disclosures.of.contingent.assets.and.liabilities.
at.the.date.of.the.Consolidated.Financial.Statements.and.the.reported.
amounts.of.revenues.and.expenses.during.the.period..Such.estimates.
primarily.relate.to.unsettled.transactions.and.events.as.of.the.date.
of.the.Consolidated.Financial.Statements..The.estimated.fair.value.
of.financial.assets.and.liabilities,.by.their.very.nature,.are.subject.to.
measurement.uncertainty..Accordingly,.actual.results.may.differ.from.
estimated.amounts.as.future.confirming.events.occur..
A) CRITICAL JUDGMENTS IN APPLYING ACCOUNTING POLICIES
Critical.judgments.are.those.judgments.made.by.Management.in.the.
process.of.applying.accounting.policies.that.have.the.most.significant.
effect.on.the.amounts.recognized.in.the.Company’s.Consolidated.
Financial.Statements.
Exploration and Evaluation Assets
The.application.of.the.Company’s.accounting.policy.for.exploration.
and.evaluation.expenditures.requires.judgment.in.determining.whether.
it.is.likely.that.future.economic.benefit.exists.when.activities.have.not.
reached.a.stage.where.technical.feasibility.and.commercial.viability.can.
90
CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
be.reasonably.determined..Factors.such.as.drilling.results,.future.capital.
programs,.future.operating.costs.as.well.as.estimated.economically.
recoverable.reserves.are.considered..If.it.is.determined.that.an.E&E.asset.
is.no.longer.technically.feasible.or.commercially.viable.or.Management.
decides.not.to.continue.the.exploration.and.evaluation.activity,.the.
unrecoverable.costs.are.charged.to.exploration.expense..
Identification of CGUs
The.Company’s.upstream.and.refining.assets.are.grouped.into.CGUs..
CGUs.are.defined.as.the.lowest.level.of.integrated.assets.for.which.
there.are.separately.identifiable.cash.flows.that.are.largely.independent.
of.cash.flows.from.other.assets.or.groups.of.assets..The.classification.of.
assets.and.allocation.of.corporate.assets.into.CGUs.requires.significant.
judgment.and.interpretations..Factors.considered.in.the.classification.
include.the.integration.between.assets,.shared.infrastructures,.the.
existence.of.common.sales.points,.geography,.geologic.structure.and.
the.manner.in.which.Management.monitors.and.makes.decisions.about.
its.operations..The.recoverability.of.the.Company’s.upstream,.refining.
and.corporate.assets.are.assessed.at.the.CGU.level.and.therefore.could.
have.a.significant.impact.on.impairment.losses.
B) KEY SOURCES OF ESTIMATION UNCERTAINTY
Critical.accounting.estimates.are.those.estimates.that.require.
Management.to.make.particularly.subjective.or.complex.judgments.
about.matters.that.are.inherently.uncertain..Estimates.and.underlying.
assumptions.are.reviewed.on.an.ongoing.basis.and.any.revisions.
to.accounting.estimates.are.recognized.in.the.period.in.which.the.
estimates.are.revised..The.following.are.the.key.assumptions.about.the.
future.and.other.key.sources.of.estimation.at.the.end.of.the.reporting.
period.that.changes.to.could.result.in.a.material.adjustment.to.the.
carrying.amount.of.assets.and.liabilities.within.the.next.financial.year.
Reserves
There.are.a.number.of.inherent.uncertainties.associated.with.estimating.
reserves..Reserve.estimates.are.dependent.upon.variables.including.the.
recoverable.quantities.of.hydrocarbons,.the.cost.of.the.development.
of.the.required.infrastructure.to.recover.the.hydrocarbons,.production.
costs,.estimated.selling.price.of.the.hydrocarbons.produced,.royalty.
payments.and.taxes..Changes.in.these.variables.could.significantly.
impact.the.reserves.estimates.which.would.have.a.significant.impact.
on.the.impairment.test.and.depreciation,.depletion.and.amortization.
expense.of.the.Company’s.crude.oil.and.natural.gas.assets..The.
Company’s.crude.oil.and.natural.gas.reserves.are.evaluated.and.reported.
to.the.Company.by.independent.qualified.reserves.evaluators.
Impairment of Assets
Property,.plant.and.equipment,.E&E.assets.and.goodwill.are.assessed.
for.impairment.at.least.annually.and.when.circumstances.suggest.that.
the.carrying.amount.may.exceed.the.recoverable.amount..Assets.are.
tested.for.impairment.at.the.CGU.level..These.calculations.require.
the.use.of.estimates.and.assumptions.and.are.subject.to.change.as.
new.information.becomes.available..For.the.Company’s.upstream.
assets,.these.estimates.include.future.commodity.prices,.expected.
production.volumes,.quantity.of.reserves.and.discount.rates.as.well.
as.future.development.and.operating.costs..Recoverable.amounts.for.
the.Company’s.refining.assets.utilizes.assumptions.such.as.refinery.
throughput,.future.commodity.prices,.operating.costs,.transportation.
capacity.and.supply.and.demand.conditions..Changes.in.assumptions.
used.in.determining.the.recoverable.amount.could.affect.the.carrying.
value.of.the.related.assets..
For.impairment.testing.purposes,.goodwill.has.been.allocated.to.each.
of.the.CGUs.to.which.it.relates.
At.December.31,.2012,.the.recoverable.amounts.of.Cenovus’s.upstream.
CGUs.were.determined.based.on.fair.value.less.costs.to.sell..Key.
assumptions.in.the.determination.of.cash.flows.from.reserves.include.
reserves.as.estimated.by.Cenovus’s.independent.qualified.reserves.
evaluators,.crude.oil.and.natural.gas.prices.and.the.discount.rate.
OiL AND NATURAL GAS PRiCES
The.future.prices.used.to.determine.cash.flows.from.crude.oil.and.natural.gas.reserves.are.as.follows:
.
.
.
.
.
.
.
.
..
WTI.(US$/barrel).
AECO.($/Mcf).
DiSCOUNT RATE
.
.
2013.
92.50.
3.35.
.
.
2014.
92.50.
3.85.
.
.
2015.
93.60.
4.35.
Decommissioning Costs
.
.
2016.
95.50.
4.70.
. Average.Annual.
%.Change.to.
.
2024
2017.
2%
97.40.
3%
5.10.
Evaluations.of.discounted.future.cash.flows.are.initiated.using.the.
discount.rate.of.10.percent.which.is.an.industry.standard.rate.used.
by.independent.qualified.reserve.evaluators.in.preparing.their.reserve.
reports..Based.on.the.individual.characteristics.of.the.asset,.other.
economic.and.operating.factors.are.also.considered.which.may.increase.
or.decrease.the.implied.discount.rate..Changes.in.the.economic.
conditions.could.significantly.change.the.estimated.recoverable.amount..
Provisions.are.recognized.for.the.future.decommissioning.and.
restoration.of.the.Company’s.upstream.crude.oil.and.natural.gas.assets.
and.refining.assets.at.the.end.of.their.economic.lives..Assumptions.have.
been.made.to.estimate.the.future.liability.based.on.past.experience.and.
current.economic.factors.which.Management.believes.are.reasonable..
However,.the.actual.cost.of.decommissioning.is.uncertain.and.cost.
estimates.may.change.in.response.to.numerous.factors.including.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOLIDATED FINA NCI AL STATE MENTS
91
changes.in.legal.requirements,.technological.advances,.inflation.and.
the.timing.of.expected.decommissioning.and.restoration..In.addition,.
Management.determines.the.appropriate.discount.rate.at.the.end.of.
each.reporting.period..This.discount.rate,.which.is.credit.adjusted,.
is.used.to.determine.the.present.value.of.the.estimated.future.cash.
outflows.required.to.settle.the.obligation.and.may.change.in.response.
to.numerous.market.factors..
Income Tax Provisions
Tax.regulations.and.legislation.and.the.interpretations.thereof.in.the.
various.jurisdictions.in.which.Cenovus.operates.are.subject.to.change..
As.a.result,.there.are.usually.a.number.of.tax.matters.under.review..As.
such,.income.taxes.are.subject.to.measurement.uncertainty..
5. FI N AN CE COSTS
For the ye ar s e n d e d D e cem b er 3 1,.
Interest.Expense.–.Short-Term.Borrowings.and.Long-Term.Debt.
Interest.Expense.–.Partnership.Contribution.Payable.(Note.12).
Unwinding.of.Discount.on.Decommissioning.Liabilities.
Other.
.
.
.
6. IN T ERE ST IN COME
For the years ended Decem b er 3 1,.
Interest.Income.–.Partnership.Contribution.Receivable.(Note.12).
Other.
.
.
.
7. FO RE IG N E xCH ANGE (GAI N) LOSS , NET
For the years ended Decem b er 3 1,.
Unrealized.Foreign.Exchange.(Gain).Loss.on.translation.of:.
. U.S..Dollar.Debt.Issued.from.Canada.
. U.S..Dollar.Partnership.Contribution.Receivable.Issued.from.Canada.
. Other.
Unrealized.Foreign.Exchange.(Gain).Loss.
Realized.Foreign.Exchange.(Gain).Loss.
.
.
.
8. IN COME TA x ES
The.provision.for.income.taxes.is.as.follows:.
For the years ended Decem b er 3 1,.
Current.Tax.
. Canada.
. United.States.(1).
Total.Current.Tax.
Deferred.Tax.
.
.
.
(1). Includes.$68.million.of.withholding.tax.on.a.U.S..dividend.in.2012..
92
CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
Deferred.income.tax.assets.are.recognized.to.the.extent.that.it.is.
probable.that.the.deductible.temporary.differences.will.be.recoverable.
in.future.periods..The.recoverability.assessment.involves.a.significant.
amount.of.estimation.including.an.evaluation.of.when.the.temporary.
differences.will.reverse,.an.analysis.of.the.amount.of.future.taxable.
earnings,.the.availability.of.cash.flow.to.offset.the.tax.assets.when.
the.reversal.occurs.and.the.application.of.tax.laws..There.are.some.
transactions.for.which.the.ultimate.tax.determination.is.uncertain..
To.the.extent.that.assumptions.used.in.the.recoverability.assessment.
change,.there.may.be.a.significant.impact.on.the.Consolidated.Financial.
Statements.of.future.periods.
2012.
230.
118.
86.
21.
455.
2012.
(102).
(7).
(109).
2012.
.
(69).
(15).
14.
(70).
50.
(20).
2012.
.
188.
121.
309.
474.
783.
2011.
213.
138.
75.
21.
447.
2011.
(120).
(4).
(124).
2011.
.
78.
(107).
(13).
(42).
68.
26.
2011.
.
150.
4.
154.
575.
729.
.....2010
227
165
75
31
498
2010
(144)
–
(144)
2010
.
(182)
91
22
(69)
18
(51)
2010
.
82
–
82
141
223
The.following.table.reconciles.income.taxes.calculated.at.the.Canadian.statutory.rate.with.the.recorded.income.taxes:................................
For the year s end ed Dece m ber 3 1, .
Earnings Before Income Tax.
. Canadian.Statutory.Rate.
Expected Income Tax.
. Effect.of.Taxes.Resulting.from:.
.
Foreign.Tax.Rate.Differential.
.
.
.
.
.
.
.
.
.
Total Tax.
Effective Tax Rate.
.
. Non-Deductible.Stock-Based.Compensation.
. Multi-Jurisdictional.Financing.
.
. Non-Taxable.Capital.(Gains).Losses.
. Recognition.of.Capital.Losses.
. Adjustments.Arising.from.Prior.Year.Tax.Filings.
. Withholding.Tax.on.Foreign.Dividend.
. Goodwill.Impairment.
. Other.
Foreign.Exchange.Gains.(Losses).Not.Included.in.Net.Earnings.
2012.
1,776.
25.2%.
448.
.
146.
10.
(27).
14.
(7).
(22).
33.
68.
99.
21.
783.
44.1%.
2011.
2,207.
26.7%.
.589...........
.
82.
18.
(50).
(9).
(8).
26.
31.
–.
–.
50.
729.
33.0%.
2010
1,304
28.2%
368
.
(22)
34
(93)
28
(13)
(107)
26
–
–
2
223
..17.1%
The.Canadian.statutory.tax.rate.decreased.to.25.2.percent.in.2012.from.26.7.percent.in.2011.and.28.2.percent.in.2010.as.a.result.of.tax.legislation.
enacted.in.2007..The.U.S..statutory.tax.rate.has.increased.to.38.5.percent.in.2012.from.37.5.percent.in.2011.and.2010.as.a.result.of.the.allocation.of.
taxable.income.to.U.S..states.
The.analysis.of.deferred.income.tax.liabilities.and.deferred.income.tax.assets.is.as.follows:
As a t Decemb er 3 1,.
Deferred Income Tax Liabilities.
. Deferred.Tax.Liabilities.to.be.Settled.Within.12.Months..
. Deferred.Tax.Liabilities.to.be.Settled.After.More.Than.12.Months.
Net Deferred Income Tax Liability.
.
.
.
.
2012.
.
140.
2,428.
2,568.
2011
117
1,984
2,101
For.the.purposes.of.the.above.table,.deferred.income.tax.liabilities.are.shown.net.of.offsetting.deferred.income.tax.assets.where.these.occur.in.the.
same.entity.and.jurisdiction..The.deferred.income.tax.liabilities.to.be.settled.within.12.months.represents.Management’s.estimate.of.the.timing.of.
the.reversal.of.temporary.differences.and.does.not.correlate.to.the.current.income.tax.expense.of.the.subsequent.year.
The.movement.in.deferred.income.tax.liabilities.and.assets,.without.taking.into.consideration.the.offsetting.of.balances.within.the.same.tax.
jurisdiction,.is.as.follows:.
.
.
.
.
.
.
Deferred Income Tax Liab il ities.
As.at.January.1,.2010.
. Charged/(Credited).to.Earnings.
. Charged/(Credited).to.Held.for.Sale.
. Charged/(Credited).to.OCI.
As.at.December.31,.2010.
. Charged/(Credited).to.Earnings.
. Charged/(Credited).to.OCI.
As.at.December.31,.2011.
. Charged/(Credited).to.Earnings.
. Charged/(Credited).to.OCI.
As at December 31, 2012.
Property.
Plant.and.
Equipment.
1,678.
83.
2.
..(112).
1,651.
725.
18.
2,394.
418.
(17).
2,795
Timing.of.
Partnership.
Items.
9.
116.
–.
–.
125.
38.
–.
163.
(104).
–.
59
Net.Foreign.
Exchange.
Risk.
Gains. Management.
17.
38.
–.
–.
55.
16.
–.
71.
2.
–.
73
61.
66.
–.
–.
127.
(15).
–.
112.
(85).
–.
27
.
Other.
–.
54.
–.
1.
55.
75.
2.
132.
(32).
(1).
99
Total
1,765
357
2
(111)
2,013
839
20
2,872
199
(18)
3,053
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOLIDATED FINA NCIA L STAT EMENTS
93
.
.
.
Deferred Income Tax Asse ts.
As.at.January.1,.2010.
. Charged/(Credited).to.Earnings.
. Charged/(Credited).to.OCI.
As.at.December.31,.2010.
. Charged/(Credited).to.Earnings..
. Charged/(Credited).to.OCI.
As.at.December.31,.2011.
. Charged/(Credited).to.Earnings..
. Charged/(Credited).to.OCI.
As at December 31, 2012
Net Deferred Income Tax Liab il ities.
Net.Deferred.Income.Tax.Liabilities.as.at.January.1,.2010.
. Charged/(Credited).to.Earnings..
. Charged/(Credited).to.Held.for.Sale.
. Charged/(Credited).to.OCI.
Net.Deferred.Income.Tax.Liabilities.as.at.December.31,.2010.
. Charged/(Credited).to.Earnings.
. Charged/(Credited).to.OCI.
Net.Deferred.Income.Tax.Liabilities.as.at.December.31,.2011.
. Charged/(Credited).to.Earnings.
. Charged/(Credited).to.OCI.
Net Deferred Income Tax Liabilities as at December 31, 2012
The.allocation.of.deferred.income.tax.expense.is.comprised.of:
A s a t De cem be r 3 1 ,.
Credited/(Charged).to.Net.Deferred.Income.Tax.Liabilities.
Credited/(Charged).to.Liabilities.Related.to.Assets.Held.for.Sale.
Deferred Income Tax Expense.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Unused.Tax.
Risk.
Losses. Management.
(33).
(12).
–.
(45).
29.
–.
(16).
11.
–.
(5)
(242).
(47).
8.
(281).
(270).
(13).
(564).
244.
11.
(309)
.
.
.
.
.
.
.
.
.
.
.
Other.
(9).
(161).
–.
(170).
(21).
–.
(191).
20.
–.
(171)
.
.
.
.
.
.
.
.
.
.
.
2012.
474.
–.
474.
2011.
577.
(2).
575.
Total
(284)
(220)
8
(496)
(262)
(13)
(771)
275
11
(485)
Total
1,481
137
2
(103)
1,517
577
7
2,101
474
(7)
2,568
2010
137
4
141
No.tax.liability.has.been.recognized.in.respect.of.temporary.differences.associated.with.investments.in.subsidiaries..As.no.taxes.are.expected.to.
be.paid.in.respect.of.these.differences.related.to.Canadian.subsidiaries,.the.amounts.have.not.been.determined..There.are.no.taxable.temporary.
differences.associated.with.investments.in.non-Canadian.subsidiaries.
The.approximate.amounts.of.tax.pools.available.are.as.follows:
A s a t De cem be r 3 1 ,.
Canada.
United.States.
.
.
.
.
.
.
.
2012.
4,895.
1,607.
6,502.
2011
4,471
2,740
7,211
At.December.31,.2012,.the.above.tax.pools.included.$13.million.(2011.–.
$78.million;.2010.–.$236.million).of.Canadian.non-capital.losses.and..
$791.million.(2011.–.$1,479.million;.2010.–.$607.million).of.U.S..federal.
net.operating.losses..These.losses.expire.no.earlier.than.2029..
which.are.available.for.carry.forward.to.reduce.future.capital.gains...
Of.these.losses,.$406.million.are.unrecognized.as.a.deferred.income.
tax.asset.at.December.31,.2012.(2011.–.$286.million;.2010.–.$415.million)..
Recognition.is.dependent.on.the.level.of.future.capital.gains.
Also.included.in.the.December.31,.2012.tax.pools.are.Canadian.net.capital.
losses.totaling.$512.million.(2011.–.$759.million;.2010.–.$983.million).
94
CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
9. P ER SHARE A MOUNTS
A) NET EARNINGS PER SHARE
For the year s end ed Dece m ber 3 1, ($ m il l io ns, exce pt ea rn ings pe r s hare).
Net.Earnings.–.Basic.and.Diluted.
Weighted.Average.Number.of.Shares.–.Basic..
Dilutive.Effect.of.Cenovus.TSARs.
Dilutive.Effect.of.NSRs.
Weighted.Average.Number.of.Shares.–.Diluted.
Basic.Earnings.per.share..
Diluted.Earnings.per.share.
B) DIVIDENDS PER SHARE
2012.
993.
755.6.
2.9.
–.
758.5.
$ 1.31.
$ 1.31.
2011.
1,478.
754.0.
3.7.
–.
757.7.
$.1.96.
$.1.95.
2010
1,081
751.9
2.1
–
754.0
$. 1.44
$. 1.43
The.dividends.paid.in.2012.were.$665.million.or.$0.88.per.share,.(2011.–.$603.million,.$0.80.per.share;.2010.–.$601.million,.$0.80.per.share)...
The.Cenovus.Board.of.Directors.declared.a.first.quarter.2013.dividend.of.$0.242.per.share,.payable.on.March.28,.2013,.to.common.shareholders..
of.record.as.of.March.15,.2013...
10 . C AS H AND CASH EQUIVALEN TS
A s a t D ece mb er 3 1,.
Cash..
Short-Term.Investments.
.
.
.
.
11. ACCOUNTS RECEIVAB LE AND ACCRUED REV ENUES
As a t Decemb er 3 1,.
Accruals..
Trade..
Joint.Operations.with.Partners.
Prepaids.and.Deposits.
Interest.
Other.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012.
339.
821.
1,160.
2012.
965.
232.
30.
45.
23.
169.
1,464.
2011
232
263
495
2011
801
251
30
34
28
261
1,405
12 . PARTNERSH IP CONTR IBUTION RECEI VABLE AND PAYABLE
Cenovus.has.two.significant.joint.operations,.FCCL.and.WRB.(Note.29)..
Through.its.interests.in.these.joint.operations,.Cenovus’s.Consolidated.
Balance.Sheets.include.a.Partnership.Contribution.Receivable.and.
Payable.which.arose.when.Cenovus.became.a.50.percent.partner.of.
an.integrated.North.American.oil.business...The.integrated.business.
consists.of.an.upstream.entity,.FCCL,.and.a.refining.entity,.WRB...
On.formation.of.the.upstream.entity.Cenovus.contributed.assets,.
primarily.Foster.Creek.and.Christina.Lake.properties,.with.a.fair..
value.of.US$7.5.billion.and.a.note.receivable.of.an.equal.amount.was.
contributed.by.the.partner.(“Partnership.Contribution.Receivable”)...
For.the.refining.entity,.the.partner.contributed.its.Wood.River.and.
Borger.refineries,.located.in.Illinois.and.Texas,.respectively,.for.a.fair.
value.of.US$7.5.billion.and.Cenovus.contributed.a.note.payable.of.an.
equal.amount.(“Partnership.Contribution.Payable”).
PARTNERSHIP CONTRIBUTION RECEIVABLE
This.note.receivable.is.denominated.in.US$.and.bears.interest.at.a.rate.
of.5.3.percent.per.annum..Equal.payments.of.principal.and.interest.are.
payable.quarterly,.with.final.payment.due.January.2,.2017..The.current.
and.long-term.Partnership.Contribution.Receivable.shown.in.the.
Consolidated.Balance.Sheets.represent.Cenovus’s.50.percent.share.of.
this.promissory.note,.net.of.receipts.to.date.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOL IDATED FINA NCI AL STAT EMENTS
95
Mandatory Receipts – Partnership Contribution Receivable
..
.
.
US$. .
C$.equivalent.
2013.
386.
384.
2014.
407.
405.
2015.
429.
427.
2016.
452.
450.
2017.
117.
116.
Thereafter.
–.
–.
Total
1,791
1,782
PARTNERSHIP CONTRIBUTION PAYABLE
This.note.payable.is.denominated.in.US$.and.bears.interest.at.a.rate.of.
6.0.percent.per.annum..Equal.payments.of.principal.and.interest.are.
payable.quarterly,.with.final.payment.due.January.2,.2017..The.current.
Mandatory Payments – Partnership Contribution Payable
and.long-term.Partnership.Contribution.Payable.amounts.shown.in.the.
Consolidated.Balance.Sheets.represent.Cenovus’s.50.percent.share.of.
this.promissory.note,.net.of.payments.to.date.
..
.
.
US$. .
C$.equivalent.
2013.
388.
386.
2014.
412.
410.
2015.
437.
435.
2016.
464.
462.
2017.
121.
119.
Thereafter.
–.
–.
13. IN VE NTORIES
As a t December 31,.
Product .
. Refining.and.Marketing.
. Oil.Sands.
. Conventional.
Parts and Supplies.
.
.
.
.
.
.
.
.
.
2012.
.
1,056.
202.
1.
29.
1,288.
Total
1,822
1,812
2011
1,079
186
1
25
1,291
During.the.year.ended.December.31,.2012,.approximately.$12,378.million.of.produced.and.purchased.inventory.was.recognized.as.an.expense..
(2011.–.$11,576.million;.2010.–.$9,692.million)..Inventory.costs.include.purchased.product,.the.cost.of.condensate.blended.with.heavy.oil.and.related.
operating.costs..
14. A SSE TS AN D L IAB ILITIES H EL D FOR SALE
As a t D e cem b er 3 1 ,.
Assets Held for Sale .
. Property,.Plant.and.Equipment.
Liabilities Related to Assets Held for Sale.
. Decommissioning.Liabilities.
. Deferred.Income.Taxes.
.
.
.
.
.
.
.
.
.
.
2012.
.
–.
.
–.
–.
–.
2011
116
54
–
54
Non-Core Natural Gas Assets
At.December.31,.2011,.the.Company.classified.certain.non-core.natural.
gas.assets.located.in.Northern.Alberta.as.assets.held.for.sale..The.assets.
were.recorded.at.the.lesser.of.fair.value.less.costs.to.sell.and.their.
carrying.amount..This.resulted.in.an.impairment.loss.of.approximately.
$2.million.which.has.been.recorded.as.additional.depreciation,.
depletion.and.amortization.in.the.Consolidated.Statements.of.Earnings.
and.Comprehensive.Income..These.assets.and.the.related.liabilities.were.
reported.in.the.Conventional.segment..
In.January.2012,.the.Company.completed.the.sale.of.these.natural.gas.
assets.to.an.unrelated.third.party.for.net.proceeds.of.$64.million..
96
CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
15. E xPLOR ATION AND EVAL UATION ASSETS
.
.
.
COST.
As.at.December.31,.2010.
. Additions..
. Transfers.to.Property,.Plant.and.Equipment.(Note.16).
. Divestitures.
. Change.in.Decommissioning.Liabilities.
As.at.December.31,.2011.
. Additions.(1).
. Transfers.to.Property,.Plant.and.Equipment.(Note.16).
. Exploration.Expense.
. Divestitures.
. Change.in.Decommissioning.Liabilities.
As at December 31, 2012.
(1).2012.asset.acquisition.included.the.assumption.of.a.decommissioning.liability.of.$33.million.
E&E.assets.consist.of.the.Company’s.evaluation.projects.which.are.
pending.the.determination.of.technical.feasibility.and.commercial.
viability..All.of.the.Company’s.E&E.assets.are.located.within.Canada..
Additions.to.E&E.assets.for.the.year.ended.December.31,.2012.include.
$37.million.of.internal.costs.directly.related.to.the.evaluation.of.these.
projects.(year.ended.December.31,.2011.–.$15.million).
For.the.year.ended.December.31,.2012,.$218.million.of.E&E.assets.were.
transferred.to.property,.plant.and.equipment.–.development.and.
production.assets,.following.the.determination.of.technical.feasibility.
and.commercial.viability.of.the.projects.(year.ended.December.31,.2011.
–.$356.million)..
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
E&E
713
527
(356)
(3)
(1)
880
687
(218)
(68)
(11)
15
1,285
IMPAIRMENT
The.impairment.of.E&E.assets.and.any.subsequent.reversal.of.such.
impairment.losses.are.recognized.in.exploration.expense.in.the.
Consolidated.Statements.of.Earnings.and.Comprehensive.Income..
For.the.year.ended.December.31,.2012,.$68.million.of.previously.
capitalized.E&E.costs.related.primarily.to.the.Roncott.assets.within.
the.Conventional.segment.were.deemed.not.to.be.technically.feasible.
and.commercially.viable.and.were.recognized.as.exploration.expense..
There.were.no.impairment.losses.for.the.years.ended.December.31,.
2011.and.2010.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOLIDATED FINA NCI AL STAT EMENTS
97
16 . P ROP ERT Y, PL ANT AND EQUIP M E N T, N ET
.
.
.
.
.
.
.
.
.
.
.
.
COST.
As.at.December.31,.2010.
. Additions..
. Transfers.from.E&E.Assets.(Note.15).
. Transfers.and.Reclassifications.
. Change.in.Decommissioning.Liabilities...
. Exchange.Rate.Movements.
. Divestitures.
As.at.December.31,.2011.
. Additions..
. Transfers.from.E&E.Assets.(Note.15).
. Transfers.and.Reclassifications.
. Change.in.Decommissioning.Liabilities...
. Exchange.Rate.Movements.
. Divestitures.
As at December 31, 2012.
Impairment.Losses.
ACCUMULATED DEPRECiATiON, DEPLETiON AND AMORTiZATiON
As.at.December.31,.2010.
. Depreciation.and.Depletion.Expense.
. Transfers.and.Reclassifications.
.
. Exchange.Rate.Movements.
As.at.December.31,.2011.
. Depreciation.and.Depletion.Expense.
. Transfers.and.Reclassifications.
.
. Exchange.Rate.Movements.
As at December 31, 2012.
Impairment.Losses.
.
.
.
.
.
.
.
.
.
.
.
CARRYiNG VALUE.
As.at.December.31,.2010.
As.at.December.31,.2011.
As at December 31, 2012.
.
.
.
.
(1).Includes.office.furniture,.fixtures,.leasehold.improvements,.information.technology.and.aircraft.
.
.
Upstream.Assets
.
. Development.
&.Production..
.
Other.
Upstream.
Refining
Equipment.
Other.(1).
Total
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
21,720.
1,704.
356.
(326).
403.
1.
–.
23,858.
2,442.
218.
–.
484.
1.
–.
27,003
12,121.
1,108.
(211).
2.
1.
13,021.
1,368.
–.
–.
1.
14,390
.
9,599.
10,837.
12,613
153.
41.
–.
–.
–.
–.
–.
194.
44.
–.
–.
–.
–.
–.
238
124.
15.
–.
–.
–.
139.
19.
–.
–.
–.
158
29.
55.
80
2,950.
391.
–.
(5).
10.
79.
–.
3,425.
118.
–.
(55).
(16).
(73).
–.
3,399
97.
85.
(5).
45.
3.
225.
146.
(55).
–.
(5).
311
2,853.
3,200.
3,088
450.
131.
–.
(2).
1.
–.
(4).
576.
191.
–.
–.
–.
–.
–.
767
304..
40.
–.
–.
–.
344.
52.
–.
–.
–.
396
146.
232.
371
25,273
2,267
356
(333)
414
80
(4)
28,053
2,795
218
(55)
468
(72)
–
31,407
12,646
1,248
(216)
47
4
13,729
1,585
(55)
–
(4)
15,255
12,627
14,324
16,152
Additions.to.development.and.production.assets.include.internal.costs.
directly.related.to.the.development,.construction.and.production.of.
crude.oil.and.natural.gas.properties.of.$161.million.(2011.–.$125.million)..
All.of.the.Company’s.development.and.production.assets.are.located.
within.Canada..Costs.classified.as.general.and.administrative.expenses.
have.not.been.capitalized.as.part.of.capital.expenditures..No.borrowing.
costs.have.been.capitalized.in.2012.(2011.–.$nil).
Property,.plant.and.equipment.include.the.following.amounts.in.respect.
of.assets.not.available.for.use.which.are.not.subject.to.depreciation.
until.put.into.use:.
As a t December 31,.
Development.and.Production.
Refining.Equipment.
Other.
.
.
.
.
.
.
.
.
2012.
38.
13.
11.
62.
2011
52
125
112
289
98
CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
IMPAIRMENT
The.impairment.of.property,.plant.and.equipment.and.any.subsequent.reversal.of.such.impairment.losses.are.recognized.in.depreciation,.depletion.
and.amortization.in.the.Consolidated.Statements.of.Earnings.and.Comprehensive.Income..
Depreciation,.depletion.and.amortization.expense.includes.impairment.losses.as.follows:
For the year s end ed Dece m ber 3 1,.
Development.and.Production.
Refining.Equipment.
.
.
.
2012.
–.
–.
–.
2011.
2.
45.
47.
2010
–
14
14
There.were.no.impairments.or.impairment.reversals.of.property,.plant.
and.equipment.in.2012..The.impairment.losses.for.the.year.ended.
December.31,.2011.were.related.to.a.catalytic.cracking.unit.at.the.Wood.
River.Refinery,.which.will.not.be.used.in.future.operations,.and.an.
impairment.on.non-core.natural.gas.assets.that.were.reclassified.as.
held.for.sale.(Note.14)..The.natural.gas.assets.reside.in.the.Conventional.
segment..The.2010.impairment.loss.related.to.a.processing.unit.at.the.
Borger.Refinery.which.was.determined.to.be.a.redundant.asset..
17. D I VESTI TURE S
In.January.2012,.the.Company.completed.the.sale.of.non-core.natural.
gas.assets.located.in.Northern.Alberta..A.loss.of.$2.million.was.
recorded.on.the.sale..These.assets.and.the.related.liabilities.were.
reported.in.the.Conventional.segment.
In.2011,.the.Company.disposed.of.non-core.crude.oil.and.natural.gas.
properties.and.marine.terminal.facilities.recognizing.an.after-tax.gain.of.
$91.million.in.the.Statement.of.Earnings.and.Comprehensive.Income..In.
2010,.an.after-tax.gain.of.$116.million.was.recognized.on.the.disposition.
of.non-core.crude.oil.and.natural.gas.properties.and.corporate.assets.
18 . OTH ER ASSETS
As a t Decemb er 3 1,.
Long-Term.Receivables.
Prepaids.
Other.
.
.
.
19. GO ODWI LL
As a t Decemb er 3 1,.
Carrying.Value,.Beginning.of.Year.
.
Carrying.Value,.End.of.Year.
Impairment.
.
.
.
.
.
.
.
.
2012.
22.
8.8
28.
58.
2012.
1,132.
(393).
739.
2011
18
18
44
2011
1,132
–
1,132
There.were.no.additions.to.goodwill.during.2012.or.2011..
IMPAIRMENT TEST FOR CASH-GENERATING UNITS CONTAINING GOODWILL
For.the.purpose.of.impairment.testing,.goodwill.is.allocated.to.the.CGU.to.which.it.relates..All.of.the.Company’s.goodwill.arose.on.the.acquisition.
of.exploration.and.production.assets..The.carrying.amount.of.goodwill.allocated.to.the.Company’s.exploration.and.production.CGUs.was.as.follows:.
As a t Decemb er 3 1,.
Suffield..
Foster.Creek.
Northern.Alberta.
.
.
.
.
.
.
.
.
2012.
–.
242.
497.
739.
2011
393
242
497
1,132
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOLIDATED FINA NCI AL STAT EMENTS
99
At.December.31,.2012,.the.Company.determined.that.the.carrying.
amount.of.the.Suffield.CGU.exceeded.its.fair.value.less.costs.to.sell.
and.the.full.amount.of.the.impairment.was.attributed.to.goodwill..
This.goodwill.arose.in.2002.upon.the.formation.of.the.predecessor.
corporation..An.impairment.loss.of.$393.million.was.recorded.as.
goodwill.impairment.on.the.Consolidated.Statement.of.Earnings.and.
Comprehensive.Income..The.Suffield.property.resides.on.the.Canadian.
Forces.Base.in.southeast.Alberta.and.the.operating.results.are.included.
in.the.Conventional.segment..Future.cash.flows.for.the.area.have.
declined.due.to.lower.natural.gas.and.crude.oil.prices.and.increased.
operating.costs..In.addition,.minimal.levels.of.capital.spending.for.
natural.gas.resulted.in.production.exceeding.reserve.replacement.in.the.
area..With.lower.future.cash.flows.and.decreasing.volumes,.the.carrying.
amount.of.the.goodwill.exceeded.its.fair.value.
The.recoverable.amount.was.determined.using.fair.value.less.costs.to.
sell..A.calculation.based.on.discounted.after-tax.cash.flows.of.proved.
and.probable.reserves.using.forecast.prices.and.costs.as.estimated.by.
Cenovus’s.independent.qualified.reserves.evaluators.was.completed.
(Note.4)..To.assess.reasonableness,.an.evaluation.of.fair.value.based.on.
comparable.asset.transactions.was.also.completed.
There.was.no.impairment.of.goodwill.in.2011.or.2010.
SENSITIVITIES
Changes.to.the.assumed.discount.rate.or.forward.price.estimates.independently.would.have.the.following.impact.on.the.impairment..
of.the.Suffield.CGU:
.
.
.
.
.
.
.
.
.
.
.
.
Impairment.of.Goodwill.
Impairment.of.PP&E.
20. ACCOUNTS PAYAB LE AND ACC R UED LI ABILITIES
As a t December 31,.
Accruals.
Trade..
Employee.Long-Term.Incentives.
Interest.
Other.
.
.
.
21. LON G-T E RM D EBT
As a t December 31,.
Revolving.Term.Debt.(1).
U.S..Dollar.Denominated.Unsecured.Notes.
Total.Debt.Principal.
Debt.Discounts.and.Transaction.Costs.
.
.
.
.
.
One.Percent.
.
.
Increase.in.the.
. Discount.Rate.
–.
.
.
50
Five.Percent.
Decrease.in.the.
Forward.Price.
Estimates
–
100
.
.
.
.
.
.
.
.
A.
B.
C.
D.
.
2012.
1,510.
676.
196.
82.
186.
2,650.
2012.
–.
4,726.
4,726.
(47).
4,679.
2011
1,193
789
209
72
316
2,579
2011
–
3,559
3,559
(32)
3,527
(1). Revolving.term.debt.may.include.bankers’.acceptances,.LIBOR.loans,.prime.rate.loans.and.U.S..base.rate.loans..
The.weighted.average.interest.rate.on.outstanding.debt.for.the.year.ended.December.31,.2012.was.5.3.percent.(2011.–.5.5.percent,.2010.–.5.8.percent)..
A) REVOLVING TERM DEBT
At.December.31,.2012,.Cenovus.had.in.place.a.committed.credit.facility.
in.the.amount.of.$3.0.billion.or.the.equivalent.amount.in.U.S..dollars..
The.committed.credit.facility.was.renegotiated.in.September.2012.
to.slightly.reduce.both.the.standby.fees.required.to.maintain.the.
facility.as.well.as.the.cost.of.future.borrowings..The.maturity.date.was.
extended.to.November.30,.2016.and.is.extendable.from.time.to.time,.
for.a.period.of.up.to.four.years.at.the.option.of.Cenovus.and.upon.
agreement.from.the.lenders..Borrowings.are.available.by.way.of.Bankers’.
Acceptances,.LIBOR.based.loans,.prime.rate.loans.or.U.S..base.rate.
loans..At.December.31,.2012,.there.were.no.amounts.drawn.on.Cenovus’s.
committed.bank.credit.facility.(2011.–.$nil).
100 CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
B) UNSECURED NOTES
Unsecured.notes.are.comprised.of.the.following:
.
.
.
As a t Decemb er 3 1,.
4.50%.due.September.15,.2014..
5.70%.due.October.15,.2019.
3.00%.due.August.15,.2022.
6.75%.due.November.15,.2039.
4.45%.due.September.15,.2042.
.
.
.
US$ Principal
Amount.
800
1,300
500
1,400
750
4,750
2012.
796.
1,293.
498.
1,393.
746.
4,726.
2011
814
1,322
–
1,423
–
3,559
Cenovus.has.in.place.a.Canadian.base.shelf.prospectus.for.unsecured.
medium-term.notes.in.the.amount.of.$1.5.billion..The.Canadian.shelf.
prospectus.allows.for.the.issuance.of.medium-term.notes.in.Canadian.
dollars.or.other.foreign.currencies,.from.time.to.time,.in.one.or.more.
offerings..The.terms.of.the.notes,.including,.but.not.limited.to,.the.
principal.amount,.interest.at.either.fixed.or.floating.rates.and.maturity.
dates,.will.be.determined.at.the.date.of.issue..As.at.December.31,.2012,.
no.medium-term.notes.have.been.issued.under.this.Canadian.shelf.
prospectus..The.Canadian.shelf.prospectus.expires.in.June.2014..
Cenovus.has.in.place.a.U.S..base.shelf.prospectus.for.unsecured.notes.
in.the.amount.of.US$2.0.billion..The.U.S..shelf.prospectus.allows.for.the.
issuance.of.debt.securities.in.U.S..dollars.or.other.foreign.currencies,.
from.time.to.time,.in.one.or.more.offerings..The.terms.of.the.notes,.
including,.but.not.limited.to,.the.principal.amount,.interest.at.either.
fixed.or.floating.rates.and.maturity.dates,.will.be.determined.at.the.date.
of.issue..As.at.December.31,.2012,.US$750.million.remains.under.this.U.S..
base.shelf.prospectus..The.U.S..shelf.prospectus.expires.in.July.2014.
On.August.17,.2012,.Cenovus.completed.a.public.offering.in.the.U.S..
of.senior.unsecured.notes.of.US$500.million,.with.a.coupon.rate.of.
3.00.percent,.due.August.15,.2022.and.US$750.million.of.senior.unsecured.
notes.with.a.coupon.rate.of.4.45.percent.due.September.15,.2042,.for.an.
aggregate.principal.amount.of.US$1.25.billion..The.net.proceeds.will.be.
used.for.general.corporate.purposes,.including.repayment.of.commercial.
paper.indebtedness..
As.at.December.31,.2012,.the.Company.is.in.compliance.with.all.of.the.
terms.of.its.debt.agreements.
C) MANDATORY DEBT PAYMENTS
.
.
.
.
.
.
2013. .
2014. .
2015. .
2016. .
2017. .
Thereafter.
.
.
.
US$.Principal.
Amount.
–.
800.
–.
–.
–.
3,950.
4,750.
C$.Principal.
Amount.
–.
–.
–.
–.
–.
–.
–.
Total C$
Equivalent
–
796
–
–
–
3,930
4,726
D) DEBT DISCOUNTS AND TRANSACTION COSTS
Long-term.debt.transaction.costs.and.discounts.associated.with.the.unsecured.notes.are.recorded.within.long-term.debt.and.are.amortized.using.
the.effective.interest.rate.method..Transaction.costs.associated.with.the.revolving.term.debt.are.recorded.as.a.prepayment.and.are.being.amortized.
over.the.remaining.term.of.the.committed.credit.facility..During.2012,.additional.transaction.costs.of.$19.million.were.recorded.(2011.–.$3.million)..
CEN OV US EN ERGY 2012 AN NUAL R EPORT / NOTES TO CO NSOLIDATED FINA NCIA L STATE MENTS
101
22 . DE COM MISSIO NING L IABIL IT I ES
The.decommissioning.provision.represents.the.present.value.of.the.expected.future.costs.associated.with.the.retirement.of.upstream.crude.oil.and.
natural.gas.assets.and.refining.facilities..The.aggregate.carrying.amount.of.the.obligation.is.as.follows:
As a t December 31,.
Decommissioning.Liabilities,.Beginning.of.Year.
. Liabilities.Incurred.
. Liabilities.Settled.
. Transfers.and.Reclassifications.
. Change.in.Estimated.Future.Cash.Flows.
. Change.in.Discount.Rate.
. Unwinding.of.Discount.on.Decommissioning.Liabilities.
.
Decommissioning.Liabilities,.End.of.Year.
Foreign.Currency.Translation.
.
.
.
.
.
.
.
.
.
.
2012.
1,777.
99.
(66).
3.
144.
273.
86.
(1).
2,315.
2011
1,399
49
(56)
(55)
146
218
75
1
1,777
The.undiscounted.amount.of.estimated.cash.flows.required.to.settle.
the.obligation.is.$6,865.million.(2011.–.$6,541.million),.which.has.been.
discounted.using.a.credit-adjusted.risk-free.rate.of.4.2.percent..
(2011.–.4.8.percent)..Most.of.these.obligations.are.not.expected.to.
be.paid.for.several.years,.or.decades,.and.will.be.funded.from.general.
resources.at.that.time..Revisions.in.estimated.cash.flows.resulted.from.
accelerated.timing.of.forecast.abandonment.and.reclamation.spending.
and.higher.cost.estimates.
SENSITIVITIES
Changes.to.the.credit-adjusted.risk-free.rate.or.the.inflation.rate.would.have.the.following.impact.on.the.decommissioning.liabilities:
.
.
.
.
... .
... .
As a t December 31,.
One.Percent.Increase.
One.Percent.Decrease.
23. OT H ER LIABI LITIES
As a t December 31,.
Deferred.Revenue.
Employee.Long-Term.Incentives.
Pension.and.Other.Post-Employment.Benefits.(Note.24).
Other.
.
.
.
2012.
2011
Credit-Adjusted.
...
Risk-Free Rate inflation Rate.
572.
(418).
(408)
565
Credit-Adjusted.
Risk-Free.Rate.
(367).
...494.
Inflation.Rate
504
(379)
.
.
.
.
.
2012.
31.
64.
28.
28.
151.
2011
35
55
16
22
128
24. PE N S ION S A ND OTH ER POST-E MPLOYMENT BENEFITS
The.Company.provides.employees.with.a.pension.that.includes.either.
a.defined.contribution.or.defined.benefit.component.and.other.post-
employment.benefit.plans.(“OPEB”)..Most.of.the.employees.participate.
in.the.defined.contribution.pension..Starting.in.2012,.employees.who.
meet.certain.criteria.are.eligible.to.elect.to.convert.from.the.current.
defined.contribution.pension.to.a.defined.benefit.pension.
The.Company.is.required.to.file.an.actuarial.valuation.of.its.registered.
defined.benefit.pension.plan.with.the.provincial.regulator.at.least.every.
three.years..The.most.recently.filed.valuation.was.dated.June.30,.2012.
and.the.next.required.actuarial.valuation.will.be.as.at.December.31,.2014.
The.defined.benefit.pension.provides.pension.benefits.at.retirement.
based.on.years.of.service.and.final.average.earnings..Future.enrollment.
is.limited.to.eligible.employees.who.meet.certain.criteria..The.defined.
benefit.pension.is.funded.according.to.the.federal.and.provincial.
government.pension.legislation,.where.applicable..Contributions..
are.made.to.trust.funds.administered.by.an.independent.trustee...
The.Company’s.contributions.to.the.defined.benefit.pension.plans.are.
based.on.the.results.of.the.actuarial.valuation.and.direction.by.the.
Human.Resources.and.Compensation.Committee.of.the.Board..
The.Company’s.OPEB.provides.retired.employees.with.life.insurance.
benefits,.health.care.and.dental.benefits.until.age.65..These.benefits.are.
funded.on.an.as.required.basis.
102
CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
A) DEFINED BENEFIT AND OPEB PLAN OBLIGATION AND FUNDED STATUS
Information.related.to.defined.benefit.pension.and.OPEB.plans,.based.on.actuarial.estimations,.is.as.follows:
.
.
.
As a t Decemb er 3 1,.
Defined Benefit Obligation.
Defined.Benefit.Obligation,.Beginning.of.Year.
. Current.Service.Costs.
Interest.Costs.
.
. Benefits.Paid.
. Plan.Participant.Contributions.
. Actuarial.(Gains).Losses.
. Plan.Conversion.
Defined.Benefit.Obligation,.End.of.Year.
Plan Assets.
Fair.Value.of.Plan.Assets,.Beginning.of.Year.
. Expected.Return.on.Plan.Assets.
. Employer.Contributions.
. Plan.Participant.Contributions.
. Actuarial.Gains.(Losses).
. Benefits.Paid.
. Asset.Transfer.from.Plan.Conversion.
Fair.Value.of.Plan.Assets,.End.of.Year.
Funded.Status.–.Plan.Assets.(Less).than.Benefit.Obligation.
Unamortized.Net.Actuarial.(Gain).Loss.not.Recognized.
Pension and Other Post-Employment Benefit (Liability).
Pension.Benefits.
2011.
.
68.
3.
3.
(1).
–.
11.
–.
84.
.
59.
3.
4.
–.
(4).
(1).
–.
61.
(23).
22.
(1).
2012.
.
84.
10.
4.
(2).
1.
7.
30.
134.
.
61.
4.
22.
1.
–.
(2).
12.
98.
(36).
26.
(10).
The.pension.and.other.post-employment.benefit.liability.is.included.in.other.liabilities.on.the.Consolidated.Balance.Sheets..
B) PENSION AND OTHER POST-EMPLOYMENT BENEFIT COSTS
Pension.and.other.post-employment.benefit.costs.are.as.follows:
.
.
.
Fo r t h e ye ar s end ed Dece m ber 3 1,.
Current.Service.Cost.
Interest.Cost.
Expected.Return.on.Plan.Assets.
Actuarial.Gains.(Losses).
Past.Service.Cost.(1).
Defined.Benefit.Plan.Cost.
Defined.Contribution.Plan.Cost.
Total.Plan.Cost.
Pension.Benefits.
2011.
3.
4.
(4).
1.
–.
4.
22.
26.
2010.
3.
3.
(3).
–.
–.
3.
18.
21.
2012.
10.
4.
(4).
3.
18.
31.
25.
56.
2012.
3.
1.
–.
–.
–.
4.
–.
4.
OPEB
2011
.
14
2
1
–
–
2
–
19
.
–
–
–
–
–
–
–
–
(19)
4
(15)
2010
1
1
–
–
–
2
–
2
2012.
.
19.
2.
1.
–.
–.
(2).
–.
20.
.
–.
–.
–.
–.
–.
–.
–.
–.
(20).
2.
(18).
OPEB
2011.
2.
1.
–.
–.
–.
3.
–.
3.
(1)..Past.service.costs.for.eligible.employees.who.were.given.a.one-time.option.to.convert.from.the.defined.contribution.pension.to.defined.benefit.pension.retrospectively.to.the.later.of.the.date.they.
would.have.been.eligible.to.enroll.in.the.defined.benefit.pension.or.November.30,.2009..Past.service.costs.were.fully.vested.and.recorded.immediately.
Pension.costs.are.recorded.in.operating.and.general.and.administrative.expenses,.and.PP&E.and.E&E.assets,.corresponding.to.where.the.associated.
salaries.and.wages.of.the.employees.rendering.the.service.are.recorded.
CEN OV US EN ERGY 2012 AN NUAL R EPORT / NOTES TO CO NSOLIDATED FINA NCI AL STAT EMENTS
10 3
C) ACTUARIAL ASSUMPTIONS
The.principal.weighted.average.actuarial.assumptions.used.to.determine.benefit.obligations.and.expenses.are.as.follows:
.
.
.
.
Benefit Obligation at December 31.
. Discount.Rate.
. Rate.of.Compensation.Increase.
Benefit Expense for the Year.
. Discount.Rate.
. Expected.Return.on.Plan.Assets.
. Rate.of.Compensation.Increase.
Pension.Benefits.
2011.
.
4.25%.
3.99%.
.
5.25%.
5.59%.
4.05%.
2010.
.
5.25%.
4.05%.
.
6.00%
5.59%.
4.05%.
2012.
.
4.00%.
4.39%.
.
4.25%.
5.54%.
3.99%.
2012.
.
4.00%.
5.77%.
.
4.25%.
N/A.
5.77%.
OPEB
2011.
.
4.25%.
5.77%.
.
5.25%.
N/A.
5.65%.
2010
5.25%
5.65%
.
.
6.00%
N/A
5.77%
The.discount.rates.are.determined.with.reference.to.market.yields.
on.high.quality.corporate.debt.instruments.of.similar.duration.to.the.
benefit.obligations.at.the.end.of.the.reporting.period..
The.expected.average.remaining.service.period.of.the.active.employees.
covered.by.the.defined.benefit.pension.and.OPEB.plans.are.seven.and.
11.years,.respectively..
The.expected.rate.of.return.on.plan.assets.is.based.on.historical..
and.projected.rates.of.return.for.each.asset.class.in.the.plan..
investment.portfolio..
Assumed.health.care.cost.trend.rates.are.as.follows:
.
.
.
Health.Care.Cost.Trend.for.Next.Year.
Rate.that.the.Trend.Rate.Gradually.Trends.to.
Year.that.the.Trend.Rate.Reaches.the.Rate.Which.it.is.Expected.to.Remain.At.
2012.
8%.
5%.
2021.
2011.
10%.
5%.
2022.
2010
10%
5%
2021
Assumed.health.care.cost.trend.rates.have.an.effect.on.the.amounts.reported.for.the.OPEB.plans..A.one.percentage.point.change.in.assumed.health.
care.cost.trend.rates.would.have.the.following.effects:
.
.
.
Effect.on.Service.and.Interest.Cost.
Effect.on.Pension.and.Other.Post-Employment.Benefit.Liability.
One Percentage
Point increase
–
1
.
.
One Percentage
Point Decrease
–
(1)
D) PLAN ASSETS AND INVESTMENT OBJECTIVES
The.objective.of.the.asset.allocation.is.to.manage.the.funded.status.
of.the.plan.at.an.appropriate.level.of.risk,.giving.consideration.to.the.
security.of.the.assets.and.the.potential.volatility.of.market.returns.and.
the.resulting.effect.on.both.contribution.requirements.and.pension.
expense..The.long-term.return.is.expected.to.achieve.or.exceed.the.
return.from.a.composite.benchmark.comprised.of.passive.investments.
in.appropriate.market.indices..The.asset.allocation.structure.is.subject.
to.diversification.requirements.and.constraints.which.reduce.risk.by.
limiting.exposure.to.individual.equity.investment.and.credit..
rating.categories.
The.actual.return.on.the.plan.assets.for.the.year.ended.December.31,.
2012.was.$3.million.(2011.–.$nil).
The.Company’s.weighted.average.pension.plan.asset.allocation,.based.
on.market.values.as.at.December.31,.2012.and.2011,.are.as.follows:.
.
.
.
.
.
.
Equity.Securities.
Debt.Securities.
Real.Estate.and.Other.
Total..
Target.Allocation.
.
65-70%.
........... 30%.
0-5%.
100%.
Percentage.of.Plan.Assets
2011
60%
33%
7%
100%
2012.
63%.
30%.
7%.
100%.
Equity.securities.do.not.include.any.direct.investments.in.Cenovus.shares..
The.expected.contributions.for.the.year.ended.December.31,.2013.is.$15.million.for.the.defined.benefit.pension.plan.and.$nil.for.the.OPEB.
104 CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
E) DEFINED BENEFIT PLAN AND OPEB ExPERIENCE ADJUSTMENTS
Experience.adjustments.as.a.percentage.of.total.plan.assets.and.liabilities.are.as.follows:
As a t Decemb er 3 1,.
Defined Benefit.
. Experience.Adjustments.Arising.on.Plan.Liabilities.
. Experience.Adjustments.Arising.on.Plan.Assets.
OPEB .
. Experience.Adjustments.Arising.on.Plan.Liabilities.
2 5. S H A R E CAP ITAL
A) AUTHORIZED
2012.
.
2%.
0%.
.
3%.
2011.
.
(1%).
7%.
.
2%.
2010
.
3%
(2%)
2%
Cenovus.is.authorized.to.issue.an.unlimited.number.of.common.shares,.an.unlimited.number.of.first.preferred.shares.and.an.unlimited.number.of.
second.preferred.shares..The.first.and.second.preferred.shares.may.be.issued.in.one.or.more.series.with.rights.and.conditions.to.be.determined.by.the.
Company’s.Board.of.Directors.prior.to.issuance.and.subject.to.the.Company’s.articles.
.
.
.
.
.
.
B) ISSUED AND OUTSTANDING
.
.
.
As a t Decemb er 3 1,.
.
Outstanding,.Beginning.of.Year.
Common.Shares.Issued.under.Stock.Option.Plans.
Outstanding,.End.of.Year.
2012.
2011
Number of.
Common Shares.
(thous an ds ).
.
.
Amount.
Number.of.
Common.Shares.
(thous ands).
754,499
1,344
755,843
3,780.
49.
3,829.
752,675.
1,824.
754,499.
Amount
3,716
64
3,780
There.were.no.preferred.shares.outstanding.as.at.December.31,.2012.
(2011.–.nil)..
shares..At.the.discretion.of.the.Company,.the.additional.common.shares.
may.be.issued.from.treasury.or.purchased.on.the.market..
At.December.31,.2012,.there.were.28.million.(2011.–.30.million).common.
shares.available.for.future.issuance.under.stock.option.plans..
C) PAID IN SURPLUS
The.Company.has.a.dividend.reinvestment.plan.(“DRIP”)..Under.the.
DRIP,.holders.of.common.shares.may.reinvest.all.or.a.portion.of.the.
cash.dividends.payable.on.their.common.shares.in.additional.common.
Cenovus’s.paid.in.surplus.reflects.the.Company’s.retained.earnings.prior.
to.the.split.of.Encana.under.the.Arrangement.into.two.independent.
energy.companies,.Encana.and.Cenovus..In.addition,.paid.in.surplus.
includes.compensation.expense.related.to.the.Company’s.NSRs.
discussed.in.Note.26.A.
.
.
.
.
.
.
As.at.December.31,.2010.
Stock-Based.Compensation.Expense.
As.at.December.31,.2011.
Stock-Based.Compensation.Expense.
As.at.December.31,.2012.
Pre-Arrangement
Stock-Based.
Earnings Compensation
–.
24.
24.
47.
71
4,083.
–.
4,083.
–.
4,083
Total
4,083
24
4,107
47
4,154
2 6. STO CK- BASE D COMPENSATION PL AN S
A) EMPLOYEE STOCK OPTION PLAN
Cenovus.has.an.Employee.Stock.Option.Plan.that.provides.employees.
with.the.opportunity.to.exercise.an.option.to.purchase.common.shares.
of.the.Company..Option.exercise.prices.approximate.the.market.price.
for.the.common.shares.on.the.date.the.options.were.issued..Options.
granted.are.exercisable.at.30.percent.of.the.number.granted.after.one.
year,.an.additional.30.percent.of.the.number.granted.after.two.years.
and.are.fully.exercisable.after.three.years..Options.granted.prior.to.
February.17,.2010.expire.after.five.years.while.options.granted.on.or.
after.February.17,.2010.expire.after.seven.years..
Options.issued.by.the.Company.under.the.Employee.Stock.Option.Plan.
prior.to.February.24,.2011.have.associated.tandem.stock.appreciation.
rights..In.lieu.of.exercising.the.options,.the.tandem.stock.appreciation.
rights.give.the.option.holder.the.right.to.receive.a.cash.payment.equal.
to.the.excess.of.the.market.price.of.Cenovus’s.common.shares.at.the.
time.of.exercise.over.the.exercise.price.of.the.option.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOLIDATED FINA NCI AL STATE MENTS
10 5
Options.issued.by.the.Company.on.or.after.February.24,.2011.have.
associated.net.settlement.rights..The.net.settlement.rights,.in.lieu.of.
exercising.the.option,.give.the.option.holder.the.right.to.receive.the.
number.of.common.shares.that.could.be.acquired.with.the.excess.value.
of.the.market.price.of.Cenovus’s.common.shares.at.the.time.of.exercise.
over.the.exercise.price.of.the.option..
The.tandem.stock.appreciation.rights.and.net.settlement.rights.vest.and.
expire.under.the.same.terms.and.conditions.as.the.underlying.options..
For.the.purpose.of.this.financial.statement.note,.options.with.associated.
tandem.stock.appreciation.rights.are.referred.to.as.“TSARs”.and.options.
with.associated.net.settlement.rights.are.referred.to.as.“NSRs”..
In.addition,.certain.of.the.TSARs.are.performance.based.(“Performance.
TSARs”)..The.Performance.TSARs.vest.and.expire.under.the.same.terms.
and.service.conditions.as.the.underlying.option,.and.have.an.additional.
vesting.requirement.whereby.vesting.is.subject.to.achievement.of.
prescribed.performance.relative.to.pre-determined.key.measures..
Performance.TSARs.that.do.not.vest.when.eligible.are.forfeited.
.
.
.
.
.
.
.
.
.
.
.
.
As a t December 31, 2012.
Encana.Replacement.TSARs.held..
. by.Cenovus.Employees.
Cenovus.Replacement.TSARs.held..
. by.Encana.Employees.
TSARs.
TSARs.
NSRs..
.
.
.
.
issued.
Prior.to.Arrangement.
Prior.to.Arrangement.
Prior.to.February.17,.2010.
On.or.After.February.17,.2010.
On.or.After.February.24,.2011.
In.accordance.with.the.Arrangement.described.in.Note.1,.each.Cenovus.
and.Encana.employee.exchanged.their.original.Encana.TSAR.for.one.
Cenovus.Replacement.TSAR.and.one.Encana.Replacement.TSAR..The.
terms.and.conditions.of.the.Cenovus.and.Encana.Replacement.TSARs.
are.similar.to.the.terms.and.conditions.of.the.original.Encana.TSAR..
The.original.exercise.price.of.the.Encana.TSAR.was.apportioned.to.
the.Cenovus.and.Encana.Replacement.TSARs.based.on.the.one.day.
volume.weighted.average.trading.price.of.Cenovus’s.common.share.
price.relative.to.that.of.Encana’s.common.share.price.on.the.TSX.on.
December.2,.2009..Cenovus.TSARs.and.Cenovus.Replacement.TSARs.
are.measured.against.the.Cenovus.common.share.price.while.Encana.
Replacement.TSARs.are.measured.against.the.Encana.common.share.
price..The.Cenovus.Replacement.TSARs.have.similar.vesting.provisions.
as.outlined.above.for.the.Employee.Stock.Option.Plan..The.original.
Encana.Performance.TSARs.were.also.exchanged.under.the.same.terms.
as.the.original.Encana.TSARs.
.
.
.
.
.
.
.
Term
(Yea rs )
Weighted.
Average
Remaining
Contractual
..Life.(Yea rs ).
.
Weighted.
Average
Exercise
Price.($).
5
5
5
7
7
0.66
0.70
0.72
4.20
5.85
32.66
29.29
29.28
26.71
37.52
Closing.
Share
Units.
Price.($). Outstanding
19.66
33.29
33.29
33.29
33.29
7,722
5,229
6,225
5,026
15,074
Unless.otherwise.indicated,.all.references.to.TSARs.collectively.refer.to.both.the.Cenovus.issued.TSARs.and.Cenovus.Replacement.TSARs..
NSRs
The.weighted.average.unit.fair.value.of.NSRs.granted.during.the.year.ended.December.31,.2012.was.$7.62.before.considering.forfeitures,.which.are.
considered.in.determining.total.cost.for.the.period..The.fair.value.of.each.NSR.was.estimated.on.its.grant.date.using.the.Black-Scholes-Merton.
valuation.model.with.weighted.average.assumptions.as.follows:.
Risk-Free.Interest.Rate.
Expected.Dividend.Yield.
Expected.Volatility.(1).
Expected.Life.(Years).
(1).Expected.volatility.has.been.based.on.historical.share.volatility.of.the.Company.and.comparable.industry.peers.
The.following.tables.summarize.information.related.to.the.NSRs.as.at.December.31,.2012:
.
.
.
.
.
.
.
.
.
As a t December 31, 2012 (tho usand s of units).
Outstanding,.Beginning.of.Year.
. Granted.
. Exercised.for.Common.Shares.
.
Outstanding,.End.of.Year.
Exercisable,.End.of.Year.
Forfeited.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
1.37%
2.31%
28.62%
4.55
.
.
.
NSRs
5,809
9,665
(5)
(395)
15,074
1,700
Weighted.
Average.
Exercise.
Price ($)
36.95
37.87
33.99
37.56
37.52
36.98
For.options.exercised.during.the.year,.the.weighted.average.market.price.of.Cenovus’s.common.shares.at.the.date.of.exercise.was.$35.28.
106 CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
As a t Decemb er 3 1, 2 012.
Range of Exe rcise P rice ($ ).
30.00.to.39.99.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
As a t Decemb er 3 1, 2 012.
Range of Exe rcise P rice ($ ).
30.00.to.39.99.
Outstanding.NSRs.
(thous an ds of units).
Weighted.
.
.
Average
Remaining.
Contractual
Life (years)
5.85
.
NSRs
15,074
Weighted.
Average.
Exercise.
Price ($)
37.52
Exercisable.NSRs.
(thousands of units).
.
NSRs
1,700
Weighted.
Average.
Exercise.
Price ($)
36.98
.
.
.
TSARs Held by Cenovus Employees
The.Company.has.recorded.a.liability.of.$64.million.at.December.31,.2012.(December.31,.2011.–.$90.million).in.the.Consolidated.Balance.Sheets.
based.on.the.fair.value.of.each.TSAR.held.by.Cenovus.employees..Fair.value.was.estimated.at.the.period.end.date.using.the.Black-Scholes-Merton.
valuation.model.with.weighted.average.assumptions.as.follows:
Risk-Free.Interest.Rate.
Expected.Dividend.Yield.
Expected.Volatility.(1).
Cenovus’s.Common.Share.Price.
.
.
.
.
(1).Expected.volatility.has.been.based.on.historical.share.volatility.of.the.Company.and.comparable.industry.peers.
The.intrinsic.value.of.vested.TSARs.held.by.Cenovus.employees.at.December.31,.2012.was.$45.million.(2011.–.$43.million).
The.following.tables.summarize.information.related.to.the.TSARs.held.by.Cenovus.employees.as.at.December.31,.2012:
.
.
.
.
.
.
.
.
.
A s a t D ece mb er 3 1, 2 012 (t hous ands of units).
Outstanding,.Beginning.of.Year.
. Granted.
. Exercised.for.Cash.Payment.
. Exercised.as.Options.for.Common.Shares.
.
. Expired.
Outstanding,.End.of.Year.
Exercisable,.End.of.Year.
Forfeited.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
TSARs
9,391.
–.
(937).
(683).
(134).
(11).
7,626
5,369
.
.
Performance
TSARs
5,530.
–.
(1,057).
(641).
(207).
–.
3,625
3,625
.
.
.
.
.
.
Total
14,921
–
(1,994)
(1,324)
(341)
(11)
11,251
8,994
1.28%
2.58%
27.80%
$ 33.29
Weighted.
Average.
Exercise.
Price.($)
28.12
–
28.52
27.77
26.77
30.85
28.13
28.46
For.options.exercised.during.the.year,.the.weighted.average.market.price.of.Cenovus’s.common.shares.at.the.date.of.exercise.was.$36.73.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
As a t Decemb er 3 1, 2 012.
Range of Exe rcise P rice ($ ).
20.00.to.29.99.
30.00.to.39.99.
40.00.to.49.99.
.
.
.
Outstanding.TSARs.
(thous an ds of un its )
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. Performance
TSARs
2,143.
1,482.
–.
3,625
TSARs
6,269.
1,294.
63.
7,626
.
.
.
Total
8,412
2,776
63
11,251
Weighted.
Average.
Remaining.
Contractual
Life (Years)
2.88
0.48
0.45
2.27
.
Weighted.
Average.
Exercise.
Price.($)
26.38
33.10
43.29
28.13
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOL IDATED FINA NCI AL STAT EMENTS
107
.
.
.
.
.
.
.
.
.
.
.
.
As a t December 31, 2012.
Range of Exercise Price ($).
20.00.to.29.99.
30.00.to.39.99.
40.00.to.49.99.
.
.
.
Exercisable.TSARs.
(thous an ds of un its )
.
.
.
.
.
.
.
.
.
.
.
TSARs
4,132.
1,174.
63.
5,369
.
.
Performance
TSARs
2,143.
1,482.
–.
3,625
.
.
Total
6,275
2,656
63
8,994
Weighted.
Average.
Exercise.
Price.($)
26.35
33.11
43.29
28.46
.
.
.
.
.
.
.
.
The.closing.price.of.Cenovus.common.shares.on.the.TSX.as.at.December.31,.2012.was.$33.29.
Encana Replacement TSARs Held by Cenovus Employees
Cenovus.is.required.to.reimburse.Encana.in.respect.of.cash.payments.
made.by.Encana.to.Cenovus.employees.when.a.Cenovus.employee.
exercises.an.Encana.Replacement.TSAR.for.cash..No.further.Encana.
Replacement.TSARs.will.be.granted.to.Cenovus.employees.
The.Company.has.recorded.a.liability.of.$1.million.at.December.31,.2012.
(2011.–.$1.million).in.the.Consolidated.Balance.Sheets.based.on.the.fair.
value.of.each.Encana.Replacement.TSAR.held.by.Cenovus.employees..
Fair.value.was.estimated.at.the.period.end.date.using.the.Black-Scholes-
Merton.valuation.model.with.weighted.average.assumptions.as.follows:
Risk-Free.Interest.Rate.
Expected.Dividend.Yield.
Expected.Volatility.(1).
Encana’s.Common.Share.Price.
.
.
.
.
.
.
.
.
1.21%
3.86%
30.40%
$ 19.66
(1).Expected.volatility.has.been.based.on.the.historical.volatility.of.Encana’s.publicly.traded.shares.
The.intrinsic.value.of.vested.Encana.Replacement.TSARs.held.by.Cenovus.employees.at.December.31,.2012.was.$nil.(2011.–.$nil)..
The.following.tables.summarize.information.related.to.the.Encana.Replacement.TSARs.held.by.Cenovus.employees.as.at.December.31,.2012:
.
.
.
.
.
.
.
.
.
As a t December 31, 2012 (tho usand s of units).
Outstanding,.Beginning.of.Year.
. Exercised.for.Cash.Payment.
. Exercised.as.Options.for.Encana.Common.Shares.
.
. Expired.
Outstanding,.End.of.Year.
Exercisable,.End.of.Year.
Forfeited.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
As a t December 31, 2012.
Range of Exe rcise Price ($).
20.00.to.29.99.
30.00.to.39.99.
40.00.to.49.99.
50.00.to.59.99.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
TSARs
4,281.
–.
–.
(112).
(1,008).
3,161
3,161
.
.
Performance
TSARs
6,130.
–.
–.
(333).
(1,236).
4,561
4,561
.
.
Total
10,411
–
–
(445)
(2,244)
7,722
7,722
Outstanding.&.Exercisable.TSARs.
(thous an ds of un its )
.
.
.
.
.
.
. Performance
TSARs
2,510.
2,051.
–.
–.
4,561
TSARs
1,564.
1,465.
130.
2.
3,161
.
.
.
Total
4,074
3,516
130
2
7,722
Weighted.
Average.
Remaining.
Contractual
Life (Yea rs )
1.12
0.15
0.48
0.39
0.66
Weighted.
Average.
Exercise.
Price.($)
31.97
–
–
31.04
29.79
32.66
32.66
.
Weighted.
Average.
Exercise.
Price.($)
29.02
36.41
44.85
50.39
32.66
The.closing.price.of.Encana.common.shares.on.the.TSX.as.at.December.31,.2012.was.$19.66.
108 CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
Cenovus Replacement TSARs Held by Encana Employees
Encana.is.required.to.reimburse.Cenovus.in.respect.of.cash.payments.
made.by.Cenovus.to.Encana.employees.when.these.employees.exercise.
a.Cenovus.Replacement.TSAR.for.cash..No.compensation.expense.is.
recognized.and.no.further.Cenovus.Replacement.TSARs.will.be.granted.
to.Encana.employees.
The.Company.has.recorded.a.liability.of.$35.million.at.December.31,.
2012.(2011.–.$83.million).in.the.Consolidated.Balance.Sheets.based.
on.the.fair.value.of.each.Cenovus.Replacement.TSAR.held.by.Encana.
employees,.with.an.offsetting.account.receivable.from.Encana..Fair.
value.was.estimated.at.the.period.end.date.using.the.Black-Scholes-
Merton.valuation.model.with.weighted.average.assumptions.as.follows:
Risk-Free.Interest.Rate.
Expected.Dividend.Yield.
Expected.Volatility.(1).
Cenovus’s.Common.Share.Price.
.
.
.
.
.
.
.
.
1.21%
2.58%
27.80%
$ 33.29
(1).Expected.volatility.has.been.based.on.historical.share.volatility.of.the.Company.and.comparable.industry.peers.
The.intrinsic.value.of.vested.Cenovus.Replacement.TSARs.held.by.Encana.employees.at.December.31,.2012.was.$22.million.(2011.–.$32.million).
The.following.tables.summarize.the.information.related.to.the.Cenovus.Replacement.TSARs.held.by.Encana.employees.as.at.December.31,.2012:
.
.
.
.
.
.
.
.
.
A s a t D ece mb er 3 1, 2 012 (t hous ands of units).
Outstanding,.Beginning.of.Year.
. Exercised.for.Cash.Payment.
. Exercised.as.Options.for.Common.Shares.
.
. Expired.
Outstanding,.End.of.Year.
Exercisable,.End.of.Year.
Forfeited.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
TSARs
3,935.
(1,788).
(8).
(84).
(30).
2,025
2,025
.
.
Performance
TSARs
5,751.
(2,189).
(12).
(314).
(32).
3,204
3,204
.
.
Total
9,686
(3,977)
(20)
(398)
(62)
5,229
5,229
Weighted.
Average.
Exercise.
Price.($)
28.96
28.69
26.64
27.67
27.67
29.29
29.29
For.options.exercised.during.the.year,.the.weighted.average.market.price.of.Cenovus’s.common.shares.at.the.date.of.exercise.was.$36.72.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
A s a t D ece mb er 3 1, 2 012.
R a n ge o f E xe rcise P rice ($ ).
20.00.to.29.99.
30.00.to.39.99.
40.00.to.49.99.
.
.
.
Outstanding.&.Exercisable.TSARs.
(thous an ds of un its )
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. Performance
TSARs
1,899.
1,305.
–.
3,204
TSARs
1,087.
886.
52.
2,025
.
.
.
Total
2,986
2,191
52
5,229
Weighted.
Average.
Remaining.
Contractual
Life (Years)
1.12
0.14
0.44
0.70
.
Weighted.
Average.
Exercise.
Price.($)
26.27
33.08
42.70
29.29
The.closing.price.of.Cenovus.common.shares.on.the.TSX.as.at.December.31,.2012.was.$33.29.
B) PERFORMANCE SHARE UNITS
Cenovus.has.granted.Performance.Share.Units.(“PSUs”).to.certain.
employees.under.its.Performance.Share.Unit.Plan.for.Employees..PSUs.
are.whole.share.units.and.entitle.employees.to.receive,.upon.vesting,.
either.a.common.share.of.Cenovus.or.a.cash.payment.equal.to.the.
value.of.a.Cenovus.common.share..For.a.portion.of.PSUs,.the.number.
of.PSUs.eligible.for.payment.is.determined.over.three.years.based.on.
the.units.granted.multiplied.by.30.percent.after.year.one,.30.percent.
after.year.two.and.40.percent.after.year.three..All.PSUs.are.eligible.to.
vest.based.on.the.Company.achieving.key.pre-determined.performance.
measures..PSUs.vest.after.three.years..
The.Company.has.recorded.a.liability.of.$124.million.at.December.31,.
2012.(2011.–.$55.million).in.the.Consolidated.Balance.Sheets.for.PSUs.
based.on.the.market.value.of.the.Cenovus.common.shares.at.December.31,.
2012..The.intrinsic.value.of.vested.PSUs.was.$nil.at.December.31,.2012.
and.2011.as.PSUs.are.paid.out.upon.vesting..
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOLIDATED FINA NC IAL STATE MENTS
109
The.following.table.summarizes.the.information.related.to.the.PSUs.held.by.Cenovus.employees.as.at.December.31,.2012:
(thousands of unit s).
Outstanding,.Beginning.of.Year.
. Granted.
. Cancelled.
. Units.in.Lieu.of.Dividends.
Outstanding,.End.of.Year.
C) DEFERRED SHARE UNITS
Under.two.Deferred.Share.Unit.Plans,.Cenovus.directors,.officers.
and.employees.may.receive.Deferred.Share.Units.(“DSUs”),.which.are.
equivalent.in.value.to.a.common.share.of.the.Company..Employees.
have.the.option.to.convert.either.zero,.25.or.50.percent.of.their.
annual.bonus.award.into.DSUs..DSUs.vest.immediately,.are.redeemed.
in.accordance.with.the.terms.of.the.agreement.and.expire.on.
.
.
.
.
.
.
.
.
.
.
.
PSUs
2,623
2,704
(183)
114
5,258
December.15.of.the.calendar.year.following.the.year.of.cessation.of.
directorship.or.employment.
The.Company.has.recorded.a.liability.of.$36.million.at.December.31,.
2012.(2011.–.$35.million).in.the.Consolidated.Balance.Sheets.for.DSUs.
based.on.the.market.value.of.the.Cenovus.common.shares.at.December.
31,.2012..The.intrinsic.value.of.vested.DSUs.equals.the.carrying.value.as.
DSUs.vest.at.the.time.of.grant..
The.following.table.summarizes.the.information.related.to.the.DSUs.held.by.Cenovus.directors,.officers.and.employees.as.at.December.31,.2012:
(thousands of unit s).
Outstanding,.Beginning.of.Year.
. Granted.to.Directors.
. Granted.from.Annual.Bonus.Awards.
. Units.in.Lieu.of.Dividends.
. Exercised.
Outstanding,.End.of.Year.
.
.
.
.
.
.
.
.
.
.
.
.
.
D) TOTAL STOCK-BASED COMPENSATION ExPENSE (RECOVERY)
The.following.table.summarizes.the.stock-based.compensation.expense.(recovery).recorded.for.all.plans.within.operating.and.general.and.
administrative.expenses.on.the.Consolidated.Statements.of.Earnings.and.Comprehensive.Income:
For the years ended Decem b er 3 1,.
NSRs..
TSARs.Held.by.Cenovus.Employees.
Encana.Replacement.TSARs.Held.by.Cenovus.Employees.
PSUs..
DSUs..
Total Stock-Based Compensation Expense (Recovery).
27. EMPLOYEE SAL ARIES AND BE N EFI T E xPENSES
For the years ended Decem b er 3 1,.
Salaries,.Bonuses.and.Other.Short-Term.Employee.Benefits.
Defined.Contribution.Pension.Plan.
Defined.Benefit.Pension.Plan.and.OPEB..
Stock-Based.Compensation.(Note.26).
.
.
.
2012.
27.
(1).
–.
46.
3.
75.
2012.
441.
14.
20.
75.
550.
2011.
16.
24.
(8).
27.
4.
63.
2011.
399.
13.
4.
63.
479.
DSUs
1,042
64
22
30
(74)
1,084
2010
–
45
(20)
13
9
47
2010
348
11
(1)
47
405
110
CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
2 8. R EL ATED PARTY TRANSACTION S
KEY MANAGEMENT COMPENSATION
Key.management.includes.Directors.(executive.and.non-executive),.Executive.Officers,.Senior.Vice-Presidents.and.Vice-Presidents..The.compensation.
paid.or.payable.to.key.management.is.as.follows:
For the year s end ed Dece m ber 3 1,.
Salaries,.Director.Fees.and.Short-Term.Benefits.
Post-Employment.Benefits.
Other.Long-Term.Benefits.
Stock-Based.Compensation.
Total .
2012.
27.
7.
–.
35.
69.
2011.
25.
3.
–.
35.
63.
2010
22
2
–
37
61
Post-employment.benefits.represent.the.present.value.of.future.pension.benefits.earned.during.the.year..Stock-based.compensation.includes.the.
costs.recognized.during.the.year.associated.with.stock.options,.NSRs,.TSARs,.PSUs.and.DSUs..
2 9. I N TE REST I N J OINT OPERATION S
On.January.2,.2007,.Cenovus.became.a.50.percent.partner.in.an.
integrated.North.American.heavy.oil.business..The.integrated.business.is.
structured.through.two.joint.arrangements..The.upstream.entity,.FCCL.
Partnership,.is.involved.in.the.development.and.production.of.crude.
oil.and.is.jointly.controlled.with.ConocoPhillips..The.refining.entity,.
WRB.Refining.LP,.includes.two.refineries.in.the.U.S..and.focuses.on.the.
refining.of.crude.oil.into.petroleum.and.chemical.products..WRB.is.
jointly.controlled.with.Phillips.66.
Cenovus.recognizes.its.share.of.the.assets,.liabilities,.revenues.and.
expenses.(proportionately.consolidates).of.these.joint.operations..
with.the.results.of.operations.included.in.the.Oil.Sands.and.Refining.
and.Marketing.segments,.respectively..Cenovus’s.Consolidated..
Financial.Statements.include.the.following.amounts.related.to.these.
joint.arrangements:.
.
.
.
Sta tements o f E arnings Fo r the year s end ed Dece mber 31 ,
Revenues.
Expenses.
. Purchased.Product.
. Operating,.Transportation.and.Blending..
.
Operating Cash Flow..
. Depreciation,.Depletion.and.Amortization.
. Other.Expenses.(Income).
Net Earnings (Loss).
. and.Realized.Gain/Loss.on.Risk.Management.
FCCL.Partnership.(1).
2011.
2,364.
.
–.
1,397.
967.
205.
(136).
898.
2010.
1,829.
.
–.
1,074.
755.
210.
20.
525.
2012.
3,132.
.
–.
1,944.
1,188.
303.
1.
884.
WRB.Refining.LP.(1)
2011.
8,672.
.
7,223.
2010
6,624
.
6,095
473.
976.
130.
(4).
850.
462
67
86
13
(32)
2012.
9,160.
.
7,339.
552.
1,269.
135.
4.
1,130.
(1).FCCL.Partnership.and.WRB.Refining.LP.are.not.separate.tax.paying.entities..Income.taxes.related.to.the.Partnerships’.income.are.the.responsibility.of.their.respective.Partners.
.
.
.
As a t Decemb er 3 1,.
Cash.and.Cash.Equivalents.
Other.Current.Assets.
Long-Term.Assets.
Current.Liabilities.
Long-Term.Liabilities.
FCCL.Partnership.
2011.
145.
792.
6,864.
317.
83.
2012.
388.
761.
7,599.
350.
137.
WRB.Refining.LP
2011
2012.
166
172.
1,236
1,111.
3,188
3,087.
759
566.
73
58.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOL IDATED FINA NC IAL STATE MENTS
111
Capital.commitments.through.jointly.controlled.entities.are.as.follows:.
As a t December 31, 2012.
Capital.Commitments.(1).
1.Year..
268.
2.Years.
34.
3.Years.
44.
4.Years.
40.
5.Years.
2.
Thereafter.
1.
(1).Contracts.undertaken.on.behalf.of.the.FCCL.Partnership.and.WRB.Refining.LP.are.reflected.at.Cenovus’s.50.percent.interest.
As a t December 31, 2011.
Capital.Commitments.(1).
1.Year..
179.
2.Years.
58.
3.Years.
11.
4.Years.
2.
5.Years.
3.
Thereafter.
–.
(1).Contracts.undertaken.on.behalf.of.the.FCCL.Partnership.and.WRB.Refining.LP.are.reflected.at.Cenovus’s.50.percent.interest.
Total
389
Total
253
There.are.no.contingent.liabilities.related.to.the.Company’s.interest.in.jointly.controlled.entities,.nor.contingent.liabilities.of.the.jointly.controlled.
entities.themselves.
Cenovus.monitors.its.capital.structure.and.financing.requirements.using,.
among.other.things,.non-GAAP.financial.metrics.consisting.of.Debt.to.
Capitalization.and.Debt.to.Adjusted.Earnings.Before.Interest,.Taxes,.
Depreciation.and.Amortization.(“Adjusted.EBITDA”)..These.metrics.
are.used.to.steward.Cenovus’s.overall.debt.position.as.measures.of.
Cenovus’s.overall.financial.strength..
Cenovus.continues.to.target.a.Debt.to.Capitalization.ratio.of.between.
30.and.40.percent.over.the.long-term..
30. C A PITAL ST RUCTURE
Cenovus’s.capital.structure.objectives.and.targets.have.remained.
unchanged.from.previous.periods..Cenovus’s.capital.structure.consists.
of.Shareholders’.Equity.plus.Debt..Debt.is.defined.as.short-term.
borrowings.and.the.current.and.long-term.portions.of.long-term.debt.
excluding.any.amounts.with.respect.to.the.Partnership.Contribution.
Payable.or.Receivable..Cenovus’s.objectives.when.managing.its.capital.
structure.are.to.maintain.financial.flexibility,.preserve.access.to.capital.
markets,.ensure.its.ability.to.finance.internally.generated.growth.and.
to.fund.potential.acquisitions.while.maintaining.the.ability.to.meet.the.
Company’s.financial.obligations.as.they.come.due..
A s a t De cem be r 3 1 ,.
Long-Term.Debt.
Shareholders’.Equity.
Capitalization.
Debt to Capitalization.
Cenovus.continues.to.target.a.Debt.to.Adjusted.EBITDA.of.between.1.0.and.2.0.times.over.the.long-term..
Finance.Costs.
Interest.Income.
Income.Tax.Expense.
A s a t De cem be r 3 1 ,.
Debt..
Net.Earnings.
Add.(Deduct):.
.
.
.
. Depreciation,.Depletion.and.Amortization.
. Goodwill.Impairment.
. Exploration.Expense.
. Unrealized.(Gain).Loss.on.Risk.Management.
.
.
. Other.(Income).Loss,.net.
Adjusted.EBITDA..
Foreign.Exchange.(Gain).Loss,.net.
(Gain).Loss.on.Divestiture.of.Assets.
Debt to Adjusted EBITDA.
.
.
.
2012.
4,679.
993.
.
455.
(109).
783.
1,585.
393.
68.
(57).
(20).
–.
(5).
4,086.
1.1x.
2012.
4,679.
9,806.
14,485.
32%.
2011.
3,527.
1,478.
.
447.
(124).
729.
1,295.
–.
–.
(180).
26.
(107).
4.
3,568.
1.0x.
2011
3,527
9,406
12,933
27%
2010
3,432
1,081
.
498
(144)
223
1,302
–
–
(46)
(51)
(116)
(13)
2,734
1.3x
It.is.Cenovus’s.intention.to.maintain.investment.grade.credit.ratings.
to.help.ensure.it.has.continuous.access.to.capital.and.the.financial.
flexibility.to.fund.its.capital.programs,.meet.its.financial.obligations.
and.finance.potential.acquisitions..Cenovus.will.maintain.a.high.level.of.
capital.discipline.and.manage.its.capital.structure.to.ensure.sufficient.
liquidity.through.all.stages.of.the.economic.cycle..To.manage.its.
capital.structure,.Cenovus.may.adjust.capital.and.operating.spending,.
adjust.dividends.paid.to.shareholders,.purchase.shares.for.cancellation.
pursuant.to.normal.course.issuer.bids,.issue.new.shares,.issue.new.debt,.
draw.down.on.its.credit.facilities.or.repay.existing.debt..
At.December.31,.2012,.Cenovus.is.in.compliance.with.all.of.the.terms.of.
its.debt.agreements..
112
CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
31. F I NANCIAL INSTRUM ENTS AND RISK MANAG EM EN T
Cenovus’s.consolidated.financial.assets.and.financial.liabilities.consist.of.
cash.and.cash.equivalents,.accounts.receivable.and.accrued.revenues,.
accounts.payable.and.accrued.liabilities,.Partnership.Contribution.
Receivable.and.Payable,.partner.loans,.risk.management.assets.and.
liabilities,.long-term.receivables,.short-term.borrowings.and.long-term.
debt..Risk.management.assets.and.liabilities.arise.from.the.use.of.
derivative.financial.instruments..
A) FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The.fair.values.of.cash.and.cash.equivalents,.accounts.receivable.and.
accrued.revenues,.accounts.payable.and.accrued.liabilities,.and..
short-term.borrowings.approximate.their.carrying.amount.due.to.the.
short-term.maturity.of.those.instruments.
The.fair.values.of.the.Partnership.Contribution.Receivable.and.
Partnership.Contribution.Payable,.partner.loans.and.long-term.
receivables.approximate.their.carrying.amount.due.to.the.specific.non-
tradeable.nature.of.these.instruments.
Risk.management.assets.and.liabilities.are.recorded.at.their.estimated.
fair.value.based.on.mark-to-market.accounting,.using.quoted.market.
prices.or,.in.their.absence,.third-party.market.indications.and.forecasts.
Long-term.debt.is.carried.at.amortized.cost..The.estimated.fair.values.
of.long-term.borrowings.have.been.determined.based.on.prices.
sourced.from.market.data..As.at.December.31,.2012,.the.carrying.value.
of.Cenovus’s.long-term.debt.accounted.for.using.amortized.cost.was.
$4,679.million.and.the.fair.value.was.$5,582.million.(December.31,.2011.
carrying.value.–.$3,527.million,.fair.value.–.$4,316.million).
B) RISK MANAGEMENT ASSETS AND LIABILITIES
Under.the.terms.of.the.Arrangement,.risk.management.positions.at.
November.30,.2009.were.allocated.to.Cenovus.based.upon.Cenovus’s.
proportion.of.the.related.volumes.covered.by.the.contracts..To.effect.
the.allocation,.Cenovus.entered.into.a.contract.with.Encana.with.the.
same.terms.and.conditions.as.between.Encana.and.the.third.parties.to.
the.existing.contracts..All.positions.entered.into.after.the.Arrangement.
have.been.negotiated.between.Cenovus.and.third.parties..
Net Risk Management Position
.
.
A s a t D ece mb er 3 1,.
Risk Management Assets.
. Current.Asset.
. Long-Term.Asset.
.
Risk Management Liabilities.
. Current.Liability.
. Long-Term.Liability.
.
Net Risk Management Asset (Liability).
.
.
.
.
.
.
Summary of Unrealized Risk Management Positions
.
.
As a t Decemb er 3 1,.
Commodity Prices.
. Crude.Oil.
. Natural.Gas.
. Power.
Total Fair Value.
.
.
.
.
.
.
.
.
.
.
2012.
.
283.
5.
288.
.
17.
1.
18.
270.
2012.
Risk Management.
Liability
.
16
1
1
18
Asset
.
221
66
1
288
Net.
.
205.
65.
–.
270.
2011
Risk.Management
Liability.
.
65.
3.
–.
68.
Asset.
.
22.
247.
15.
284.
Net Fair Value Methodologies Used to Calculate Unrealized Risk Management Positions
As a t Decemb er 3 1,.
Prices.Actively.Quoted.(Level.1).
Prices.Sourced.from.Observable.Data.or.Market.Corroboration.(Level.2).
Total.Fair.Value.
.
.
.
.
2012.
120.
150.
270.
2011
232
52
284
54
14
68
216
Net
(43)
244
15
216
2011
226
(10)
216
Prices.actively.quoted.refers.to.the.fair.value.of.contracts.valued.using.quoted.prices.in.an.active.market..Prices.sourced.from.observable.data.or.
market.corroboration.refers.to.the.fair.value.of.contracts.valued.in.part.using.active.quotes.and.in.part.using.observable,.market-corroborated.data.
CEN OV US EN ERGY 2012 ANNUAL RE PORT / N OTES TO CO NSOL IDATED FINA NCI AL STAT EMENTS
113
.
23
33
145
5
(1)
205
.
.
66
(1)
65
.
–
2010
.
(17)
289
10
(4)
278
.
(92)
152
(8)
(6)
46
324
Net Fair Value of Commodity Price Positions at December 31, 2012
.
As a t December 31, 2012.
.
Crude Oil Contracts.
.
.
Fixed.Price.Contracts.
. Brent.Fixed.Price.(1).
.
.
. Brent.Fixed.Price.(1).
.
.
. WCS.Differential.(2).
.
.
. WCS.Differential.(2).
.
.
. Other.Financial.Positions.(3).
.
.
. Crude.Oil.Fair.Value.Position.
.
Natural Gas Contracts.
.
.
.
.
.
.
.
. Natural.Gas.Fair.Value.Position.
.
Power Purchase Contracts.
.
. Power.Fair.Value.Position.
Fixed.Price.Contracts.
. NYMEX.Fixed.Price.
. Other.Fixed.Price.Contracts.(4).
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Notional Volumes
.
.
18,500.bbls/d.
..18,500.bbls/d.
49,200.bbls/d.
9,400.bbls/d.
.
.
.
.
166.MMcf/d.
.
.
.
.
Term
.
.
2013.
2013.
2013.
2014.
.
.
.
.
2013.
.
.
.
.
(1).. Brent.fixed.price.positions.consist.of.both.Brent.fixed.price.swaps.and.WTI.swaps.converted.to.Brent.
(2). Cenovus.has.entered.into.fixed.price.swaps.to.protect.against.widening.light/heavy.price.differentials.for.heavy.crudes.
(3)..Other.financial.positions.are.part.of.ongoing.operations.to.market.the.Company’s.production.
(4)..Cenovus.has.entered.into.other.fixed.price.contracts.to.protect.against.widening.price.differentials.between.production.areas.and.various.sales.points.
Earnings Impact of Realized and Unrealized Gains (Losses) on Risk Management Positions
Average Price
Fair Value
.
.US$110.36/bbl.
..$111.72/bbl.
US$(20.74)/bbl.
US$(20.13)/bbl.
.
.
.
.
US$4.64/Mcf.
.
.
.
.
.
For the years ended Dece mb er 3 1,.
Realized Gain (Loss) (1).
. Crude.Oil.
. Natural.Gas.
. Refining.
. Power.
.
.
Unrealized Gain (Loss) (2).
. Crude.Oil.
. Natural.Gas.
. Refining.
. Power.
.
.
Gain (Loss) on Risk Management..
.
2012.
.
81.
247.
7.
1.
336.
.
247.
(176).
1.
(15).
57.
393.
2011.
.
(135).
210.
(14).
7.
68.
.
106.
38.
7.
29.
180.
248.
(1).Realized.gains.and.losses.on.risk.management.are.recorded.in.the.operating.segment.to.which.the.derivative.instrument.relates.
(2).Unrealized.gains.and.losses.on.risk.management.are.recorded.in.the.Corporate.and.Eliminations.segment..
Reconciliation of Unrealized Risk Management Positions from January 1 to December 31, 2012
.
.
.
.
.
.
.
.
.
.
.
.
Fair.Value.of.Contracts,.Beginning.of.Year.
. Change.in.Fair.Value.of.Contracts.in.Place.at.Beginning.of.Year..
.
.
. Unrealized.Foreign.Exchange.Gain.(Loss).on.U.S..Dollar.Contracts..
.
.
.
Fair.Value.of.Contracts,.End.of.Year.
Fair.Value.of.Contracts.Realized.During.the.Year.
. and.Contracts.Entered.into.During.the.Year.
.
.
.
.
.
.
.
.
.
.
.
.
.
.2012.
.
Fair Value
216.
393
(3)
(336)
270
Total.
Unrealized
Gain (Loss)
.
2011.
Total.
Unrealized.
Gain.(Loss).
.
2010
Total.
Unrealized.
Gain.(Loss)
.
393.
–.
(336).
57.
248.
–.
(68).
180.
324
–
(278)
46
114
CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
Commodity Price Sensitivities – Risk Management Positions
The.following.table.summarizes.the.sensitivity.of.the.fair.value.of.
Cenovus’s.risk.management.positions.to.fluctuations.in.commodity.
prices,.with.all.other.variables.held.constant..Management.believes.
the.price.fluctuations.identified.in.the.table.below.are.a.reasonable.
measure.of.volatility..The.impact.of.fluctuating.commodity.prices.on.
the.Company’s.open.risk.management.positions.as.at.December.31.could.
have.resulted.in.unrealized.gains.(losses).impacting.earnings.before.
income.tax.for.the.year.ended.December.31.as.follows:
RiSk MANAGEMENT POSiTiONS iN PLACE AS AT DECEMBER 31, 2012
Commodity
Crude.Oil.Commodity.Price.
Crude.Oil.Differential.Price.
Natural.Gas.Commodity.Price.
Natural.Gas.Basis.Price.
Power.Commodity.Price.
Sensitivity Range
± US$10.per.bbl.Applied.to.Brent.&.WTI.Hedges.
± US$5.per.bbl.Applied.to.Differential.Hedges.tied.to.Production.
± $1.per.mcf.Applied.to.NYMEX.Natural.Gas.Hedges.
± $0.10.per.mcf.Applied.to.Natural.Gas.Basis.Hedges.
± $25.per.MWHr.Applied.to.Power.Hedge.
RiSk MANAGEMENT POSiTiONS iN PLACE AS AT DECEMBER 31, 2011
Commodity.
Crude.Oil.Commodity.Price.
Crude.Oil.Differential.Price.
Natural.Gas.Commodity.Price.
Natural.Gas.Basis.Price.
Power.Commodity.Price.
Sensitivity.Range.
± US$10.per.bbl.Applied.to.WTI.Hedges.
± US$5.per.bbl.Applied.to.Differential.Hedges.tied.to.Production.
± $1.per.mcf.Applied.to.NYMEX.and.AECO.Hedges.
± $0.10.per.mcf.Applied.to.Natural.Gas.Basis.Hedges.
± $25.per.MWHr.Applied.to.Power.Hedge.
increase
(156)
111
(55)
1
19
Increase.
(214).
67.
(160).
2.
19.
Decrease
156
(111)
55
(1)
(19)
Decrease
214
(67)
160
(2)
(19)
C) RISKS ASSOCIATED WITH FINANCIAL ASSETS AND LIABILITIES
Commodity Price Risk
Commodity.price.risk.arises.from.the.effect.that.fluctuations.of.future.
commodity.prices.may.have.on.the.fair.value.or.future.cash.flows.
of.financial.assets.and.liabilities..To.partially.mitigate.exposure.to.
commodity.price.risk,.the.Company.has.entered.into.various.financial.
derivative.instruments..The.use.of.these.derivative.instruments.is.
governed.under.formal.policies.and.is.subject.to.limits.established.by.
the.Board.of.Directors..The.Company’s.policy.is.not.to.use.derivative.
instruments.for.speculative.purposes.
Crude Oil –.The.Company.has.used.fixed.price.swaps.to.partially.
mitigate.its.exposure.to.the.commodity.price.risk.on.its.crude.oil.sales.
and.condensate.supply.used.for.blending..Cenovus.has.entered.into.a.
limited.number.of.swaps.and.futures.to.help.protect.against.widening.
light/heavy.crude.oil.price.differentials.
Natural Gas.–.To.partially.mitigate.the.natural.gas.commodity.price.risk,.
the.Company.has.entered.into.swaps,.which.fix.the.NYMEX.price..To.
help.protect.against.widening.natural.gas.price.differentials.in.various.
production.areas,.Cenovus.has.entered.into.a.limited.number.of.swaps.
to.manage.the.price.differentials.between.these.production.areas.and.
various.sales.points.
Power.–.The.Company.has.in.place.a.Canadian.dollar.denominated.
derivative.contract,.which.commenced.January.1,.2007.for.a.period.of.11.
years,.to.manage.a.portion.of.its.electricity.consumption.costs.
Credit Risk
Credit.risk.arises.from.the.potential.that.the.Company.may.incur.
a.loss.if.a.counterparty.to.a.financial.instrument.fails.to.meet.its.
obligation.in.accordance.with.agreed.terms..This.credit.risk.exposure.is.
mitigated.through.the.use.of.Board-approved.credit.policies.governing.
the.Company’s.credit.portfolio.and.with.credit.practices.that.limit.
transactions.according.to.counterparties’.credit.quality..Agreements.
are.entered.into.with.major.financial.institutions.with.investment.grade.
credit.ratings.and.with.large.commercial.counterparties,.most.of.which.
have.investment.grade.credit.ratings..A.substantial.portion.of.Cenovus’s.
accounts.receivable.are.with.customers.in.the.oil.and.gas.industry.and.
are.subject.to.normal.industry.credit.risks..At.December.31,.2012.and.2011,.
substantially.all.of.the.Company’s.accounts.receivable.were.current..
As.at.December.31,.2012,.87.percent.(2011.–.92.percent).of.Cenovus’s.
accounts.receivable.and.financial.derivative.credit.exposures.are.with.
investment.grade.counterparties.
At.December.31,.2012,.Cenovus.had.two.counterparties.(2011.–.two.
counterparties).whose.net.settlement.position.individually.account.for.
more.than.10.percent.of.the.fair.value.of.the.outstanding.in-the-money.
net.financial.and.physical.contracts.by.counterparty..The.maximum.
credit.risk.exposure.associated.with.accounts.receivable.and.accrued.
revenues,.risk.management.assets,.Partnership.Contribution.Receivable,.
partner.loans.receivable,.and.long-term.receivables.is.the.total.carrying.
value..The.majority.of.this.credit.risk.resides.with.A.rated.or.higher.
counterparties..Cenovus’s.exposure.to.its.counterparties.is.acceptable.
and.within.Credit.Policy.tolerances.
Liquidity Risk
Liquidity.risk.is.the.risk.that.Cenovus.will.not.be.able.to.meet.all.of.its.
financial.obligations.as.they.become.due..Liquidity.risk.also.includes.
the.risk.of.not.being.able.to.liquidate.assets.in.a.timely.manner.at.a.
reasonable.price..Cenovus.manages.its.liquidity.risk.through.the.active.
management.of.cash.and.debt.and.by.maintaining.appropriate.access.
to.credit..As.disclosed.in.Note.30,.over.the.long.term,.Cenovus.targets.
a.Debt.to.Capitalization.ratio.between.30.and.40.percent.and.a.Debt.to.
Adjusted.EBITDA.of.between.1.0.to.2.0.times.to.manage.the.Company’s.
overall.debt.position..It.is.Cenovus’s.intention.to.maintain.investment.
grade.credit.ratings.on.its.senior.unsecured.debt..
CEN OV US EN ERGY 2012 AN NUAL R EPORT / NOTES TO CO NSOLIDATED FINA NCI AL STAT EMENTS
115
Cenovus.manages.its.liquidity.risk.by.ensuring.that.it.has.access.to.
multiple.sources.of.capital.including:.cash.and.cash.equivalents,.cash.
from.operating.activities,.undrawn.credit.facilities,.commercial.paper.and.
availability.under.its.shelf.prospectuses..At.December.31,.2012,.Cenovus.had.
$3.0.billion.available.on.its.committed.credit.facility..In.addition,.Cenovus.
had.in.place.a.Canadian.debt.shelf.prospectus.for.$1.5.billion.and.unused.
capacity.of.US$750.million.under.a.U.S..debt.shelf.prospectus,..
the.availability.of.which.are.dependent.on.market.conditions.
Undiscounted.cash.outflows.relating.to.financial.liabilities.are:
2012. .
Accounts.Payable.and.Accrued.Liabilities...........
Risk.Management.Liabilities.
Long-Term.Debt.(1).
Partnership.Contribution.Payable.(1).
Other.(1).
(1).Principal.and.interest,.including.current.portion.
2011. .
Accounts.Payable.and.Accrued.Liabilities...........
Risk.Management.Liabilities.
Long-Term.Debt.(1).
Partnership.Contribution.Payable.(1).
Other.(1).
(1).Principal.and.interest,.including.current.portion.
. Less.than.1.Year.
2,650.
.
17.
.
254.
.
486.
.
–.
.
. Less.than.1.Year.
2,579.
.
54.
.
208.
.
497.
.
3.
.
1-3.Years.
–.
1.
1,263.
972.
9.
1-3.Years.
–.
14.
1,230.
994.
10.
4-5.Years.
–.
–.
432.
609.
4.
4-5.Years.
–.
–.
343.
994.
3.
Thereafter.
–.
–.
7,051.
–.
4.
Thereafter.
–.
–.
5,182.
125.
4.
Total
2,650
18
9,000
2,067
17
Total
2,579
68
6,963
2,610
20
Foreign Exchange Risk
Foreign.exchange.risk.arises.from.changes.in.foreign.exchange.rates.that.
may.affect.the.fair.value.or.future.cash.flows.of.Cenovus’s.financial.
assets.or.liabilities..As.Cenovus.operates.in.North.America,.fluctuations.
in.the.exchange.rate.between.the.U.S./Canadian.dollars.can.have.a.
significant.effect.on.reported.results..
As.disclosed.in.Note.7,.Cenovus’s.foreign.exchange.(gain).loss.primarily.
includes.unrealized.foreign.exchange.gains.and.losses.on.the.translation.
of.the.U.S..dollar.debt.issued.from.Canada.and.the.translation.of.the.
U.S..dollar.Partnership.Contribution.Receivable.issued.from.Canada..At.
December.31,.2012,.Cenovus.had.US$4,750.million.in.U.S..dollar.debt.
issued.from.Canada.(2011.–.US$3,500.million;.2010.–.US$3,500.million).
and.US$1,791.million.related.to.the.U.S..dollar.Partnership.Contribution.
Receivable.(2011.–.US$2,157.million;.2010.–.US$2,505.million)..A.$0.01.
change.in.the.U.S..to.Canadian.dollar.exchange.rate.would.have.resulted.
in.a.$30.million.change.in.foreign.exchange.(gain).loss.at.December.31,.
2012.(2011.–.$13.million;.2010.–.$10.million).
Interest Rate Risk
Interest.rate.risk.arises.from.changes.in.market.interest.rates.that.may.
affect.earnings,.cash.flows.and.valuations..Cenovus.has.the.flexibility.to.
partially.mitigate.its.exposure.to.interest.rate.changes.by.maintaining.a.
mix.of.both.fixed.and.floating.rate.debt.
At.December.31,.2012,.the.increase.or.decrease.in.net.earnings.for.a.one.
percentage.point.change.in.interest.rates.on.floating.rate.debt.amounts.
to.$nil.(2011.–.$nil;.2010.–.$nil)..This.assumes.the.amount.of.fixed.and.
floating.debt.remains.unchanged.from.the.respective.balance.sheet.dates..
32 . SUP PLE ME NTARY C ASH FLOW I N FO RMATION
For the years ended Decem b er 3 1,.
Interest.Paid.
Interest.Received.
Income.Taxes.Paid..
2012.
342.
113.
304.
2011.
357.
128.
–.
2010
423
148
62
116
CENOVUS ENERGY 2012 ANNUAL RE PO RT / NOTES TO CONSOLIDATED FINA NCIA L STATEMEN TS
33. COMMITMENTS AND CONTIN GENCIES
A) COMMITMENTS
As.part.of.normal.operations,.the.Company.has.committed.to.certain.amounts.over.the.next.five.years.and.thereafter.as.follows:
2012. .
Pipeline.Transportation.(1).
Operating.Leases.(Building.Leases).
Product.Purchases.
Capital.Commitments.(2).
Other.Long-Term.Commitments.
Total.Payments.(3).
Fixed.Price.Product.Sales.
1.Year.
145.
109.
81.
320.
33.
688.
50.
2.Years.
209.
106.
18.
54.
25.
412.
52.
3.Years.
378.
112.
18.
61.
18.
587.
54.
4.Years.
403.
110.
6.
53.
7.
579.
55.
(1). Certain.transportation.commitments.included.are.subject.to.regulatory.approval.
(2). Includes.those.commitments.related.to.jointly.controlled.entities.
(3). Contracts.undertaken.on.behalf.of.the.FCCL.Partnership.and.WRB.Refining.LP.are.reflected.at.Cenovus’s.50.percent.interest.
2011. .
Pipeline.Transportation.(1).
Operating.Leases.(Building.Leases).
Product.Purchases.
Capital.Commitments.(2).
Other.Long-Term.Commitments.
Total.Payments.(3).
Fixed.Price.Product.Sales.
1.Year.
143.
71.
19.
366.
5.
604.
52.
2.Years.
137.
93.
18.
98.
4.
350.
54.
3.Years.
187.
85.
19.
40.
1.
332.
56.
4.Years.
311.
80.
19.
23.
1.
434.
57.
(1). Certain.transportation.commitments.included.are.subject.to.regulatory.approval.
(2). Includes.those.commitments.related.to.jointly.controlled.entities.
(3). .Contracts.undertaken.on.behalf.of.the.FCCL.Partnership.and.WRB.Refining.LP.are.reflected.at.Cenovus’s.50.percent.interest.
5.Years.
675.
104.
–.
6.
6.
791.
3.
5.Years.
347.
80.
6.
22.
–.
455.
60.
Thereafter.
8,130.
1,602.
–.
2.
10.
9,744.
–.
Thereafter.
2,754.
1,491.
–.
20.
1.
4,266.
3.
Total
9,940
2,143
123
496
99
12,801
214
Total
3,879
1,900
81
569
12
6,441
282
At.December.31,.2012,.there.were.outstanding.letters.of.credit.
aggregating.$36.million.issued.as.security.for.performance.under.certain.
contracts.(2011.–.$17.million).
In.addition.to.the.above,.Cenovus’s.commitments.related.to.its.risk.
management.program.are.disclosed.in.Note.31.
B) CONTINGENCIES
Legal Proceedings
Cenovus.is.involved.in.a.limited.number.of.legal.claims.associated.
with.the.normal.course.of.operations..Cenovus.believes.it.has.made.
adequate.provisions.for.such.legal.claims..There.are.no.individually.or.
collectively.significant.claims..
Decommissioning Liabilities
Cenovus.is.responsible.for.the.retirement.of.long-lived.assets.at..
the.end.of.their.useful.lives..Cenovus.has.recognized.a.liability.of..
$2,315.million,.based.on.current.legislation.and.estimated.costs,.
related.to.its.crude.oil.and.natural.gas.properties,.refining.facilities.and.
midstream.facilities..Actual.costs.may.differ.from.those.estimated.due.
to.changes.in.legislation.and.changes.in.costs.
Income Tax Matters
The.tax.regulations.and.legislation.and.interpretations.thereof.in.
the.various.jurisdictions.in.which.Cenovus.operates.are.continually.
changing..As.a.result,.there.are.usually.a.number.of.tax.matters.under.
review..Management.believes.that.the.provision.for.taxes.is.adequate.
34. SUB SEQUENT EVENT
Subsequent.to.December.31,.2012,.Management.decided.to.divest.its.
Lower.Shaunavon.and.certain.of.its.Bakken.properties.in.Saskatchewan..
The.public.sales.process.is.expected.to.be.launched.in.late.February.
2013..The.land.base.associated.with.these.properties.is.relatively.small.
and.does.not.offer.sufficient.scalability.to.be.material.to.Cenovus’s.
overall.asset.portfolio..Operating.results.from.these.properties.are.
included.in.the.Conventional.segment.
CEN OV US EN ERGY 2012 AN NUAL R EPORT / NOTES TO CO NSOLIDATED FINA NCI AL STAT EMENTS
117
SU P P LE MENTAL INFOR MATIO N
( UNAUD ITED )
FINANCIAL STATISTICS
.
.
.
($ mil lions, except per share am o unts ).
Gross.Sales.
Less:.Royalties.
Revenues.
OPERATiNG CASh FLOW
Crude.Oil.and.Natural.Gas.Liquids.
.
Foster.Creek..
. Christina.Lake.
. Pelican.Lake.
. Conventional.
Natural.Gas.
Other.Upstream.Operations.
.
Refining.and.Marketing.
Operating Cash Flow (1).
CASh FLOW iNFORMATiON.
Cash.from.Operating.Activities.
Deduct.(Add.back):.
. Net.change.in.other.assets.and.liabilities.
. Net.change.in.non-cash.working.capital..
Cash Flow (2).
. Per.share.–.Basic.
–.Diluted.
.
Operating Earnings (3) .
. Per.share.–.Diluted.
Net Earnings.
. Per.share.–.Basic.
.
Effective Tax Rates using.
. Net.Earnings.
. Operating.Earnings,.excluding.divestitures.
. Canadian.Statutory.Rate.
. U.S..Statutory.Rate.
Foreign Exchange Rates (US $ p er C$ 1).
. Average.
. Period.end.
–.Diluted.
.
.
.
.
Year .
17,229..
387..
16,842 .
.Q4..
.3,802..
.78..
.3,724..
2012 .
.Q3..
.4,462..
.122..
.4,340..
.Q2.
.4,279..
.65..
.4,214..
.Q1..
.4,686..
.122..
.4,564..
.Year..
.16,185..
.489..
.15,696..
.Q4..
.4,480..
.151..
.4,329..
2011.
.Q3..
.3,989..
.131..
.Q2..
.4,085..
.76..
.3,858.. .4,009..
.Q1.
.3,631..
.131.
.3,500.
.
924..
343..
418..
962..
513..
9 .
3,169..
1,267 .
4,436 .
.
3,420..
.
(113).
(110).
3,643..
4.82 .
4.80 .
.866..
1.14 .
993 .
1.31 .
1.31 .
.
44.1%.
47.0%.
25.2%.
38.5%.
.
1.001 .
1.005 .
.
.246..
.118..
.98..
.240..
.134..
.5..
.841..
.122..
.963..
.
.758..
.
.(42).
.103..
.697..
.0.92..
.0.92..
.(189).
.(0.25).
.(118).
.(0.16).
.(0.16).
.
.
.
.
.
.
.1.009..
.1.005..
.
.227..
.93..
.108..
.227..
.126..
.2..
.783..
.527..
.1,310..
.
.1,029..
.
.(19).
.(69).
.1,117..
.1.48..
.1.47..
.432..
.0.57..
.289..
.0.38..
.0.38..
.
..
..
..
.
.
.
.223..
.70..
.85..
.228..
.121..
.–..
.727..
.351..
.1,078..
.
.968..
.
.(20).
.63..
.925..
.1.22..
.1.22..
.283..
.0.37..
.396..
.0.52..
.0.52..
.
.
.
.
.
.
.1.005.. .0.990..
.0.981..
.1.017..
.
.228..
.62..
.127..
.267..
.132..
.2..
.818..
.267..
.1,085..
.
.665..
.
.(32).
.(207).
.904..
.1.20..
.1.19..
.340..
.0.45..
.426..
.0.56..
.0.56..
.
.
.
.
.
.
.0.999..
.1.001..
.
.780..
.125..
.305..
.881..
.777..
.13..
.2,881..
.981..
.3,862..
.
.3,273..
.
.(82).
.79..
.3,276..
.4.34..
.4.32..
.1,239..
.1.64..
.1,478..
.1.96..
.1.95..
.
33.0%.
34.5%.
26.7%.
37.5%.
.
.1.012..
.0.983..
.
.213..
.61..
.69..
.246..
.188..
.4..
.781..
.238..
.1,019..
.
.952..
.
.(20).
.121..
.851..
.1.13..
.1.12..
.332..
.0.44..
.266..
.0.35..
.0.35..
.
.
.
.
.
.
.0.978..
.0.983..
.
.194..
.19..
.83..
.209..
.200..
.2..
.707..
.238..
.945..
.
.921..
.
.(17).
.145..
.793..
.1.05..
.1.05..
.303..
.0.40..
.510..
.0.68..
.0.67..
.
.
.
.
.
.
.1.020..
.0.963..
.
.222..
.23..
.76..
.218..
.197..
.3..
.739..
.325..
.1,064..
.
.769..
.
.(16).
.(154).
.939..
.1.25..
.1.24..
.395..
.0.52..
.655..
.0.87..
.0.86..
.
.
.
.
.
.
.1.033..
.1.037..
.
.151.
.22..
.77.
.208.
.192.
.4..
.654
.180.
.834.
.
.631.
.
.(29)
.(33)
.693.
.0.92.
.0.91.
.209.
.0.28.
.47.
.0.06.
.0.06.
.
.
.
.
.1.015.
.1.029.
(1). .Operating.Cash.Flow.is.a.non-GAAP.measure.defined.as.revenue.less.purchased.product,.transportation.and.blending,.operating.expenses.and.production.and.mineral.taxes.plus.realized.gains.less.
losses.on.risk.management.activities..
.
.
.
.
.
.
.
.
.
(2). .Cash.Flow.is.a.non-GAAP.measure.defined.as.Cash.from.Operating.Activities.excluding.net.change.in.other.assets.and.liabilities.and.net.change.in.non-cash.working.capital,.both.of.which.are.
defined.on.the.Consolidated.Statement.of.Cash.Flows...
.
.
.
.
.
.
.
.
(3). .Operating.Earnings.is.a.non-GAAP.measure.defined.as.Net.Earnings.excluding.after-tax.gain.(loss).on.discontinuance,.after-tax.gain.on.bargain.purchase,.after-tax.effect.of.unrealized.risk.
management.gains.(losses).on.derivative.instruments,.after-tax.unrealized.foreign.exchange.gains.(losses).on.translation.of.U.S..dollar.denominated.notes.issued.from.Canada.and.the.Partnership.
Contribution.Receivable,.after-tax.foreign.exchange.gains.(losses).on.settlement.of.intercompany.transactions,.after-tax.gains.(losses).on.divestiture.of.assets,.deferred.income.tax.on.foreign.
exchange.recognized.for.tax.purposes.only.related.to.U.S..dollar.intercompany.debt.and.the.effect.of.changes.in.statutory.income.tax.rates..
.
.
.
.
.
.
.
.
.
.
.
.
.
.
118
CENOVUS ENERGY 2012 ANNUAL RE PO RT / SUPPL EMENTAL INFORM ATIO N ( UN AUDITED )
FINANCIAL STATISTICS (continued )
.
.
.
.
FiNANCiAL METRiCS (NON-GAAP MEASURES).
Debt.to.Capitalization.(4),.(5).
Debt.to.Adjusted.EBITDA.(5),.(6).
Return.on.Capital.Employed.(7).
Return.on.Common.Equity.(8).
Year .
.
32%.
1.1x.
9%.
10%.
(4)..Capitalization.is.a.non-GAAP.measure.defined.as.Debt.plus.Shareholders’.Equity..
.
2012 .
.Q3..
.
.
.
.
.
.
.Q2.
.
.
.
.
.
.Q4..
.
.
.
.
.
.
(5). Debt.includes.the.Company’s.short-term.borrowings.plus.long-term.debt,.including.the.current.portion.of.long-term.debt..
.Q1..
.
.
.
.
.
.
.
.Year..
.
27%.
1.0x.
13%.
17%.
.
.
.Q4..
.
.
.
.
.
.
.
2011.
.Q3..
.
.
.
.
.
.
.
Q1.
.
.Q2..
.
.
.
.
.
(6). .Adjusted.EBITDA.is.a.non-GAAP.measure.defined.as.adjusted.earnings.before.interest.income,.finance.costs,.income.taxes,.DD&A,.exploration.expense,.unrealized.gains.(losses).on.risk.management,.
foreign.exchange.gains.(losses),.gains.(losses).on.divestiture.of.assets.and.other.income.(loss),.calculated.on.a.trailing.twelve-month.basis...
.
(7)..Calculated,.on.a.trailing.twelve-month.basis,.as.net.earnings.before.after-tax.interest.divided.by.average.Shareholders’.Equity.plus.average.Debt..
.
.
.
.
(8). Calculated,.on.a.trailing.twelve-month.basis,.as.net.earnings.divided.by.average.Shareholders’.Equity.
.
.
.
.
.
.
COMMON ShARE iNFORMATiON
.
Common Shares Outstanding (m il l ions) .
. Period.end.
. Average.–.Basic.
. Average.–.Diluted.
Price Range ($ p er share).
. TSX.–.C$.
. High.
.
. Low.
.
.
. Close.
. NYSE.-.US$.
. High.
.
. Low.
.
.
. Close.
Dividends Paid ($ p er share) .
Share Volume Traded (m il l ions ).
.
NET CAPiTAL iNVESTMENT
($ mil lions).
Capital Investment.
. Oil.Sands.
.
.
.
.
.
.
. Conventional..
. Refining.and.Marketing.
. Corporate.
Capital.Investment.
Acquisitions.(1)..
Divestitures.
Net.Acquisition.and.Divestiture.Activity..
Net.Capital.Investment.
.
Foster.Creek..
. Christina.Lake.
. Total.
. Pelican.Lake.
. Other.Oil.Sands.
.
.
2012 .
Q1..
.Q3..
Year .
.
.
.
755.6..
755.8..
755.8 .
.755.1..
.755.7..
755.6 .
.759.5..
.758.0..
758.5 .
.
.
.
.
.
.
.39.64..
.36.25..
39.64..
.33.24..
.30.37..
30.09 .
.35.90..
.34.31..
33.29..
.
.
.
.39.81..
.37.31..
39.81 .
.32.45..
.30.20..
28.83..
33.54..
.35.94..
.34.85..
$ 0.88 . .$.0.22.. .$.0.22.. .$. 0.22.. .$.0.22..
.177.4..
.152.6..
664.3 .
.Q2.
.
755.7..
.755.7..
.757.9..
.
.
.36.68..
.30.09..
.32.37..
.
.37.26..
.28.83..
.31.80..
.Q4..
.
.755.8..
.755.8..
.758.3..
.
.
.35.69..
.31.82..
.33.29..
.
.36.11..
.31.74..
.33.54..
.192.6..
.141.7..
Q1.
.
753.9.
.753.2..
.758.1
.
.
.Q2..
.
.754.1..
.754.1..
.758.0..
.
.
.38.98..
.31.73..
.36.40..
.
.Q4..
.
.754.5..
.754.4..
.757.1..
.
.
.37.11..
.28.85..
.33.83..
.
.37.35..
.27.15..
.33.20..
2011.
.Q3..
.Year..
.
.
.754.3..
.754.5..
.754.3..
.754.0..
.757.8..
.757.7..
.
.
.
.
.38.90
.38.38..
.38.98..
.31.15.
.29.87..
.28.85..
.38.30.
.32.27..
.33.83..
.
.
.
.40.73.. .40.06.
.40.61..
.40.73..
.31.11.
.32.48..
.29.02..
.27.15..
.33.20..
.39.38.
.37.66..
.30.71..
$.0.80.. .$.0.20.. .$.0.20.. .$.0.20.. .$.0.20
.204.7..
.239.8..
.873.7..
.215.9..
.213.3..
Year .
.
.
735 .
.579..
1,314 .
518..
.379..
2,211..
848 .
118 .
191 .
3,368..
114..
(76).
38..
3,406..
.Q4..
.
.
.208..
.167..
.375..
.147..
.83..
.605..
.257..
.58..
.58..
.978..
.70..
.(11).
.59..
.1,037..
2012 .
.Q3..
.
.
.199..
.147..
.346..
.128..
.42..
.516..
.231..
.38..
.45..
.830..
.8..
.–..
.8..
.838..
.Q2............Q1..
.
.
.169..
.138..
.307..
.104..
.43..
.454..
.129..
.24..
.53..
.660..
.28..
.1..
.29..
.689..
.
.
.159..
.127..
.286..
.139..
.211..
.636..
.231..
.(2).
.35..
.900..
.8..
.(66).
.(58).
.842..
.
.
.
.Year..
.
.
.429..
.472..
.901..
.317..
.197..
.1,415..
.788..
.393..
.127..
.2,723..
71..
.(173).
.(102).
.2,621..
.
.
.
.Q4..
.
.
.139..
.126..
.265..
.132..
.68..
.465..
.330..
.73..
.35..
.903..
.49..
.(164).
.(115).
.788..
.
.
.
2011.
.Q3..
.
.
.110..
.117..
.227..
.70..
.9..
.306..
.193..
.101..
.31..
.631..
.1..
.–..
.1..
.632..
.
.
.
.Q2..
.
.
.77..
.121..
.198..
.31..
.11..
.240..
.89..
.117..
.30..
.476..
.2..
.(5).
.(3).
.473..
.Q1.
.
.
.103.
.108.
.211.
.84.
.109.
.404..
.176.
.102.
.31..
.713.
.19.
.(4)
.15.
.728.
.
.
.
CEN OV US EN ERGY 2012 AN NUAL R EPORT / SUP PLEMENTA L INFO RMATION ( U NAU DIT ED )
119
(1).. 2012.asset.acquisition.included.the.assumption.of.a.decommissioning.liability.of.$33.million..
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
OPERATING STATISTICS – BEFORE ROYALTIES
.
.
.
UPSTREAM PRODUCTiON VOLUMES
.
Crude Oil and Natural Gas Liquids (b b l s/d) .
. Oil.Sands.–.Heavy.Oil.
.
.
Foster.Creek.
. Christina.Lake.
.
. Total..
.
. Pelican.Lake.
.
.
.
. Conventional.Liquids.
.
.
.
Total.Crude.Oil.and.Natural.Gas.Liquids.
Natural Gas (MM c f/d).
.
.
Total.Natural.Gas.
. Heavy.Oil.
. Light.and.Medium.Oil..
. Natural.Gas.Liquids.(1)..
. Oil.Sands.
. Conventional.(2)..
2012 .
.Q3..
.
.
.Q2.
.
.
.Q4..
.
.
Year .
.
.
Q1..
.
.
57,833.. .59,059.. .63,245.. .51,740.. .57,214..
31,903 . .41,808.. .32,380.. .28,577.. .24,733..
89,736...100,867.. .95,625.. .80,317.. .81,947..
22,552.. .23,507.. .23,539.. .22,410.. .20,730..
112,288 .124,374.. .119,164...102,727...102,677..
.
16,015 . .16,243.. .15,492.. .15,703.. .16,624..
.36,411..
36,071 . .36,034.. .35,695.. .36,149..
.1,138..
.987..
1,029 .
165,403 ..177,646...171,350...155,566...156,850..
.
.41..
.595..
.636..
.
33 .
561 .
594 .
.
.27..
.550..
.577..
.
.30..
.536..
.566..
.
.33..
.563..
.596..
.999..
.995..
.
.
.
.
2011.
.Q3..
.
.
.7,880..
.19,531.. .10,067..
.Q2..
.
.
.Q4..
.
.
.Year..
.
.
.Q1.
.
.
.54,868.. .55,045.. .56,322.. .50,373.. .57,744.
.9,084.
.11,665..
.66,533.. .74,576...66,389.. .58,253...66,828.
.20,424...20,558.. .20,363.. .19,427.. .21,360.
.86,957.. .95,134.. .86,752.. .77,680.. .88,188.
.
.
.15,512.. .15,305.. .15,378.. .16,447.
15,657..
.30,524.. .32,530.. .30,399.. .27,617.. .31,539.
.1,181..
.1,040..
.134,239...144,273...133,496.. .121,762.. .137,355.
.
.32.
.620.
.652.
.
.38..
.622..
.660..
.
.37..
619..
.656..
.
.39..
.617..
.656..
.
.37..
.617..
.654..
.1,087..
.1,097..
.1,101..
.
.
.
.
.
.
.
.
.
.
.
.Q2.
Q1..
.Year..
.Q4..
.
.
.
2011.
.Q3..
.
.
.Q2..
.Q1.
4.6%.
7.2%.
4.2%.
.
21.4%.
6.8%.
1.7%.
0.4%.
13.9%.
7.0%.
4.5%.
.
23.3%.
8.3%.
1.7%.
2.5%.
.Q2.
.
.452..
.451..
100%.
.473..
.
Q1..
.
.452..
.445..
98%.
.465..
.
16.8%.
5.2%.
11.5%.
.
21.7%. 20.6%.
5.7%.
4.7%.
12.7%.
9.1%.
.
.
23.9%.
24.1%. 24.8%.
9.0%.
8.1%.
8.3%.
1.4%.
1.8%.
1.7%.
1.5%.
1.9%.
1.7%.
3.3%.
21.2%
4.8%
6.3%.
13.9%
9.7%.
.
.
23.6%. 24.3%
7.6%
8.5%.
1.3%
2.3%.
2.3%
1.2%.
.Year..
.
.452..
.401..
89%.
.419..
.
.Q4..
.
.452..
.424..
94%.
.442..
.
2011.
.Q3..
.
.452..
.413..
91%.
.426..
.
.Q2..
.
.452..
.406..
90%.
.422..
.Q1.
.
.452.
.362.
80%
.383.
.
(1). Natural.gas.liquids.include.condensate.volumes..
.
.
.
.
(2). In.Q1.2012,.a.non-core.natural.gas.property.was.divested,.decreasing.2012.production.approximately.3%..
.
.
.
.
.
.
.
.
AVERAGE ROYALTY RATES.
(e xcl u di n g i m pa c t o f rea l ize d gain
( lo s s ) o n ri s k m an a ge me nt).
Oil Sands.
Foster.Creek..
.
. Christina.Lake.
. Pelican.Lake.
Conventional.
. Weyburn.
. Other.
. Natural.Gas.Liquids.
Natural Gas.
.
.
REFiNiNG
.
.
Refinery Operations (1).
. Crude.oil.capacity (Mbbl s /d ).
. Crude.oil.runs ( M b b ls /d ).
. Crude.utilization.
. Refined.products.(Mbbls /d ).
.
.
Year .
.
11.8%.
6.2%.
5.0%.
.
20.7%.
7.2%.
2.0%.
1.2%.
.
Year .
.
452..
412 .
91%.
433..
(1). Represents.100%.of.the.Wood.River.and.Borger.refinery.operations..
.
.
.
2012 .
.Q3..
.
19.1%.
5.3%.
6.6%.
.
19.8%.
6.6%.
2.5%.
0.8%.
2012 .
.Q3..
.
.452..
.442..
98%.
.463..
.Q4..
.
8.0%.
5.7%.
4.5%.
.
17.9%.
7.1%.
2.3%.
0.9%.
.
.Q4..
.
.452..
.311..
69%.
.330..
.
12 0
CENOVUS ENERGY 2012 ANNUAL RE PO RT / SUPPL EMENTAL INFORM ATIO N ( UN AUDITED )
O PERAT I NG STATISTI CS – BEFO RE ROYALTIES (contin ued )
.
.
SELECTED AVERAGE BENChMARk PRiCES
.
Crude Oil Prices (U S $/b b l ).
. Brent.Futures..
. West.Texas.Intermediate.(“WTI”).
. Average.Differential.Brent.Futures.–.WTI.
. Western.Canadian.Select.(“WCS”).
. Differential.–.WTI-WCS.
. Condensate.–.(C5.@.Edmonton).
. Differential.–.WTI-Condensate.(premium)/discount.
Refining Margins 3-2-1 Crack Spreads (2) (U S $/ bb l ).
. Chicago.
. Midwest.Combined.(Group.3).
Natural Gas Prices.
. AECO ($/GJ ).
. NYMEX (US $ /MMB tu).
. Differential.–.NYMEX/AECO (U S $/ MMBtu).
2012 .
.Q3..
.
.Q4..
.
.Q2.
.
.110.13.. .109.42.. .108.76..
.92.20..
.88.23..
.17.22..
.21.90..
.70.48..
.70.12..
.21.72..
.18.11..
.96.12..
.98.14..
.(3.92).
.(9.91).
.
.
.35.64..
.28.18..
.35.99..
.28.49..
.
.
.2.08..
.2.90..
.2.81..
.3.40..
.0.61..
.0.31..
Q1..
.
.118.45..
.93.35.. .103.03..
.15.42..
.15.41..
.81.61..
.70.48..
.21.42..
.22.87..
.110.16..
.99.32..
.(7.13).
.(5.97).
.
.
.19.00..
.28.20..
.21.50..
.28.28..
.
.
.2.39..
.1.74..
.2.74..
.2.22..
.0.21..
.0.39..
Year .
.
111.68 .
94.15 .
17.53 .
73.12 .
.21.03 .
100.88 .
(6.73).
.
27.76..
28.56 .
.
2.28 .
2.79 .
0.38..
2011.
.Q3..
.
.Q2..
.
.Q4..
.
.Year..
.
.Q1.
.
.110.91.. .109.02.. .112.09.. .116.99.. .105.52.
.89.54.. .102.34.. .94.60.
.95.11.. .94.06..
.10.92.
.14.65..
.22.55..
.14.96..
.15.80..
.71.74.
.84.70..
.71.92..
.83.58..
.77.96..
.22.86.
.17.64..
.17.62..
.10.48..
.17.15..
.98.90..
.112.33..
.105.34.. .108.74.. .101.48..
.(4.30)
.(9.99).
.(11.94).
.(10.23). .(14.68).
.
.
.
.
.16.62.
.29.00..
.33.35..
.19.23..
.19.04.
.27.19..
.34.04..
.20.75..
.
.
.
.
.3.58.
.3.54..
.3.53..
.3.29..
.4.11..
.4.31..
.4.19..
.3.55..
.0.29.
.0.42..
.0.34..
.0.17..
.
.24.55..
.25.26..
.
.3.48..
.4.04..
.0.31..
(2). .3-2-1.Crack.Spread.is.an.indicator.of.the.refining.margin.generated.by.converting.three.barrels.of.crude.oil.into.two.barrels.of.regular.unleaded.gasoline.and.one.barrel.of.ultra-low.sulphur.diesel,.
and.reflect.the.current.month.WTI.price.as.the.crude.oil.feedstock.price..
CEN OV US EN ERGY 2012 AN NUAL R EPORT / SUP PLEMENTA L INFO RMATION ( U NAU DIT ED )
121
OPERATING STATISTICS – BEFORE ROYALTIES (continued )
.
.
.
PER-UNiT RESULTS.
($, excluding impac t of real ize d gain
(loss) on risk manage me nt).
Heavy Oil – Foster Creek ($ /b bl ) (3).
. Price..
. Royalties.
. Transportation.and.blending..
. Operating.
. Netback...
Heavy Oil – Christina Lake.($ /b b l ) (3).
. Price.
. Royalties.
. Transportation.and.blending..
. Operating.
. Netback...
Heavy Oil – Pelican Lake.($ /b bl ) (3).
. Price..
. Royalties.
. Transportation.and.blending..
. Operating.
. Netback...
Heavy Oil – Oil Sands ( $/ bb l ) (3).
. Price..
. Royalties.
. Transportation.and.blending..
. Operating.
. Netback..
Heavy Oil – Conventional ($ /b b l ) (3).
. Price.
. Royalties.
. Transportation.and.blending..
. Operating..
. Production.and.mineral.taxes...
. Netback...
Total Heavy Oil.($/bbl) (3).
. Price.
. Royalties.
. Transportation.and.blending..
. Operating..
. Production.and.mineral.taxes...
. Netback...
Light and Medium Oil ($/bb l ).
. Price...
. Royalties.
. Transportation.and.blending..
. Operating..
. Production.and.mineral.taxes...
. Netback...
Year .
.
.64.55
.7.36..
.2.41 .
.11.99..
42.79 .
.
47.73..
.2.72 .
3.79 .
12.95..
.28.27 .
.
69.23 .
3.34 .
2.15 .
17.08..
46.66..
.
.60.84 .
5.22 .
2.74..
13.33 .
39.55..
.
70.53 .
.10.06 .
2.17 .
.15.21..
.0.24 .
42.85 .
.
62.05..
5.83 .
2.67..
13.56 .
0.03 .
.39.96..
.
78.99 .
8.09..
2.65..
15.51 .
2.44..
.50.30..
Q1..
.Q2.
.63.83..
.2.85..
.1.91..
.12.49..
.46.58..
.
.44.57..
.2.90..
.4.12..
.12.52..
.25.03..
.
.66.42..
.2.68..
.3.54..
.17.71..
.42.49..
.
.59.00..
.2.83..
.2.87..
.13.61..
.39.69..
.
.Q4..
.
.59.93..
.4.55..
.2.91..
.11.26..
.41.21..
.
.43.37..
.2.32..
.3.00..
.11.42..
.26.63..
.
.64.37..
.2.82..
.1.23..
.17.20..
.43.12..
.
.55.11..
.3.47..
.2.63..
.12.41..
.36.60..
.
.
2012 .
.Q3..
.
.70.71..
.63.95..
.9.54..
.11.79..
.2.38..
.2.38..
.12.85..
.11.50..
.45.94..
.38.28..
.
.
.52.58..
.52.91..
.3.37.
.2.61..
.4.51..
.4.00..
.15.33..
.13.59..
.29.37..
.32.71..
.
.
.78.50..
.66.75..
.3.37..
.4.34..
.2.88..
.1.09..
.16.05..
.17.47..
.56.20..
.43.85..
.
.
.68.36..
.61.71..
.6.66..
.7.85..
.2.99..
.2.52..
.14.18..
.13.29..
.44.53..
.38.05..
.
.
.67.70.. .80.64..
.64.73.. .68.04..
.13.06..
.9.36..
.8.81..
.8.68..
.1.81..
.2.26..
.2.31..
.2.34..
.17.57..
.15.07..
.16.48..
.11.68..
.0.25..
.0.14..
.0.27..
.0.31..
.40.76.. .48.06..
.40.17..
.41.72..
.
.
.
.60.13.. .70.08..
.62.45..
.56.22..
.7.56..
.3.68..
.7.96..
.4.07..
.2.82..
.2.79..
.2.50..
.2.60..
.14.65..
.13.80..
.13.66..
.12.33..
.0.02..
.0.03..
.0.03..
.0.04..
.45.03..
.39.83..
.38.30..
.37.18..
.
.
.
.
.88.45..
.76.16..
.76.06..
.75.27..
.9.94..
.7.98..
.7.53..
.6.92..
.2.83..
.3.02..
.2.36..
.2.39..
.15.36..
.14.76..
.16.27..
.15.63..
.2.57..
.2.35..
.2.51..
.2.34..
.57.75..
.47.55.. .48.06..
.47.82..
.
.
2011.
.Q3..
.62.68..
.12.38..
.2.73..
.11.11..
.36.46..
.
.54.52..
.2.87..
.4.54..
.23.01..
.24.10..
.
.66.76..
.8.23..
.1.87..
.14.31..
.42.35..
.
.62.93..
.10.46..
.2.68..
.13.02..
.36.77..
.
.67.96..
.11.33..
.1.80..
.12.40..
.0.17..
.42.26..
.
.63.69..
.10.59..
.2.55..
.12.93..
.0.03..
.37.59..
.
.79.57..
.10.74..
.1.90..
.14.37..
.2.40..
.50.16..
.
.Q2..
.Q1.
.72.23..
.2.30..
.2.82..
.11.57..
.55.54..
.
.67.06..
.3.98..
.3.51..
.23.41..
.36.16..
.
.78.26..
.7.40..
.2.02..
.13.40..
.55.44..
.
.73.02..
.3.65..
.2.71..
.13.27..
.53.39..
.
.78.47..
.10.98..
.0.91..
.13.66..
.0.22..
.52.70..
.
.73.98..
.4.93..
.2.40..
.13.34..
.0.04..
.53.27..
.
.94.30..
.12.82..
.2.22..
.12.96..
.2.77..
.63.53..
.59.50..
.11.92.
.3.41.
.11.40.
.32.77.
.
.54.67.
.2.44..
.3.69.
.19.09.
.29.45.
.
.64.66.
.8.63.
.2.44.
.15.35.
.38.24.
.
.60.35.
.10.08.
.3.18.
.13.23.
.33.86.
.
.69.17.
.9.04.
.1.05.
.12.78.
.0.51.
.45.79.
.
.61.80.
.9.91.
.2.83.
.13.16.
.0.08.
.35.82.
.
.77.39.
.10.58.
.1.92.
.14.86.
.1.32.
.48.71.
.Year..
.Q4..
.67.38..
.10.82..
.3.04..
.11.34..
.42.18..
.
.61.86..
.3.03..
.3.53..
.20.20..
.35.10..
.
.73.07..
.7.91..
.4.14..
.14.86..
.46.16..
.
.67.99..
.9.17..
.3.36..
.13.27..
.42.19..
.
.74.17..
.10.75..
.1.27..
.13.77..
.0.32..
.48.06..
.
.68.98..
.9.42..
.3.02..
.13.35..
.0.05..
.43.14..
.
.75.96..
.15.81..
.3.20..
.11.31..
.45.64..
.
.66.69..
.2.97..
.2.98..
.17.96..
.42.78..
.
.88.67..
.6.98..
.12.19..
.16.49..
.53.01..
.
.76.39..
.11.72..
.4.75..
.13.54..
.46.38..
.
.81.49..
.11.85..
.1.34..
.16.34..
.0.34..
.51.62..
.
.77.16..
.11.74..
.4.23..
.13.96..
.0.05..
.47.18..
.
.85.40.. .90.90..
.12.12..
.11.54..
.1.99..
.2.00..
.15.12..
.14.38..
.2.63..
.2.27..
.59.04..
.55.21..
(3). .The.2012.heavy.oil.price.and.transportation.and.blending.costs.exclude.the.costs.of.condensate.purchases.which.is.blended.with.the.heavy.oil.as.follows:..Foster.Creek.–.$41.85/bbl;.Christina.Lake.
–.$45.83/bbl;.Pelican.Lake.–.$15.55/bbl;.Heavy.Oil.–.Oil.Sands.–.$37.45/bbl;.Heavy.Oil.–.Conventional.–.$13.35/bbl.and.Total.Heavy.Oil.–.$34.44/bbl..
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
12 2
CENOVUS ENERGY 2012 ANNUAL RE PO RT / SUPPL EMENTAL INFORM ATIO N ( UN AUDITED )
OPERATING STATISTICS – BEFORE ROYALTIES (contin ued )
.
.
.
PER-UNiT RESULTS.
($, excluding im p ac t of real ize d gain
(loss) on risk m anagem ent).
Total Crude Oil ($ /b b l ).
. Price...
. Royalties.
. Transportation.and.blending..
. Operating..
. Production.and.mineral.taxes...
. Netback...
Natural Gas Liquids ($ /b b l ).
. Price...
. Royalties.
. Netback..
Total Liquids ($ /b b l ).
. Price...
. Royalties.
. Transportation.and.blending..
. Operating..
. Production.and.mineral.taxes..
. Netback..
Total Natural Gas.($ /Mc f ) .
. Price..
. Royalties..
. Transportation.and.blending..
. Operating..
. Production.and.mineral.taxes..
. Netback...
Total.($/B OE) (2).
. Price...
. Royalties.
. Transportation.and.blending..
. Operating.(1).
. Production.and.mineral.taxes..
. Netback...
.
2012 .
.Q3..
.Q4..
.
.
.65.37..
.60.10..
.7.87..
.4.65..
.2.47..
.2.55..
.14.22..
.13.00..
.0.53..
.0.54..
.40.28..
.39.36..
.
.
.61.53..
.65.89..
.1.55..
.1.52..
.59.98..
.64.37..
.
.
.65.35..
.60.13..
.7.83..
.4.64..
.2.45..
.2.54..
.14.14..
.12.93..
.0.53..
.0.54..
.39.48.. .40.40..
.
.2.30..
.0.02..
.0.08..
.1.08..
.0.02..
.1.10..
.
.46.61..
.5.02..
.1.74..
.11.35..
.0.38..
.28.12..
.
.2.97..
.0.02..
.0.10..
.1.29..
.(0.01).
.1.57..
.
.45.50..
.3.08..
.1.86..
.11.12..
.0.33..
.29.11..
.Q2.
.
.63.91..
.4.69..
.2.84..
.14.03..
.0.58..
.41.77..
.
.65.52..
.1.13..
.64.39..
.
.63.92..
.4.67..
.2.82..
.13.93..
.0.57..
.41.93..
.
.1.92..
.0.01..
.0.08..
.0.98..
.0.02..
.0.83..
.
.43.25..
.2.84..
.1.90..
.10.75..
.0.40..
.27.36..
Q1..
.
.74.22..
.8.10..
.2.83..
.14.81..
.0.59..
.47.89..
.
.83.36..
.1.45..
.81.91..
.
.74.28..
.8.05..
.2.81..
.14.71..
.0.59..
.48.12..
.
.2.50..
.0.06..
.0.13..
.1.08..
.0.02..
.1.21..
.
.50.84..
.5.00..
.2.00..
.11.46..
.0.40..
.31.98..
Year .
.
65.76 .
6.32 .
2.66 .
13.99 .
0.56..
42.23 .
.
69.54 .
1.42 .
68.12 .
.
65.79 .
6.29 .
2.65 .
13.90 .
0.56 .
42.39 .
.
2.42..
0.03 .
0.10 .
1.10 .
0.01 .
1.18 .
.
46.60 .
4.00..
1.88 .
11.18 .
0.38 .
29.16 .
.
2011.
.Q3..
.
.67.37..
.10.62..
.2.40..
.13.26..
.0.58..
.40.51..
.
.74.38..
.1.06..
.73.32..
.
.67.43..
.10.55..
.2.38..
.13.16..
.0.57..
.40.77..
.
.3.72..
.0.05..
.0.15..
.0.99..
.0.03..
.2.50..
.
.46.97..
.5.91..
.1.70..
.9.88..
.0.39..
.29.09..
.
.Q1.
.
.65.32.
.10.06.
.2.63.
.13.54.
.0.36.
.38.73.
.
.70.67.
.0.93.
.69.74.
.
.65.37.
.9.98.
.2.60.
.13.43.
.0.36.
.39.00.
.
.3.82.
.0.08.
.0.17.
.1.19.
.0.06.
.2.32.
.
.46.83.
.5.85.
.1.92.
.10.68.
.0.36.
.28.02.
.Q2..
.
.78.71..
.6.77..
.2.35..
.13.25..
.0.67..
.55.67..
.
.80.32..
.1.87..
.78.45..
.
.78.72..
.6.72..
.2.33..
.13.13..
.0.67..
.55.87..
.
.3.71..
.0.04..
.0.14..
.0.98..
.0.05..
.2.50..
.
.51.81..
.3.64..
.1.61..
.9.69..
.0.49..
.36.38..
.Year..
.
.
.76.84..
.1.34..
.75.50..
.
.Q4..
.
.72.80.. .80.49..
.11.83..
.9.92..
.3.69..
.2.78..
.14.24..
.13.59..
.0.67..
.0.57..
.45.94.. .50.06..
.
.82.26..
.1.51..
.80.75..
.
.72.84.. .80.50..
.11.75..
.9.84..
.3.66..
.2.76..
.14.13..
.13.47..
.0.67..
.0.56..
.50.29..
.46.21..
.
.
.3.35..
.3.65..
.0.06..
.0.06..
.0.14..
.0.15..
.1.22..
.1.10..
.0.01..
.0.04..
.1.92..
.2.30..
.
.
.53.48..
.49.75..
.6.65..
5.55..
.2.39..
.1.91..
.11.09..
.10.35..
.0.40..
.0.41..
.32.95..
.31.53..
(1). 2012.operating.costs.include.costs.related.to.long-term.incentives.of.$0.16/BOE.(2011.–.$0.17/BOE)..
.
.
.
.
.
.
.
.
.
.
.
.
.
.
iMPACT OF REALiZED GAiN (LOSS) ON RiSk MANAGEMENT.
Liquids ($/bb l ).
Natural.Gas.($ /Mc f ).
Total.($/B OE) (2).
1.39 .
1.14 .
3.42 .
.3.35..
.0.89..
.4.05..
.2.02..
.1.24..
.3.98..
.1.64..
.1.39..
.4.27..
.(1.67).
.1.03..
.1.44..
.(2.79).
.0.87..
.0.86..
.(3.15).
.1.10..
.1.22..
.0.75..
.0.76..
.2.49..
.(6.44).
.0.74..
.(1.25).
.(2.67)
.0.89
.0.83.
(2). .Natural.gas.volumes.have.been.converted.to.barrels.of.oil.equivalent.(BOE).on.the.basis.of.one.barrel.(bbl).to.six.thousand.cubic.feet.(Mcf)..BOE.may.be.misleading,.particularly.if.used.in.isolation..
A.conversion.ratio.of.one.bbl.to.six.Mcf.is.based.on.an.energy.equivalency.conversion.method.primarily.applicable.at.the.burner.tip.and.does.not.represent.value.equivalency.at.the.wellhead..
.
.
.
.
.
.
.
.
.
.
.
.
.
.
CEN OV US EN ERGY 2012 AN NUAL R EPORT / SUP PLEMENTA L INFO RMATION ( U NAU DIT ED )
123
AD DI T IONAL RESERVES AND
OI L AN D GAS INFORMATION
For.information.in.relation.to.the.presentation.of.our.reserves.data.and.
other.oil.and.gas.information,.see.“Oil.and.Gas.Reserves.and.Resources”.
in.our.MD&A..We.hold.significant.fee.title.rights.which.generate.
production.for.our.account.from.third.parties.leasing.those.lands...
The.Before.Royalty.volumes.presented.do.not.include.reserves.
associated.with.this.royalty.interest.production..The.After.Royalty.
volumes.presented.include.our.royalty.interest.reserves..
For.definitions.of.terms.used.in.our.oil.and.gas.disclosure,.please.refer.
to.the.Advisory.
Classifications.of.reserves.as.proved.or.probable.are.only.attempts.
to.define.the.degree.of.certainty.associated.with.the.estimates..
There.are.numerous.uncertainties.inherent.in.estimating.quantities.of.
bitumen,.oil.and.natural.gas.reserves. it should not be assumed that
the estimates of future net revenues presented in the tables below
represent the fair market value of the reserves. There.is.no.assurance.
that.the.forecast.prices.and.costs.assumptions.will.be.attained.and.
variances.could.be.material..For.additional.information.on.our.pricing.
assumptions,.reserves.data.and.other.oil.and.gas.information,.readers.
should.review.“Reserves.Data.and.Other.Oil.and.Gas.Information”,.“Risk.
Factors.–.Uncertainty.of.Reserves.and.Future.Net.Revenue.Estimates”.
and.“Risk.Factors.–.Uncertainty.of.Contingent.and.Prospective.Resource.
Estimates”,.each.within.our.Annual.Information.Form.for.the.year.ended.
December.31,.2012,.available.on.our.website.at.www.cenovus.com.
SUMMARY OF COMPANY INTEREST OIL AND GAS RESERVES AT DECEMBER 31, 2012
( Fore cas t P ri ce s a n d Co st s )
.
.
.
.
Before Royalties(1)
.
.
Reserves.Category.
Proved Reserves.
. Developed.Producing.
. Developed.Non-Producing.
. Undeveloped.
Total Proved Reserves.
Probable.Reserves.
Total Proved plus Probable Reserves.
(1). Does.not.include.Royalty.Interest.Reserves.
.
.
.
.
After Royalties(2)
.
.
Reserves.Category.
Proved Reserves
. Developed.Producing.
. Developed.Non-Producing.
. Undeveloped.
Total Proved Reserves.
Probable.Reserves.
Total Proved plus Probable Reserves.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Bitumen.
(MMb bls ).
.
172.
13.
1,532.
1,717.
676.
2,393.
Heavy.Oil.
(MMbb ls).
. Light.&.Medium.
Oil.&.NGLs.
(MMbb ls).
Natural.Gas.
&.CBM.
(Bc f )
121.
1.
62.
184.
105.
289.
84.
9.
22.
115.
56.
171.
917
32
6
955
338
1,293
.
Bitumen.
(MMb bls ).
Heavy.Oil.
(MMbb ls).
. Light.&.Medium.
Oil.&.NGLs.
(MMbb ls).
Natural.Gas.
&.CBM.
(Bc f )
134.
10.
1,149.
1,293.
499.
1,792.
102.
1.
51.
154.
79.
233.
73.
7.
18.
98.
46.
144.
930
31
6
967
324
1,291
(2). Includes.Royalty.Interest.Reserves..
12 4
CENOVUS ENERGY 2012 ANNUAL RE PO RT / ADDITIONAL RESERVES AND OIL AND GAS INFORMATION
4.
–.
–.
4.
2.
6.
20%.
.
8,149.
401.
4,313.
12,863.
3,055.
15,918.
43
–
–
43
13
56
Unit.Value.
Discounted.at.
10%.(1)
$/BOE
.
22.62
24.90
10.50
13.99
11.25
13.21
20%
6,658
306
2,993
9,957
2,218
12,175
.
.
.
.
Royalty Interest
.
.
Reserves.Category.
Proved Reserves.
. Developed.Producing.
. Developed.Non-Producing.
. Undeveloped.
Total Proved Reserves.
Probable.Reserves.
Total Proved plus Probable Reserves.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
–.
–.
–.
–.
–.
–.
1.
–.
–.
1.
1.
2.
.
Bitumen.
(MMb bls ).
Heavy.Oil.
(MMbb ls).
. Light.&.Medium.
Oil.&.NGLs.
(MMbbls).
Natural.Gas.
&.CBM.
(Bc f )
SUMMARY OF NET PRESENT VALUE OF FUTURE NET REVENUE AT DECEMBER 31, 2012
(Forecast Prices and Co sts )
.
.
.
.
Before Income Taxes.
.
.
Reserves.Category.
Proved Reserves.
. Developed.Producing.
. Developed.Non-Producing.
. Undeveloped.
Total Proved Reserves.
Probable.Reserves.
Total Proved plus Probable Reserves.
(1). Unit.values.have.been.calculated.using.Company.Interest.After.Royalties.reserves.
After Income Taxes(1)
.
.
Discounted.at.%/year ($ mil lions ).
15%.
10%.
.
.
9,155.
10,485.
480.
592.
7,301.
12,798.
16,936.
23,875.
4,598.
7,635.
21,534.
31,510.
5%.
.
12,313.
762.
24,053.
37,128.
14,385.
51,513.
0%.
.
14,927.
1,048.
50,592.
66,567.
31,347.
97,914.
.
.
.
Reserves.Category.
Proved Reserves.
. Developed.Producing.
. Developed.Non-Producing.
. Undeveloped.
Total Proved Reserves.
Probable.Reserves.
Total Proved plus Probable Reserves.
.
.
.
.
.
.
.
.
0%.
.
11,990.
788.
37,993.
50,771.
23,465.
74,236.
15%.
Discounted.at.%/year ($ mil lion s )
10%.
5%.
.
.
8,510.
9,951.
447.
574.
9,342.
17,835.
18,299.
28,360.
5,623.
10,675.
23,922.
39,035.
7,457.
364.
5,219.
13,040.
3,362.
16,402.
(1). .Values.are.calculated.by.considering.existing.tax.pools.and.tax.circumstances.for.Cenovus.and.its.subsidiaries.in.the.consolidated.evaluation.of.Cenovus’s.oil.and.gas.properties,.and.take.into.
account.current.federal.tax.regulations..Values.do.not.represent.an.estimate.of.the.value.at.the.business.entity.level,.which.may.be.significantly.different..For.information.at.the.business.entity.
level,.please.see.our.Consolidated.Financial.Statements.and.Management’s.Discussion.and.Analysis.for.the.year.ended.December.31,.2012..
The estimates of future net revenue do not represent fair market value.
CEN OV US EN ERGY 2012 AN NUAL R EPORT / ADDITIONAL RESERVES AND OIL AND GAS INFORMATION
125
RESERVES RECONCILIATION
The.following.tables.provide.a.reconciliation.of.our.Company.Interest.Before.Royalties.reserves.for.bitumen,.heavy.oil,.light.and.medium.oil.and.
NGLs,.and.natural.gas.for.the.year.ended.December.31,.2012,.presented.using.forecast.prices.and.costs..All.reserves.are.located.in.Canada.
COMPANY INTEREST BEFORE ROYALTIES
RESERVES RECONCILIATION BY PRINCIPAL PRODUCT TYPE AND RESERVES CATEGORY
(Forecast Prices and Costs)
.
.
.
Proved
.
.
.
.
.
.
December 31, 2011.
. Extensions.and.Improved.Recovery.
. Discoveries.
. Technical.Revisions.
. Economic.Factors.
. Acquisitions.
. Dispositions.
. Production(1).
December 31, 2012.
.
.
.
Probable
.
.
.
.
.
.
December 31, 2011.
. Extensions.and.Improved.Recovery.
. Discoveries.
. Technical.Revisions.
. Economic.Factors.
. Acquisitions.
. Dispositions.
. Production(1).
December 31, 2012.
.
.
.
.
.
.
Proved plus Probable
.
.
.
December 31, 2011.
. Extensions.and.Improved.Recovery.
. Discoveries.
. Technical.Revisions.
. Economic.Factors.
. Acquisitions.
. Dispositions.
. Production(1).
December 31, 2012.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Bitumen.
(MMb bls ).
1,455.
265.
–.
30.
–.
–.
–.
(33).
1,717.
.
Bitumen.
(MMb bls ).
490.
140.
–.
46.
–.
–.
–.
–.
676.
.
Bitumen.
(MMb bls ).
1,945.
405.
–.
76.
–.
–.
–.
(33).
2,393.
Heavy.Oil.
(MMbb ls).
175.
17.
–.
6.
–.
–.
–.
(14).
184.
. Light.&.Medium.
Oil.&.NGLs.
(MMbb ls).
115.
13.
–.
(2).
–.
1.
–.
(12).
115.
Heavy.Oil.
(MMbb ls).
109.
11.
–.
(15).
–.
–.
–.
–.
105.
. Light.&.Medium.
Oil.&.NGLs.
(MMbb ls).
51.
5.
–.
–.
–.
–.
–.
–.
56.
Heavy.Oil.
(MMbb ls).
284.
28.
–.
(9).
–.
–.
–.
(14).
289.
. Light.&.Medium.
Oil.&.NGLs.
(MMbb ls).
166.
18.
–.
(2).
–.
1.
–.
(12).
171.
Natural.Gas.
&.CBM.
(Bc f )
1,203
29
–
51
(58)
1
(59)
(212)
955
Natural.Gas.
&.CBM.
(Bc f )
391
8
–
(30)
(4)
–
(27)
–
338
Natural.Gas.
&.CBM.
(Bc f )
1,594
37
–
21
(62)
1
(86)
(212)
1,293
(1). .Production.used.for.the.reserves.reconciliation.differs.from.publicly.reported.production..In.accordance.with.NI.51-101,.Company.Interest.Before.Royalties.production.used.for.the.reserves.
reconciliation.above.includes.our.share.of.gas.volumes.provided.to.the.FCCL.partnership.for.steam.generation,.but.does.not.include.Royalty.Interest.Production.
12 6
CENOVUS ENERGY 2012 ANNUAL RE PO RT / ADDITIONAL RESERVES AND OIL AND GAS INFORMATION
.
.
Bitumen Economic Contingent and Prospective Resources
.
Company.Interest.Before.Royalties,.Billions.of.barrels.
Economic.Contingent.Resources(1).
. Low.Estimate.
. Best.Estimate.
. High.Estimate.
Prospective.Resources(2).
. Low.Estimate.
. Best.Estimate.
. High.Estimate.
2012.
December 31,. December.31,.
2011
.
.
.
.
.
.
.
.
7.1.
9.6.
12.8.
6.0
8.2
10.8
5.0.
8.5.
14.8.
5.7
10.0
17.9
(1). There.is.no.certainty.that.it.will.be.commercially.viable.to.produce.any.portion.of.the.contingent.resources..
(2). .There.is.no.certainty.that.any.portion.of.the.prospective.resources.will.be.discovered..If.discovered,.there.is.no.certainty.that.it.will.be.commercially.viable.to.produce.any.portion.of.the.
prospective.resources..Prospective.resources.are.not.screened.for.economic.viability.
ExPLORATION AND DEVELOPMENT ACTIVITY
The.following.tables.summarize.our.gross.participation.and.net.interest.in.wells.drilled.for.the.periods.indicated:
Exploration Wells Drilled
.
.
.
.
.
.
.
.
.
2012: .
Oil.Sands.
Conventional.
Total.Canada.
2011: .
Oil.Sands.
Conventional.
Total.Canada.
2010: .
Oil.Sands.
Conventional.
Total.Canada.
Development Wells Drilled
.
.
.
.
.
.
.
.
.
2012: .
Oil.Sands.
Conventional.
Total.Canada.
2011: .
Oil.Sands.
Conventional.
Total.Canada.
2010: .
Oil.Sands.
Conventional.
Total.Canada.
.
Oil.
.
Gas.
Gross.
.
..–.
..8.
..8.
.
..–.
24.
24.
.
..–.
26.
26.
...Net.
.
–.
7.
7.
.
..–.
22.
22.
.
..–.
26.
26.
Gross.
.
–.
–.
–.
.
..–.
..–.
..–.
.
..–.
..–.
..–.
.Net.
.
–.
–.
–.
.
..–.
..–.
..–.
.
..–.
..–.
..–.
.
Oil.
.
Gas.
Gross.
.
137.
..273.
..410.
.
71.
312.
383.
.
82.
160.
242.
...Net.
.
107.
268.
375.
.
51.
303.
354.
.
47.
154.
201.
Gross.
.
–.
–.
–.
.
3.
66.
69.
.
–.
499.
499.
.Net.
.
–.
–.
–.
.
3.
65.
68.
.
–.
495.
495.
Dry.&.
Abandoned.
Net.
.
–.
–.
–.
.
..–.
..2.
..2.
.
..–.
..1.
..1.
Gross.
.
–.
–.
–.
.
..–.
..2.
..2.
.
..–.
..1.
..1.
Dry.&.
Abandoned.
Net.
.
–.
1.
1.
.
–.
4.
4.
.
–.
–.
–.
Gross.
.
–.
1.
1.
.
–.
4.
4.
.
–.
–.
–.
Total.Working.
Interest.
.Gross.
.
–.
8.
8.
.
..–.
26.
26.
.
..–.
27.
27.
Net.
.
–.
7.
7.
.
..–.
24.
24.
.
..–..
27.
27.
Royalty.
....Gross.
.
–.
20.
20.
.
.–.
40.
40.
.
........–.
......21.
......21.
Total
Gross.
.Net
–.
28.
28.
–.
66.
66.
......–.
48.
48.
–
7
7
..–
24
24
..–
27
27
Total.Working.
Interest.
.Gross.
.
137.
274.
411.
.
74.
382.
456.
.
82.
659.
741.
Net.
.
107.
269.
376.
.
54.
372.
426.
.
47.
649.
696.
Royalty.
....Gross.
Total
Gross.
.Net
57.
129.
186.
.
87.
156.
243.
.
8.
204.
212.
194.
403.
597.
161.
538.
699.
90.
863.
953.
107
269
376
54
372
426
47
649
696
CEN OV US EN ERGY 2012 AN NUAL R EPORT / ADDITIONAL RESERVES AND OIL AND GAS INFORMATION
127
During.the.year.ended.December.31,.2012,.Oil.Sands.drilled.473.gross.
stratigraphic.test.wells.(317.net.wells).and.Conventional.drilled.14.gross.
stratigraphic.test.wells.(14.net.wells)..
During.the.year.ended.December.31,.2012,.Oil.Sands.drilled.116.gross.
service.wells.(112.net.wells).and.Conventional.drilled.22.gross.service.
wells.(16.net.wells)..
Interest in Material Properties
The.following.table.summarizes.our.landholdings.at.December.31,.2012:
For.all.types.of.wells.except.stratigraphic.test.wells,.the.calculation.
of.the.number.of.wells.is.based.on.the.number.of.surface.locations..
For.stratigraphic.test.wells,.the.calculation.is.based.on.the.number.of.
bottomhole.locations..
Landholdings.
(thousands of acres).
Alberta:.
. Oil.Sands.
. –.Crown(3).
.
. Conventional.
. –.Fee(4).
.
. –.Crown(3).
.
. –.Freehold(5).
.
Total.Alberta.
Saskatchewan:.
. Conventional.
. –.Fee(4).
.
. –.Crown(3).
.
. –.Freehold(5).
.
Total.Saskatchewan.
Manitoba:.
. Conventional.–.Fee(4).
Total.Manitoba.
Total..
Developed.
..Gross.
.
.
582.
.
1,931.
1,011.
71.
3,595.
.
.
78.
71.
14.
163.
.
4.
4.
3,762.
..Net.
.
.
487.
.
1,931.
910.
60.
3,388.
.
.
78.
57.
9.
144.
.
4.
4.
3,536.
Undeveloped(1).
Gross.
.
.
2,256.
.
442.
311.
18.
3,027.
.
.
427.
291.
11.
729.
.
262.
262.
4,018.
..Net.
.
.
1,792.
.
442.
261.
16.
2,511.
.
.
427.
273.
7.
707.
.
262.
262.
3,480.
Total(2)
Gross.
.
.
2,838.
.
2,373.
1,322.
89.
6,622.
.
.
505.
362.
25.
892.
.
266.
266.
7,780.
..Net
2,279
2,373
1,171
76
5,899
505
330
16
851
266
266
7,016
(1). Undeveloped.includes.land.that.has.not.yet.been.drilled,.as.well.as.land.with.wells.that.have.never.produced.hydrocarbons.or.that.do.not.currently.allow.for.the.production.of.hydrocarbons.
(2). This.table.excludes.approximately.2.4.million.gross.acres.under.lease.or.sublease,.reserving.to.us,.royalties.or.other.interests.
(3). Crown/Federal.lands.are.those.lands.owned.by.the.federal.or.provincial.government.or.the.First.Nations,.in.which.we.have.purchased.a.working.interest.lease.
(4). .Fee.lands.are.those.lands.in.which.we.have.a.fee.simple.interest.in.the.mineral.rights.and.have.either:.(i).not.leased.out.all.of.the.mineral.zones;.or.(ii).retained.a.working.interest..The.current.fee.
lands.summary.includes.all.freehold.titles.owned.by.us.that.have.one.or.more.zones.that.remain.unleased.or.available.for.development.
(5). Freehold.lands.are.those.lands.owned.by.individuals.(other.than.a.government.or.Cenovus).in.which.Cenovus.holds.a.working.interest.lease.
12 8
CENOVUS ENERGY 2012 ANNUAL RE PO RT / ADDITIONAL RESERVES AND OIL AND GAS INFORMATION
ADV ISO RY
FINANCIAL INFORMATION
Basis of Presentation.Financial.information.in.our.Annual.Report.is.in.
Canadian.dollars,.except.where.another.currency.has.been.indicated.
and.has.been.prepared.in.accordance.with.International.Financial.
Reporting.Standards.(“IFRS”.or.“GAAP”).as.issued.by.the.International.
Accounting.Standards.Board..Production.volumes.are.presented.on.a.
before.royalties.basis.
Non-GAAP Measures.Certain.financial.measures.in.our.Annual.Report.
do.not.have.a.standardized.meaning.as.prescribed.by.IFRS,.such.as.
operating.cash.flow,.cash.flow,.operating.earnings,.free.cash.flow,.debt,.
capitalization.and.adjusted.EBITDA,.and.therefore.are.considered.
non-GAAP.measures..These.measures.may.not.be.comparable.to.
similar.measures.presented.by.other.issuers..These.measures.have.been.
described.and.presented.in.order.to.provide.shareholders.and.potential.
investors.with.additional.measures.for.analyzing.our.ability.to.generate.
funds.to.finance.our.operations.and.information.regarding.our.liquidity..
The.additional.information.should.not.be.considered.in.isolation.or.
as.a.substitute.for.measures.prepared.in.accordance.with.IFRS..The.
definition.and.reconciliation.of.each.non-GAAP.measure.is.presented.
in.the.Operating.Results,.Financial.Results.and.Liquidity.and.Capital.
Resources.sections.in.our.MD&A.
FORWARD-LOOKING INFORMATION
This.document.contains.certain.forward-looking.statements.and.
other.information.(collectively.“forward-looking.information”).about.
our.current.expectations,.estimates.and.projections,.made.in.light.of.
our.experience.and.perception.of.historical.trends..Forward-looking.
information.in.this.document.is.identified.by.words.such.as.“anticipate”,.
“believe”,.“expect”,.“plan”,.“forecast”.or.“F”,.“target”,.“project”,.“could”,.
“focus”,.“vision”,.“goal”,.“proposed”,.“scheduled”,.“outlook”,.“potential”,.
“may”.or.similar.expressions.and.includes.suggestions.of.future.
outcomes,.including.statements.about.our.growth.strategy.and.related.
schedules,.projected.future.value.or.net.asset.value,.forecast.operating.
and.financial.results,.planned.capital.expenditures,.expected.future.
production,.including.the.timing,.stability.or.growth.thereof,.expected.
future.refining.capacity,.anticipated.finding.and.development.costs,.
expected.reserves.and.contingent.and.prospective.resources.estimates,.
potential.dividends.and.dividend.growth.strategy,.anticipated.timelines.
for.future.regulatory,.partner.or.internal.approvals,.future.impact.of.
regulatory.measures,.forecasted.commodity.prices,.future.use.and.
development.of.technology.and.projected.increasing.shareholder.value..
Readers.are.cautioned.not.to.place.undue.reliance.on.forward-looking.
information.as.our.actual.results.may.differ.materially.from.those.
expressed.or.implied.
Developing.forward-looking.information.involves.reliance.on.a.number.
of.assumptions.and.consideration.of.certain.risks.and.uncertainties,.
some.of.which.are.specific.to.Cenovus.and.others.that.apply.to.the.
industry.generally..
The.factors.or.assumptions.on.which.the.forward-looking.information.
is.based.include:.assumptions.inherent.in.our.current.guidance,.available.
at.www.cenovus.com;.our.projected.capital.investment.levels,.the.
flexibility.of.our.capital.spending.plans.and.the.associated.source.of.
funding;.estimates.of.quantities.of.oil,.bitumen,.natural.gas.and.liquids.
from.properties.and.other.sources.not.currently.classified.as.proved;.
our.ability.to.obtain.necessary.regulatory.and.partner.approvals;.the.
successful.and.timely.implementation.of.capital.projects.or.stages.
thereof;.our.ability.to.generate.sufficient.cash.flow.from.operations.
to.meet.our.current.and.future.obligations;.and.other.risks.and.
uncertainties.described.from.time.to.time.in.the.filings.we.make.with.
securities.regulatory.authorities..
The.assumptions.on.which.our.2013.guidance.is.based.include:.Brent.
US$100.00/bbl,.WTI.of.US$91.00/bbl;.Western.Canada.Select.of.
US$63.00/bbl;.NYMEX.of.US$4.00/MMBtu;.AECO.of.$3.40/GJ;.Chicago.
3-2-1.crack.spread.of.US$20.00/bbl;.exchange.rate.of.$1.00.US$/C$;.and.
an.average.diluted.number.of.shares.outstanding.of.approximately.766.
million..The.assumptions.on.which.our.forecasts.for.the.period.2014.to.
2021.are.based.on.include:.WTI.of.US$90.00-US$105.00/bbl;.Western.
Canada.Select.of.US$75.00-US$85.00/bbl;.NYMEX.of.US$5.25-US$6.00/
MMBtu;.AECO.of.$4.50-$5.25/GJ;.Chicago.3-2-1.crack.spread.of.US$9.00;.
exchange.rate.of.$1.00-$1.07.US$/C$;.and.an.average.diluted.number.of.
shares.outstanding.of.approximately.769.million..
The.risk.factors.and.uncertainties.that.could.cause.our.actual.results.
to.differ.materially,.include:.volatility.of.and.assumptions.regarding.
oil.and.gas.prices;.the.effectiveness.of.our.risk.management.program,.
including.the.impact.of.derivative.financial.instruments.and.the.success.
of.our.hedging.strategies;.the.accuracy.of.cost.estimates;.fluctuations.in.
commodity.prices,.currency.and.interest.rates;.fluctuations.in.product.
supply.and.demand;.market.competition,.including.from.alternative.
energy.sources;.risks.inherent.in.our.marketing.operations,.including.
credit.risks;.maintaining.desirable.ratios.of.debt.to.adjusted.EBITDA.as.
well.as.debt.to.capitalization;.our.ability.to.access.various.sources.of.
debt.and.equity.capital;.accuracy.of.our.reserves,.resources.and.future.
production.estimates;.our.ability.to.replace.and.expand.oil.and.gas.
reserves;.our.ability.to.maintain.our.relationship.with.our.partners.and.
to.successfully.manage.and.operate.our.integrated.heavy.oil.business;.
reliability.of.our.assets;.potential.disruption.or.unexpected.technical.
CEN OV US EN ERGY 2012 ANNUAL RE PO RT / ADV ISORY
129
Reserves terminology:
Reserves.are.estimated.remaining.quantities.anticipated.to.be.
recoverable.from.known.accumulations,.from.a.given.date.forward,.
based.on.analysis.of.drilling,.geological,.geophysical.and.engineering.
data,.the.use.of.established.technology.and.specified.economic.
conditions..Reserves.are.classified.according.to.the.degree.of.certainty.
associated.with.the.estimates:
Proved reserves are.those.reserves.that.can.be.estimated.with.a.
high.degree.of.certainty.to.be.recoverable..It.is.likely.that.the.actual.
remaining.quantities.recovered.will.exceed.the.estimated.proved.
reserves.
Probable reserves are.those.additional.reserves.that.are.less.certain.
to.be.recovered.than.proved.reserves..It.is.equally.likely.that.the.
actual.remaining.quantities.recovered.will.be.greater.or.less.than.the.
sum.of.the.estimated.proved.plus.probable.reserves.
.
.Each.of.the.reserves.categories.above.may.be.divided.into.developed.
and.undeveloped.categories:
Developed reserves.are.those.reserves.that.are.expected.to.be.
recovered.from.existing.wells.and.installed.facilities.or,.if.facilities.
have.not.been.installed,.that.would.involve.a.low.expenditure.(e.g..
when.compared.to.the.cost.of.drilling.a.well).to.put.the.reserves.on.
production..The.developed.category.may.be.subdivided.as.follows:
.
.
.
.
.
.
Developed producing reserves.are.those.reserves.that.are.
expected.to.be.recovered.from.completion.intervals.open.
at.the.time.of.the.estimate..These.reserves.may.be.currently.
producing.or,.if.shut-in,.they.must.have.previously.been.on.
production,.and.the.date.of.resumption.of.production.must.be.
known.with.reasonable.certainty..
Developed non-producing reserves.are.those.reserves.that.
either.have.not.been.on.production,.or.have.previously.been.
on.production,.but.are.shut-in,.and.the.date.of.resumption.of.
production.is.unknown.
Undeveloped reserves.are.those.reserves.expected.to.be.
recovered.from.known.accumulations.where.a.significant.
expenditure.(e.g..similar.to.the.cost.of.drilling.a.well).is.required.
to.render.them.capable.of.production..They.must.fully.meet.the.
requirements.of.the.reserves.classification.(proved,.probable).to.
which.they.are.assigned..
Royalty Interest Reserves means.those.reserves.related.to.our.royalty.
entitlement.on.lands.to.which.we.hold.fee.title.and.which.have.been.
leased.to.third.parties,.plus.any.reserves.related.to.other.royalty.
interests,.such.as.overriding.royalties,.to.which.we.are.entitled.
Royalty Interest Production.means.the.production.related.to.our.
royalty.entitlement.on.lands.to.which.we.hold.fee.title.and.which.
have.been.leased.to.third.parties,.plus.any.production.related.to.other.
royalty.interests,.such.as.overriding.royalties,.to.which.we.are.entitled.
difficulties.in.developing.new.products.and.manufacturing.processes;.
refining.and.marketing.margins;.potential.failure.of.new.products.
to.achieve.acceptance.in.the.market;.unexpected.cost.increases.or.
technical.difficulties.in.constructing.or.modifying.manufacturing.or.
refining.facilities;.unexpected.difficulties.in.producing,.transporting.
or.refining.of.crude.oil.into.petroleum.and.chemical.products;.risks.
associated.with.technology.and.its.application.to.our.business;.the.
timing.and.the.costs.of.well.and.pipeline.construction;.our.ability.to.
secure.adequate.product.transportation;.changes.in.the.regulatory.
framework.in.any.of.the.locations.in.which.we.operate,.including.
changes.to.the.regulatory.approval.process.and.land-use.designations,.
royalty,.tax,.environmental,.greenhouse.gas,.carbon.and.other.laws.
or.regulations,.or.changes.to.the.interpretation.of.such.laws.and.
regulations,.as.adopted.or.proposed,.the.impact.thereof.and.the.
costs.associated.with.compliance;.the.expected.impact.and.timing.of.
various.accounting.pronouncements,.rule.changes.and.standards.on.our.
business,.our.financial.results.and.our.consolidated.financial.statements;.
changes.in.the.general.economic,.market.and.business.conditions;.the.
political.and.economic.conditions.in.the.countries.in.which.we.operate;.
the.occurrence.of.unexpected.events.such.as.war,.terrorist.threats.and.
the.instability.resulting.therefrom;.and.risks.associated.with.existing.and.
potential.future.lawsuits.and.regulatory.actions.against.us.
Readers.are.cautioned.that.the.foregoing.lists.are.not.exhaustive.and.
are.made.as.at.the.date.hereof..For.a.full.discussion.of.our.material.risk.
factors,.see.“Risk.Factors”.in.our.Annual.Information.Form.for.the.year.
ended.December.31,.2012.(see.Additional.Information).
OIL AND GAS INFORMATION
Terminology The.estimates.of.reserves.and.resources.data.and.related.
information.were.prepared.effective.December.31,.2012.by.independent.
qualified.reserves.evaluators.(“IQREs”).and.are.presented.using.McDaniel.
&.Associates.Consultants.Ltd..(“McDaniel”).January.1,.2013.price.forecast..
We.hold.significant.fee.title.rights.which.generate.production.for.our.
account.from.third.parties.leasing.those.lands..
For.additional.information.about.our.reserves,.resources.and.other.oil.and.
gas.information,.see.“Reserves.Data.and.Other.Oil.and.Gas.Information”.
in.our.Annual.Information.Form.for.the.year.ended.December.31,.2012..
(see.Additional.Information)..The.following.definitions.are.applicable.to.
our.oil.and.gas.disclosure.in.our.Annual.Report:
After Royalties.means.volumes.after.deduction.of.royalties.and.
includes.Royalty.Interests.
Before Royalties means.volumes.before.deduction.of.royalties.and.
excludes.Royalty.Interests.
Company Interest.means,.in.relation.to.production,.reserves,.resources.
and.property,.the.interest.(operating.or.non-operating).held.by.us.
Gross.means:.(a).in.relation.to.wells,.the.total.number.of.wells.in.which.
we.have.an.interest;.and.(b).in.relation.to.properties,.the.total.area.of.
properties.in.which.we.have.an.interest..
Net.means:.(a).in.relation.to.wells,.the.number.of.wells.obtained.by.
aggregating.our.working.interest.in.each.of.our.gross.wells;.and.(b).in.
relation.to.our.interest.in.a.property,.the.total.area.in.which.we.have..
an.interest.multiplied.by.the.working.interest.owned.by.us.
130
CENOVUS ENERGY 2012 ANNUAL RE PO RT / ADVI SORY
Resources terminology:
Contingent resources are.those.quantities.of.bitumen.estimated,.as.of.
a.given.date,.to.be.potentially.recoverable.from.known.accumulations.
using.established.technology.or.technology.under.development,.but.
which.are.not.currently.considered.to.be.commercially.recoverable.due.
to.one.or.more.contingencies..Contingencies.may.include.such.factors.
as.economic,.legal,.environmental,.political.and.regulatory.matters.or.a.
lack.of.markets..It.is.also.appropriate.to.classify.as.contingent.resources.
the.estimated.discovered.recoverable.quantities.associated.with.a.
project.in.the.early.evaluation.stage..Contingent.resources.are.further.
classified.in.accordance.with.the.level.of.certainty.associated.with.the.
estimates.and.may.be.sub-classified.based.on.project.maturity.and/
or.characterized.by.their.economic.status..The.McDaniel.estimates.
of.contingent.resources.have.not.been.adjusted.for.risk.based.on.the.
chance.of.development..
Economic contingent resources are.those.contingent.resources.that.
are.currently.economically.recoverable.based.on.specific.forecasts.of.
commodity.prices.and.costs..
The.economic.contingent.resources.were.estimated.for.individual.
projects.and.then.aggregated.for.disclosure.purposes..The.high.and.
low.estimate.volumes.are.arithmetic.sums.of.multiple.estimates.
which.statistical.principles.indicate.may.be.misleading.as.to.volumes.
that.may.actually.be.recovered..Because.the.results.are.aggregated.
for.disclosure,.the.low.estimate.results.disclosed.may.have.a.higher.
probability.than.the.estimates.for.the.individual.projects,.and.the.
high.estimate.results.disclosed.may.have.a.lower.probability.than.the.
estimates.for.individual.projects.
Prospective resources.are.those.quantities.of.bitumen.petroleum.
estimated,.as.of.a.given.date,.to.be.potentially.recoverable.from.
undiscovered.accumulations.by.application.of.future.development.
projects..Prospective.resources.have.both.an.associated.chance.of.
discovery.and.a.chance.of.development..Prospective.resources.are.
further.subdivided.in.accordance.with.the.level.of.certainty.associated.
with.recoverable.estimates.assuming.their.discovery.and.development.
and.may.be.subclassified.based.on.project.maturity..The.estimate.of.
prospective.resources.has.not.been.adjusted.for.risk.based.on.the.
chance.of.discovery.or.the.chance.of.development.
Best estimate.is.considered.to.be.the.best.estimate.of.the.quantity.of.
resources.that.will.actually.be.recovered..It.is.equally.likely.that.the.
actual.remaining.quantities.recovered.will.be.greater.or.less.than.the.
best.estimate..Those.resources.that.fall.within.the.best.estimate.have.a.
50.percent.probability.that.the.actual.quantities.recovered.will.equal.or.
exceed.the.estimate.
Low estimate.is.considered.to.be.a.conservative.estimate.of.the.
quantity.of.resources.that.will.actually.be.recovered..It.is.likely.that.the.
actual.remaining.quantities.recovered.will.exceed.the.low.estimate..
Those.resources.included.in.the.low.estimate.range.have.the.highest.
degree.of.certainty.–.a.90.percent.probability.–.that.the.actual.
quantities.recovered.will.equal.or.exceed.the.estimate..
High estimate.is.considered.to.be.an.optimistic.estimate.of.the.quantity.
of.resources.that.will.actually.be.recovered..It.is.unlikely.that.the.actual.
remaining.quantities.of.resources.recovered.will.meet.or.exceed.the.
high.estimate..Those.resources.included.in.the.high.estimate.range.have.
a.lower.degree.of.certainty,.a.10.percent.probability,.that.the.actual.
quantities.recovered.will.equal.or.exceed.the.estimate.
Barrels of Oil Equivalent.Certain.natural.gas.volumes.have.been.
converted.to.barrels.of.oil.equivalent.(BOE).on.the.basis.of.six.Mcf.
to.one.bbl..BOE.may.be.misleading,.particularly.if.used.in.isolation..A.
conversion.ratio.of.one.bbl.to.six.Mcf.is.based.on.an.energy.equivalency.
conversion.method.primarily.applicable.at.the.burner.tip.and.does.not.
represent.value.equivalency.at.the.wellhead.
Finding and Development Costs.Finding.and.development.costs.
disclosed.in.our.Annual.Report.do.not.include.the.change.in.estimated.
future.development.costs..Cenovus.uses.finding.and.development.costs.
without.changes.in.estimated.future.development.costs.as.an.indicator.
of.relative.performance.to.be.consistent.with.the.methodology.
accepted.within.the.oil.and.gas.industry.
Finding.and.development.costs.for.proved reserves,.excluding.the.
effects.of.acquisitions.and.dispositions.but.including.the.change.in.
estimated.future.development.costs.were.$25.48/BOE.for.the.year.
ended.December.31,.2012,.$13.99/BOE.for.the.year.ended.December.31,.
2011.and.averaged.$16.35/BOE.for.the.three.years.ended.December.31,.
2012..Finding.and.development.costs.for.proved plus probable reserves,.
excluding.the.effects.of.acquisitions.and.dispositions.but.including.
the.change.in.estimated.future.development.costs.were.$20.04/
BOE.for.the.year.ended.December.31,.2012,.$10.69/BOE.for.the.year.
ended.December.31,.2011.and.averaged.$14.27/BOE.for.the.three.years.
ended.December.31,.2012..These.finding.and.development.costs.were.
calculated.by.dividing.the.sum.of.exploration.costs,.development.costs.
and.changes.in.future.development.costs.in.the.particular.period.by.
the.reserves.additions.(the.sum.of.extensions.and.improved.recovery,.
discoveries,.technical.revisions.and.economic.factors).in.that.period..
The.aggregate.of.the.exploration.and.development.costs.incurred.in.
a.particular.period.and.the.change.during.that.period.in.estimated.
future.development.costs.generally.will.not.reflect.total.finding.and.
development.costs.related.to.reserves.additions.for.that.period.
For.additional.information.about.our.finding.and.development.costs,.
capital.investment.and.reserves.additions,.see.our.February.14,.2013.
news.release.available.on.our.website.at.www.cenovus.com.
Net Asset Value.With.respect.to.the.particular.year.being.valued,.the.net.
asset.value.(NAV).disclosed.herein.is.based.on.the.number.of.issued.and.
outstanding.Cenovus.shares.as.at.December.31.as.reported.in.our.Annual.
Information.Form.and.Form.40-F,.plus.the.total.dilutive.effect.of.Cenovus.
shares.related.to.stock.option.programs.or.other.contracts.as.disclosed.
in.the.“Per.Share.Amounts”.note.to.our.annual.Consolidated.Financial.
Statements..We.calculate.NAV.as.an.average.of.(i).our.average.trading.price.
for.the.month.of.December,.(ii).an.average.of.net.asset.values.published.
by.external.analysts.in.December.following.the.announcement.of.our.
budget.forecast,.and.(iii).an.average.of.two.net.asset.values.based.primarily.
on.discounted.cash.flows.of.independently.evaluated.reserves,.resources.
and.refining.data.and.using.internal.corporate.costs,.with.one.based.on.
constant.prices.and.costs.and.one.based.on.forecast.prices.and.costs.
CEN OV US EN ERGY 2012 ANNUAL RE PO RT / ADV ISORY
131
ABBREVIATIONS
ADDITIONAL INFORMATION
For.convenience,.references.in.this.document.to.the.“Company”,.
“Cenovus”,.“we”,.“us”,.“our”.and.“its”.may,.where.applicable,.refer.only.to.
or.include.any.relevant.direct.and.indirect.subsidiary.corporations.and.
partnerships.(“subsidiaries”).of.Cenovus,.and.the.assets,.activities.and.
initiatives.of.such.subsidiaries.
Additional.information.relating.to.Cenovus,.including.our.Annual.
Information.Form./.Form.40-F.for.the.year.ended.December.31,.2012,.is.
available.on.SEDAR.at.www.sedar.com,.EDGAR.at.www.sec.gov.and.on.
our.website.at.www.cenovus.com.
The.following.is.a.summary.of.the.abbreviations.that.have..
been.used.in.this.document:
TM.....
Trademark.of.Cenovus.Energy.Inc.
Oil and Natural Gas Liquids
bbl.
barrel
bbls/d.
barrels.per.day
Mbbls/d.
thousand.barrels.per.day
MMbbls. million.barrels
NGLs.
natural.gas.liquids
BOE.
barrel.of.oil.equivalent
BOE/d.
barrel.of.oil.equivalent.per.day
WTI.
WCS.
West.Texas.Intermediate
Western.Canadian.Select
Natural Gas
Mcf.
thousand.cubic.feet
MMcf.
million.cubic.feet
Bcf.
billion.cubic.feet
MMBtu.
million.British.thermal.units
GJ.
Gigajoule
CBM.
Coal.Bed.Methane
132
CENOVUS ENERGY 2012 ANNUAL RE PO RT / ADVI SORY
COR POR ATE INFOR MATION
SHAREHOLDER INFORMATION
ExECUTIVE OFFICERS
BOARD OF DIRECTORS
ANNUAL MEETING
Brian C. Ferguson
President.&.Chief.Executive.Officer
Michael A. Grandin(3)(7)
Chair,.Calgary,.Alberta
John K. Brannan
Executive.Vice-President..
&.Chief.Operating.Officer
Harbir S. Chhina
Executive.Vice-President,..
Oil.Sands
Kerry D. Dyte
Executive.Vice-President,.General.
Counsel.&.Corporate.Secretary
Sheila M. McIntosh
Executive.Vice-President,..
Environment.&.Corporate.Affairs
Ivor M. Ruste
Executive.Vice-President..
&.Chief.Financial.Officer
Donald T. Swystun
Executive.Vice-President,..
Refining,.Marketing,.
Transportation.&.Development
Hayward J. Walls
Executive.Vice-President,.
Organization.&.Workplace.
Development
CENOVUS HEAD OFFICE
Cenovus.Energy.Inc.
500.Centre.Street.SE
PO.Box.766
Calgary,.Alberta,.Canada
T2P.0M5
Phone:.403.766.2000
cenovus.com
Ralph S. Cunningham(2)(3)(5)
Houston,.Texas
Patrick D. Daniel(1)(2)(3)
Calgary,.Alberta
Ian W. Delaney(2)(3)(5)
Toronto,.Ontario
Brian C. Ferguson(6)
Calgary,.Alberta
Valerie A.A. Nielsen(1)(3)(4)
Calgary,.Alberta
Charles M. Rampacek(3)(4)(5)
Dallas,.Texas
Colin Taylor(1)(2)(3)
Toronto,.Ontario
Wayne G. Thomson(3)(4)(5)
Calgary,.Alberta
(1). Member.of.the.Audit.Committee.
(2)...Member.of.the.Human.Resources.and.
Compensation.Committee.
(3)...Member.of.the.Nominating.and.
Corporate.Governance.Committee.
(4)...Member.of.the.Reserves.Committee.
(5)...Member.of.the.Safety,.Environment.and.
Responsibility.Committee.
(6)...As.an.officer.and.a.non-independent.
director,.Mr..Ferguson.is.not.a.member.of.
any.Board.Committees.
Shareholders.are.invited.to.
attend.the.annual.meeting.to.be.
held.on.Wednesday,.April.24,.2013.
at.2.p.m..(Calgary.time).at.The.
Westin.Calgary,.Grand.Ballroom,.
320.–.4.Avenue.SW,.Calgary,.
Alberta,.Canada.
Please.see.our.management.proxy.
circular.available.on.our.website,.
cenovus.com,.for.additional.
information.
TRANSFER AGENTS
& REGISTRAR
Computershare Investor
Services Inc.
9th.Floor,.100.University.Avenue
Toronto,.ON..M5J.2Y1
www.investorcentre.com/
cenovus
NYSE CORPORATE
GOVERNANCE STANDARDS
As.a.Canadian.company.listed.on.
the.NYSE,.we.are.not.required.
to.comply.with.most.of.the.
NYSE.corporate.governance.
standards.and.instead.may.
comply.with.Canadian.corporate.
governance.requirements..We.are,.
however,.required.to.disclose.the.
significant.differences.between.
our.corporate.governance.
practices.and.those.required.to.
be.followed.by.U.S..domestic.
companies.under.the.NYSE.
corporate.governance.standards..
Except.as.summarized.on.our.
website,.cenovus.com,.we.are.
in.compliance.with.the.NYSE.
corporate.governance.standards.
in.all.significant.respects.
Shareholder.inquiries.by.phone.
1.866.332.8898.(North.America,.
English.&.French).or.1.514.982.8717.
(outside.North.America).
INVESTOR RELATIONS
Please.visit.the.Invest in us
section.of.cenovus.com.for.
investor.information.
SHAREHOLDER
ACCOUNT MATTERS
For.information.regarding.your.
shareholdings.or.to.change.
your.address,.transfer.shares,.
eliminate.duplicate.mailings,.
direct.deposit.of.dividends,.etc.,.
please.contact.Computershare.
Investor.Services.Inc.
Investor inquiries should be
directed to:
403.766.7711
investor.relations@cenovus.com
Media inquiries should be
directed to:
403.766.7751
media.relations@cenovus.com
(7)...Ex-officio.non-voting.member.of.all.
other.Board.Committees.
STOCK ExCHANGES
Cenovus.common.shares.trade.on.
the.Toronto.Stock.Exchange.(TSX).
and.the.New.York.Stock.Exchange.
(NYSE).under.the.symbol.CVE.
ANNUAL INFORMATION
FORM / FORM 40-F
Our.Annual.Information.Form.is.
filed.with.the.Canadian.Securities.
Administrators.in.Canada.on.
SEDAR.at.www.sedar.com.and.
with.the.US.Securities.and.
Exchange.Commission.under.the.
Multi-Jurisdictional.Disclosure.
System.as.an.Annual.Report.on.
Form.40-F.on.EDGAR.at..
www.sec.gov.
CENOVUS ENERGY 2012 ANNUAL REPORT / CORPORATE AND SHAREHOLDER INFORMATION
133
Cenovus Energy is a Canadian integrated oil company.
We are committed to applying fresh, progressive
thinking to safely and responsibly unlock energy
resources the world needs.
our operations include oil sands projects in northern alberta, which use
specialized methods to drill and pump the oil to the surface. as well, we have
established natural gas and oil production in alberta and saskatchewan. We also
have 50 percent ownership in two u.s. refineries.
cenovus.com
t witter .com/cenovus
facebook .com/cenovus
youtube .com/cenovusenergy
linkedin.com/company/cenovus -energy
500 Centre Street SE
PO Box 766
Calgary, Alberta T2P 0M5
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Printed in Canada