Mr. Brian Ferguson reports

CENOVUS OIL SANDS PRODUCTION INCREASES 23%; COMPANY GENERATES NEARLY $1 BILLION IN CASH FLOW

Cenovus Energy Inc. has released financial and operating results for the third quarter ended Sept. 30, 2014.

Highlights:

• Production at Christina Lake averaged more than 68,000 barrels per day net in the third quarter, an increase of 30 per cent when compared with the same period a year earlier.
• Foster Creek production averaged almost 57,000 barrels per day net in the quarter, 15 per cent higher than the same quarter in 2013.
• Cenovus achieved first production from its Foster Creek phase F expansion in September.
• Cash flow was almost $1-billion in the third quarter, a 6-per-cent increase when compared with the same period in 2013.
• Cenovus completed the sale of a portion of its Wainwright heavy oil assets in Alberta, recording a gain of $137-million on the divestiture.
• The company was recently named to the Dow Jones Sustainability World Index for the third year in a row.

"Increasing production volumes and reliable performance at our oil sands projects helped drive strong cash flow in the third quarter," said Brian Ferguson, Cenovus's president and chief executive officer. "We continue to execute our business plan and remain focused on delivering growing total shareholder return."

                                                     
                                   PRODUCTION AND FINANCIAL SUMMARY

                                                            For the period ended Sept. 30,
                                                                        2014         2013
Production (before royalties)
Oil sands total (bbl/d)                                              125,089      101,824
Conventional oil(1) (bbl/d)                                           74,000       75,114
Total oil (bbl/d)                                                    199,089      176,938
Natural gas (mmcf/d)                                                     489          523
Financial ($ millions, except per share amounts)
Cash flow                                                           $    985     $    932
Per share diluted                                                   $   1.30     $   1.23
Operating earnings                                                  $    372     $    313
Per share diluted                                                   $   0.49     $   0.41
Net earnings                                                        $    354     $    370
Per share diluted                                                   $   0.47     $   0.49
Capital investment                                                  $    750     $    743

Note:
1. Includes natural gas liquids and Pelican Lake production. 

Cenovus achieved higher third-quarter cash flow compared with the same period a year earlier due to increased production volumes from its oil sands operations, higher natural gas prices and lower finance costs. The cash flow increase was partially offset by weaker crude oil prices and lower refined product output at its refineries compared with the same period in 2013.

Production from Cenovus's jointly owned Christina Lake and Foster Creek oil sands operations averaged more than 250,000 barrels per day gross (125,000 barrels per day net) in the third quarter, up 23 per cent from a year earlier. Christina Lake production increased 30 per cent from the third quarter of 2013, averaging more than 68,000 barrels per day, net to Cenovus, after expansion phase E reached design capacity earlier in the year. Production was also higher during the quarter due to improved facility performance.

Foster Creek production averaged almost 57,000 barrels per day net in the third quarter, up 15 per cent from the same period a year earlier, partially due to an increase in the number of producing wells using Wedge Well technology. Performance also improved as a result of the elimination of a backlog of well maintenance and the company's continued focus on preventative work and subsurface monitoring. In addition, a small-scale planned turnaround in the third quarter had less of an impact on production as compared with a major planned turnaround in the same period of 2013. First production from the phase F wells began in September. Phase F adds 30,000 barrels per day of gross capacity.

"We're pleased about the return to reliable performance at Foster Creek and the continued strong operations at Christina Lake as we remain focused on achieving plant utilization rates of between 90 per cent and 95 per cent," said John Brannan, executive vice-president and chief operating officer. "We're delivering solid, predictable growth at our oil sands projects and with the completion of phase F we expect to add incremental production over the next 18 months."

Cash flow was almost $1-billion in the third quarter, up 6 per cent from the same period a year earlier. The increase was driven by higher operating cash flow from the company's oil sands and natural gas assets, reflecting increased production volumes at Christina Lake and Foster Creek and higher natural gas prices, as well as lower finance costs when compared with the third quarter of 2013. All of the company's business segments generated operating cash flow in excess of capital investment during the quarter. After investing $750-million in committed and growth capital in the third quarter, Cenovus had free cash flow of $235-million, 24 per cent higher than in the same period of 2013.

The increase in upstream operating cash flow was partially offset by a 53-per-cent decrease in refining operating cash flow compared with the third quarter of 2013. The decrease in refining operating cash flow was due to lower refined product output after an unplanned coker outage at the Borger refinery and a planned turnaround that began late in the third quarter at the Wood River refinery. The decline in refining operating cash flow was partially offset by lower crude oil feedstock costs and higher market crack spreads.

Successful asset sale

On Sept. 30, Cenovus successfully completed the sale of certain of its Wainwright heavy oil assets in east-central Alberta for net proceeds of $234-million, recording a gain of $137-million. Oil production from these assets was approximately 2,800 barrels per day in the third quarter. Cenovus retained ownership of the mineral rights on fee lands that were part of the divestiture and will continue to receive a royalty payment from the new owners on current and future production from these lands.

Recognition for corporate responsibility

In September, Cenovus was named to the Dow Jones Sustainability World Index for the third year in a row. Cenovus is the only North American oil and gas company to make the world index this year, ranking high in the areas of risk management, transparent reporting and stakeholder engagement. The company was also named to the Dow Jones Sustainability North America Index for the fifth consecutive year.

Guidance updated

Cenovus has updated its 2014 full-year guidance to reflect actual numbers for the first nine months of the year and the company's estimates for the fourth quarter. Updated guidance can be found on Cenovus's website under investors.

2015 budget to be released in December

Cenovus is currently developing its 2015 budget and will provide details during a conference call scheduled for Dec. 11, 2014.

                                  OIL PROJECTS                           
                               DAILY PRODUCTION(1)                         
                           (Before royalties, mbbl/d)
                                                       2013           2012   
                                 2014      Full                       full
                             Q3   Q2   Q1  year    Q4   Q3   Q2   Q1  year
Oil sands                                                         
Christina Lake               68   68   66    49    61   53   38   44    32    
Foster Creek                 57   57   55    53    52   49   55   56    58 
                            ---  ---  ---   ---   ---  ---  ---  ---   ---   
Oil sands total             125  125  120   103   114  102   94  100    90    
Conventional oil                                                  
Pelican Lake                 24   25   25    24    25   25   24   24    23    
Weyburn                      16   16   16    16    16   16   16   17    16    
Other conventional(2)        34   36   36    36    34   34   37   39    37    
                            ---  ---  ---   ---   ---  ---  ---  ---   ---
Conventional total           74   77   76    77    75   75   77   80    76
                            ---  ---  ---   ---   ---  ---  ---  ---   ---    
Total oil                   199  202  197   179   189  177  171  180   165

Notes:   
1. Totals may not add due to rounding.                          
2. Includes NGLs production.                                    

Oil sands

Cenovus has a substantial portfolio of oil sands assets in Northern Alberta with the potential to provide decades of production growth. The two operations currently producing, Foster Creek and Christina Lake, use steam-assisted gravity drainage, which involves drilling into the reservoir and injecting steam at low pressures to soften the thick oil so it can be pumped to the surface. Cenovus is currently building its third major oil sands project at Narrows Lake, which is part of the Christina Lake region. These projects are operated by Cenovus and jointly owned with ConocoPhillips. Cenovus has an enormous opportunity to deliver increased shareholder value through production growth from several identified emerging projects and additional future developments. The company continues to assess its resources and prioritize development plans to create long-term value.

Christina Lake

Production:

• Production at Christina Lake averaged 68,458 barrels per day net in the third quarter, 30 per cent higher than in the same period a year earlier due to phase E reaching design capacity in the second quarter. In addition, in the third quarter of 2013 there was unplanned minor downtime related to the start-up of phase E that had an impact on production. Work to optimize phases C, D and E continues, with incremental production expected in 2015.
• The steam to oil ratio at Christina Lake was 1.7 in the third quarter, an improvement from 1.9 in the same period a year earlier.
• Operating costs at Christina Lake were $10.40 per barrel in the third quarter, a 9-per-cent decline from $11.46 per barrel in the same period a year ago. This was primarily due to increased production, a lower SOR, improved performance at the company's facilities and a decline in fluid, waste handling and trucking costs. The decline in operating costs was partially offset by a rise in fuel expenses, consistent with higher natural gas prices, and increased workover activities related to well servicing.
• Non-fuel operating costs were $7.08 per barrel, compared with $9 per barrel in the third quarter of 2013.
• The netback the company received for its Christina Lake oil production declined 12 per cent to $48.40 per barrel in the third quarter compared with the same period of 2013, mainly due to lower crude oil benchmark prices.

Expansions:

• The company continues to make progress on the construction of phases F and G at Christina Lake.
• Total capital investment at Christina Lake was $198-million in the quarter, 22 per cent higher compared with the same period a year earlier. Most of the investment was focused on expansion phases F and G and sustaining well programs.

Foster Creek

Production:

• Foster Creek production averaged 56,631 barrels per day net in the quarter, 15 per cent higher than the same period in 2013. The increase was partially due to additional production from wells using Wedge Well technology and to improved performance following the elimination of a backlog of well maintenance in 2013.
• The SOR at Foster Creek was 2.8 in the third quarter of 2014, compared with 2.5 in the same period of 2013. The SOR is expected to range between 2.6 and three until expansion phases F, G and H are completely ramped up. At that point, the SOR is expected to drop below 2.5.
• Operating costs at Foster Creek averaged $14.79 per barrel in the third quarter, a 14-per-cent decrease from $17.12 per barrel in the same period a year ago.
• Non-fuel operating costs were $10.48 per barrel in the quarter compared with $14.65 per barrel in the same period of 2013. The decrease was due, in part, to increased production and lower workover costs in 2014 compared with 2013 when the company was addressing a backlog of well maintenance. In addition, after a review of the company's 2014 redrilling program at Foster Creek, it was determined that these activities were beyond normal maintenance and, in fact, enhanced future production capability and were normal capital expenditures. As a result, costs which had been previously recognized as operating costs have now been capitalized in the third quarter. This reduced operating costs in the quarter by $1.60 per barrel.
• Fuel costs continued to have a significant impact on per-unit operating costs at Foster Creek during the quarter, increasing $1.84 per barrel. The increase in fuel costs was consistent with higher natural gas prices and increased consumption compared with the same period in 2013.
• The netback the company received for its Foster Creek oil production fell 9 per cent to $54.46 per barrel in the third quarter from the same period in 2013, largely due to lower crude oil benchmark prices.

Expansions:

• The Foster Creek phase F main plant began processing oil in the third quarter. Phase F adds another 30,000 barrels per day of gross production capacity. The company continues to progress construction of the phase G and H plants.
• Capital investment was $207-million, comparable with the same period in 2013. Investment during the third quarter was focused on the completion of phase F and continuing construction for phases G and H as well as drilling and completions of well pairs.

Narrows Lake:

• Phase A site construction, engineering and procurement are progressing.
• The first phase of the project is expected to have production capacity of 45,000 barrels per day gross. Narrows Lake is expected to be the industry's first project to demonstrate a solvent aided process, using butane, on a commercial scale.
• Cenovus invested $38-million at Narrows Lake in the third quarter, compared with $40-million in the same period a year earlier.

Emerging projects

Grand Rapids:

• Cenovus is moving ahead with phase A of its Grand Rapids oil sands project, which is expected to have production capacity of between 8,000 and 10,000 barrels per day. Work is continuing on dismantling an existing SAGD facility that Cenovus purchased earlier this year and is planning to relocate to the Grand Rapids site for use at phase A. The project has received regulatory approval for total capacity of 180,000 barrels per day.
• Cenovus continues to operate an SAGD pilot project that has two producing well pairs. The wells continue to provide data that will be used to design the first phase.
• Capital investment was $20-million at Grand Rapids in the third quarter, compared with $6-million in the same period a year earlier.

Telephone Lake:

• Cenovus anticipates receiving approval soon from the Alberta Energy Regulator for its Telephone Lake oil sands project located in the Borealis region of Northern Alberta. The company expects to provide an update on its development plan for the project in December.
• The company drilled 12 stratigraphic test wells at Telephone Lake during the third quarter.
• Cenovus invested $23-million at Telephone Lake in the quarter, compared with $1-million in the same period a year ago.

Conventional oil

Pelican Lake

Cenovus produces heavy oil from the Wabiskaw formation at its 100-per-cent-owned Pelican Lake operation in the Greater Pelican region, about 300 kilometres north of Edmonton. Cenovus has been injecting polymer since 2006 to enhance production from the reservoir, which is also under waterflood.

• In the third quarter of 2014, production averaged 24,196 barrels per day, a 3-per-cent decline compared with the same period a year earlier due to a planned turnaround.
• Cenovus invested $61-million at Pelican Lake in the third quarter, compared with $97-million in the same period a year earlier. Pelican Lake generated $50-million in operating cash flow in excess of capital investment in the third quarter.
• Operating costs at Pelican Lake were $20.49 per barrel in the quarter, compared with $19.90 per barrel in 2013. The increase was primarily due to lower oil sales volumes, higher property taxes, increased electricity expense, and a rise in fluid, waste handling and trucking costs, partially offset by a decline in expenses for workover activity, and repairs and maintenance.

Other conventional oil

In addition to Pelican Lake, Cenovus has tight oil opportunities in Alberta, as well as the established Weyburn operation in Saskatchewan that uses carbon dioxide injection to enhance oil recovery.

• Conventional oil production, excluding Pelican Lake, averaged 49,804 barrels per day in the third quarter, a decline of 1 per cent from the same period a year earlier. Increased production from the company's successful horizontal well performance in Southern Alberta was offset by expected natural declines and the divestiture of the company's Bakken assets earlier in 2014.
• Production from the Weyburn operation averaged 16,141 barrels per day net compared with 16,438 barrels per day net in the third quarter of 2013.
• Operating costs for Cenovus's conventional oil operations, excluding Pelican Lake, were $17.50 per barrel, a 16-per-cent increase from $15.10 per barrel compared with the third quarter of 2013. The increase was primarily due to higher fluid, waste handling and trucking costs as well as a rise in chemical expenses, workover activity and repairs and maintenance.
• Excluding Pelican Lake, Cenovus invested $128-million in its conventional oil assets in the third quarter, compared with $173-million a year earlier. These assets generated $113-million of operating cash flow in excess of capital investment in the third quarter of 2014.

                                  NATURAL GAS                           
                                DAILY PRODUCTION                         
                           (Before royalties, mmcf/d)
                                                       2013           2012   
                                 2014      Full                       full
                             Q3   Q2   Q1  year    Q4   Q3   Q2   Q1  year

Natural gas                 489  507  476   529   514  523  536  545   594   

Cenovus has a solid base of established, reliable natural gas properties in Alberta. These properties are managed as financial assets, not production assets, generating operating cash flow well in excess of their continuing capital investment requirements. The natural gas business also acts as an economic hedge against price fluctuations because natural gas fuels the company's oil sands and refining operations.

• Natural gas production averaged 489 million cubic feet per day in the third quarter, down 7 per cent compared with the same period a year earlier, driven by expected natural declines.
• The company invested $10-million in its natural gas assets in the third quarter, up from $6-million in the same period a year earlier. The natural gas assets generated $119-million in operating cash flow in excess of capital investment.
• Cenovus's average realized sales price for natural gas, including hedges, was $4.33 per thousand cubic feet compared with $3.21 per thousand cubic feet in the same quarter of 2013.
• Higher cash flow from natural gas more than offset the increase in fuel costs at Cenovus's operations in the third quarter because the company produces more natural gas than it consumes at its oil sands and refining operations. Natural gas use at Cenovus's operations is forecast to be about 145 million cubic feet per day in 2014.

Market access

Cenovus is concentrating on finding new customers in North America and around the world and working to ensure it has the ability to move its oil to these customers. The company continues to support proposed pipelines to Canada's east and west coasts as well as to the United States to ensure adequate shipping capacity for its growing production. To complement its pipeline strategy, Cenovus takes a portfolio approach to marketing and transportation that also includes using rail and commodity price hedging.

• Cenovus transported almost 13,000 barrels per day of crude oil by rail during the third quarter to markets in Canada and the United States, including 18 unit train shipments. The company now has 30,000 barrels per day of crude oil rail loading capacity.
• The company expects to start moving an initial 50,000 barrels per day of oil on Enbridge's Flanagan South pipeline system during the fourth quarter. Over the longer term, Cenovus has committed to ship approximately 75,000 barrels per day on Flanagan South, which provides additional access to the U.S. Gulf Coast.
• Cenovus continues to use its firm service capacity of 11,500 barrels per day on the existing Trans Mountain pipeline, giving the company access to the west coast.
• The company also has committed to move 200,000 barrels per day on TransCanada's proposed Energy East pipeline, has additional shipping capacity of 175,000 barrels per day on planned pipelines to the west coast, and has 75,000 barrels per day of committed capacity on TransCanada's proposed Keystone XL system.

Refining

Cenovus's refining operations allow the company to capture value from crude oil production through to refined products such as diesel, gasoline and jet fuel. This integrated strategy provides a natural economic hedge to discounted crude oil prices by providing lower feedstock costs to the Wood River refinery in Illinois and Borger refinery in Texas, which Cenovus jointly owns with the operator, Phillips 66.

Financial:

• Operating cash flow from refining was $64-million in the third quarter, a 53-per-cent decline from $135-million in the third quarter of 2013. The decline was due to an unplanned coker outage in July at the Borger refinery and a planned turnaround at the Wood River refinery. These outages resulted in reduced crude oil runs, refined product output and crude utilization. The lower refined product output more than offset the advantage gained from reduced heavy crude oil feedstock costs and higher market crack spreads compared with the third quarter of 2013. The planned turnaround at Wood River, which began in late September, is scheduled for completion early in the fourth quarter.
• Capital investment was $42-million, compared with $19-million in the same period a year earlier.
• Cenovus's refining operating cash flow is calculated on a first-in, first-out inventory accounting basis. Using the last-in, first-out accounting method employed by most U.S. refiners, Cenovus's operating cash flow from refining would have been approximately $53-million higher in the third quarter of 2014.

Operations:

• Cenovus's refineries processed an average of 407,000 barrels per day gross in the third quarter, a 12-per-cent decrease from the same period a year earlier due to planned and unplanned outages in 2014.
• Together, the two refineries processed an average of 201,000 barrels per day gross of heavy oil in the quarter, compared with 240,000 barrels per day gross in the same period of 2013. The decline was primarily a result of the decision to process higher volumes of medium crude oil due to more favourable economics.
• The refineries produced an average of 429,000 barrels per day gross of refined products in the quarter, a 12-per-cent decrease from the third quarter of 2013.

Financial

Dividend

The Cenovus board of directors declared a fourth-quarter dividend of 26.62 cents per share, payable on Dec. 31, 2014, to common shareholders of record as of Dec. 15, 2014. Based on the Oct. 22, 2014, closing share price on the Toronto Stock Exchange of $26.27, this represents an annualized yield of about 4.1 per cent. Declaration of dividends is at the sole discretion of the board. Cenovus's continued commitment to a meaningful dividend is an important aspect of its strategy to focus on increasing total shareholder return.

Cash flow, earnings and capital investment:

• Cenovus generated almost $1-billion in cash flow in the third quarter, 6 per cent higher than the same period a year earlier largely due to strong upstream operating cash flow driven by increased oil sands production volumes and higher natural gas prices as well as lower finance costs. Current tax was $35-million, down from $40-million in the third quarter of 2013.
• Operating cash flow was almost $1.2-billion in the third quarter of 2014, comparable with the same period a year earlier. Approximately $1.1-billion of that operating cash flow was generated by Cenovus's oil and natural gas producing assets.
• Operating cash flow in excess of capital invested was $112-million from oil sands, $163-million from conventional oil, $119-million from natural gas and $22-million from refining.
• Operating earnings were $372-million in the third quarter, a 19-per-cent increase when compared with the same period a year earlier due to higher crude oil sales volumes driven by increased production at the company's oil sands operations and lower income tax expense resulting from a decrease in U.S. cash flow, partially offset by an increase in depreciation, depletion and amortization.
• Cenovus's net earnings for the quarter were $354-million, down 4 per cent from the same period a year earlier.
• Capital investment was $750-million in the third quarter, similar to the same period a year earlier. Most of the investment was at the company's oil sands operations as it progressed expansion phases at Christina Lake and Foster Creek as well as construction at Narrows Lake.

Risk management, G&A expenses and financial ratios:

• In the third quarter, Cenovus added 8,800 barrels per day to its fourth quarter 2014 Western Canada Select differential hedges to protect against widening Canadian light/heavy oil differentials at an average price of $18.81 (U.S.) per barrel. This increased total WCS differential price protection to 21,700 barrels per day for the rest of 2014.
• The company also added hedge positions for the first half of 2015 on the WCS differential covering 5,000 barrels per day at an average price of $19.85 (U.S.) per barrel.
• In the quarter, total realized gains or losses on risk management were nil and unrealized gains were $165-million, largely driven by the decline in the price of Brent crude oil. Cenovus received an average realized price, including hedging, of $76.12 per barrel for its oil. The average realized price for natural gas, including hedging, was $4.33 per thousand cubic feet.
• General and administrative expenses were $3.08 per barrel of oil equivalent in the third quarter, compared with $4.31 per barrel of oil equivalent in the same quarter of 2013 due to a decline in long-term incentive costs consistent with the lower share price.
• Over the long term, Cenovus continues to target a debt to capitalization ratio of between 30 per cent and 40 per cent and a debt to adjusted earnings before interest, taxes, depreciation and amortization ratio of between one and two times. At Sept. 30, 2014, the company's debt to capitalization ratio was 33 per cent and debt to adjusted EBITDA, on a trailing 12-month basis, was 1.3 times.

Conference call today, 9 a.m. Mountain Time (11 a.m. Eastern Time)

Cenovus will host a conference call today, Oct. 23, 2014, starting at 9 a.m. MT (11 a.m. ET). To participate, please dial 888-231-8191 (toll-free in North America) or 647-427-7450 approximately 10 minutes prior to the conference call. An archived recording of the call will be available from approximately 12 p.m. MT on Oct. 23 until 10 p.m. MT on Oct. 30, 2014, by dialling 855-859-2056 or 416-849-0833 and entering password 93461329. A live audio webcast of the conference call will also be available via the company's website. The webcast will be archived for approximately 90 days.

We seek Safe Harbor.