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Cenovus taking steps to improve performance at Foster Creek oilsands project

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CALGARY - Cenovus Energy Inc. (TSX:CVE) says it's taking steps to improve performance at its Foster Creek oilsands project, which has been sucking up more steam than the company would like.

Foster Creek, in northeastern Alberta, was the first commercial development to use an extraction technique called steam-assisted gravity drainage, or SAGD. Instead of scooping out oilsands ore from an open-pit mine, SAGD operators pump steam underground through one well, and then draw the liquefied crude to the surface through a second well below.

At 13 years old, the project is facing some challenges. Steam chambers from each well pair are coalescing, making operations less efficient. Instead of managing steam on a well-by-well basis, Cenovus will now have to consider how heat travels throughout the whole reservoir.

"Every SAGD reservoir will encounter this," CEO Brian Ferguson said in an interview Thursday. "This is a natural evolution."

At Foster Creek, it took Cenovus 2.5 barrels of steam to produce a barrel of crude in 2013, up from a steam-to-oil ratio of 2.2 a year earlier. As well, output from the site dropped eight per cent year-over-year to 53,000 barrels per day.

Steam-to-oil ratios, or SORs, are a closely-watched number for SAGD players like Cenovus. The lower the SOR, the lower the cost and environmental impact.

Cenovus says Foster Creek is still capable of eventually producing 300,000 barrels of crude per day, but it has decided to shift some timelines and tweak start-up practices to adjust to the reservoir's changes.

Cenovus is planning three 30,000-barrel-per-day expansions to Foster Creek, with steaming on the first expected this spring.

"One of the beauties of SAGD is we get smarter every time we bring on a new phase," said Ferguson.

In starting up the new phases, Cenovus will allow steam to circulate underground, heating up the whole length of the wellbore, for a month before producing oil.

It's also adding some instrumentation to track how each well pair is performing.

"What we're doing is making sure that we basically get better information on a real-time basis about how the temperatures and pressures are performing along the horizontal section of the well pair, which will allow us to tweak the amount of steam that we're seeing and also give us a little bit better indication with respect to the preventative maintenance that we need to do," said Ferguson.

Cenovus is also speeding up additional wells that allow steam to be shifted around the reservoir, as opposed to drilling those just before they're needed.

Foster Creek's SOR for 2014 is expected to be between 2.6 and three — a temporary increase resulting from the new startup practices.

"Cenovus anticipates this will result in long-term production benefits that outweigh the added costs of a temporarily higher SOR," the company said in a release.

Also Thursday, Cenovus announced a 10 per cent hike in its quarterly dividend, starting next month, to 26.6 cents per share.

The Calgary-based company also reported $212 million of operating earnings, equal to 28 cents per share. That missed the 36 cents analysts had been expecting, according to estimates compiled by Thomson Reuters, and reversed a year-earlier operating loss of $188 million or 25 cents per share.

Its operating earnings exclude a number of items, including the impact of the company's risk-management programs.

With those items included, Cenovus had a fourth-quarter net loss of $58 million or eight cents per share, which was improved from the year-earlier loss of 15 cents per share or $117 million.

Combined production from its Foster Creek and Christina Lake oilsands projects rose 14 per cent to average almost 103,000 barrels per day in 2013.

Cenovus shares were down three per cent at $28.76 in afternoon trading Thursday on the Toronto Stock Exchange.

Follow @LaurenKrugel on Twitter

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