Description of Business and Segmented Disclosures

6 Months Ended

Jun. 30, 2019

Disclosure Of Reportable Segments [Abstract]

Description of Business and Segmented Disclosures

1. DESCRIPTION OF BUSINESS AND SEGMENTED DISCLOSURES

Cenovus Energy Inc. and its subsidiaries, (together “Cenovus” or the “Company”) are in the business of developing, producing and marketing crude oil, natural gas liquids (“NGLs”) and natural gas in Canada with marketing activities and refining operations in the United States (“U.S.”).

Cenovus is incorporated under the Canada Business Corporations Act and its shares are listed 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 preparation for these interim Consolidated Financial Statements is found in Note 2.

Management has determined the operating segments based on information regularly reviewed for the purposes of decision making, allocating resources and assessing operational performance by Cenovus’s chief operating decision makers. The Company evaluates the financial performance of its operating segments primarily based on operating margin. The Company’s reportable segments are:

•	Oil Sands, which includes the development and production of bitumen in northeast Alberta. Cenovus’s bitumen assets include Foster Creek, Christina Lake and Narrows Lake as well as other projects in the early stages of development.

•	Deep Basin, which includes approximately 2.8 million net acres of land primarily in the Elmworth‑Wapiti, Kaybob-Edson, and Clearwater operating areas, rich in natural gas and NGLs. The assets reside in Alberta and British Columbia and include interests in numerous natural gas processing facilities.

•

Refining and Marketing, which is responsible for transporting, selling and refining crude oil into petroleum and chemical products. Cenovus jointly owns two refineries in the U.S. with the operator Phillips 66, an unrelated U.S. public company. In addition, Cenovus owns and operates a crude-by-rail terminal in Alberta. This segment coordinates Cenovus’s marketing and transportation initiatives to optimize product mix, delivery points, transportation commitments and customer diversification. The marketing of crude oil and natural gas sourced from Canada, including physical product sales that settle in the U.S., is considered to be undertaken by a Canadian business. U.S. sourced crude oil and natural gas purchases and sales are attributed to the U.S.

•

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, financing activities and research costs. As financial instruments are settled, the realized gains and losses are recorded in the reportable segment to which the derivative instrument relates. Eliminations include adjustments for internal usage of natural gas production between segments, transloading services provided to the Oil Sands segment by the Company’s rail terminal, crude oil production used as feedstock by the Refining and Marketing segment, and unrealized intersegment profits in inventory. Eliminations are recorded at transfer prices based on current market prices. The Corporate and Eliminations segment is attributed to Canada, with the exception of unrealized risk management gains and losses, which have been attributed to the country in which the transacting entity resides.

As at January 5, 2018, all of the Conventional segment assets were sold. Refer to Note 7 for more information.

The following tabular financial information presents the segmented information first by segment, then by product and geographic location.

A) Results of Operations – Segment and Operational Information

	Oil Sands				Deep Basin						Refining and Marketing
For the three months ended June 30,	2019		2018		2019			2018			2019			2018
Revenues
Gross Sales		3,030		3,248		150			241			2,849			2,777
Less: Royalties		314		179		10			16			-			-
		2,716		3,069		140			225			2,849			2,777
Expenses
Purchased Product		-		-		-			-			2,441			2,224
Transportation and Blending		1,340		1,642		23			27			-			-
Operating		270		263		87			109			214			197
Production and Mineral Taxes		-		-		-			1			-			-
(Gain) Loss on Risk Management		57		688		-			10			(4	)		(1	)
Operating Margin		1,049		476		30			78			198			357
Depreciation, Depletion and Amortization		367		383		83			107			68			55
Exploration Expense		4		4		-			-			-			-
Segment Income (Loss)		678		89		(53	)		(29	)		130			302

					Corporate and Eliminations						Consolidated
For the three months ended June 30,					2019			2018			2019			2018
Revenues
Gross Sales						(102	)		(239	)		5,927			6,027
Less: Royalties						-			-			324			195
						(102	)		(239	)		5,603			5,832
Expenses
Purchased Product						(60	)		(200	)		2,381			2,024
Transportation and Blending						(9	)		(4	)		1,354			1,665
Operating						(41	)		(34	)		530			535
Production and Mineral Taxes						-			-			-			1
(Gain) Loss on Risk Management						(89	)		(122	)		(36	)		575
Depreciation, Depletion and Amortization						26			14			544			559
Exploration Expense						-			-			4			4
Segment Income (Loss)						71			107			826			469
General and Administrative						65			106			65			106
Onerous Contract Provisions						(6	)		3			(6	)		3
Finance Costs						114			156			114			156
Interest Income						(4	)		(3	)		(4	)		(3	)
Foreign Exchange (Gain) Loss, Net						(155	)		212			(155	)		212
Re-measurement of Contingent Payment						(109	)		377			(109	)		377
Research Costs						6			7			6			7
(Gain) Loss on Divestiture of Assets						(1	)		(1	)		(1	)		(1	)
Other (Income) Loss, Net						(2	)		2			(2	)		2
						(92	)		859			(92	)		859
Earnings (Loss) From Continuing Operations Before Income Tax												918			(390	)
Income Tax Expense (Recovery)												(866	)		20
Net Earnings (Loss) From Continuing Operations												1,784			(410	)

	Oil Sands					Deep Basin						Refining and Marketing
For the six months ended June 30,	2019		2018			2019			2018			2019			2018
Revenues
Gross Sales		5,457		5,654			370			500			5,538			5,009
Less: Royalties		491		237			24			51			-			-
		4,966		5,417			346			449			5,538			5,009
Expenses
Purchased Product		-		-			-			-			4,604			4,181
Transportation and Blending		2,487		3,134			42			52			-			-
Operating		544		559			180			200			443			515
Production and Mineral Taxes		-		-			-			1			-			-
(Gain) Loss on Risk Management		45		1,142			-			19			(11	)		4
Operating Margin		1,890		582			124			177			502			309
Depreciation, Depletion and Amortization		736		745			169			311			148			109
Exploration Expense		9		6			-			-			-			-
Segment Income (Loss)		1,145		(169	)		(45	)		(134	)		354			200

						Corporate and Eliminations						Consolidated
For the six months ended June 30,						2019			2018			2019			2018
Revenues
Gross Sales							(243	)		(433	)		11,122			10,730
Less: Royalties							-			-			515			288
							(243	)		(433	)		10,607			10,442
Expenses
Purchased Product							(114	)		(328	)		4,490			3,853
Transportation and Blending							(16	)		(7	)		2,513			3,179
Operating							(122	)		(97	)		1,045			1,177
Production and Mineral Taxes							-			-			-			1
(Gain) Loss on Risk Management							147			(260	)		181			905
Depreciation, Depletion and Amortization							57			29			1,110			1,194
Exploration Expense							-			-			9			6
Segment Income (Loss)							(195	)		230			1,259			127
General and Administrative							137			226			137			226
Onerous Contract Provisions							(7	)		62			(7	)		62
Finance Costs							238			306			238			306
Interest Income							(6	)		(6	)		(6	)		(6	)
Foreign Exchange (Gain) Loss, Net							(353	)		489			(353	)		489
Re-measurement of Contingent Payment							154			494			154			494
Research Costs							10			19			10			19
(Gain) Loss on Divestiture of Assets							4			(1	)		4			(1	)
Other (Income) Loss, Net							7			-			7			-
							184			1,589			184			1,589
Earnings (Loss) From Continuing Operations Before Income Tax													1,075			(1,462	)
Income Tax Expense (Recovery)													(819	)		(138	)
Net Earnings (Loss) From Continuing Operations													1,894			(1,324	)

B) Revenues by Product

	Three Months Ended					Six Months Ended
For the periods ended June 30,		2019		2018			2019		2018
Upstream
Crude Oil		2,737		3,104			5,005		5,483
Natural Gas		52		70			167		175
NGLs		49		100			103		174
Other		18		20			37		34
Refined Product		2,278		2,315			4,115		4,078
Market Optimization		571		462			1,423		931
Corporate and Eliminations		(102	)	(239	)		(243	)	(433	)
Revenues From Continuing Operations		5,603		5,832			10,607		10,442

C) Geographical Information

	Revenues
	Three Months Ended			Six Months Ended
For the periods ended June 30,		2019	2018		2019	2018
Canada		3,305	3,480		6,454	6,327
United States		2,298	2,352		4,153	4,115
Consolidated		5,603	5,832		10,607	10,442

	Non-Current Assets ⁽¹⁾
As at	June 30, 2019		December 31, 2018
Canada		28,282		27,644
United States		4,150		4,175
Consolidated		32,432		31,819

(1)	Includes exploration and evaluation (“E&E”) assets, property, plant and equipment (“PP&E”), right-of-use (“ROU”) assets, other assets and goodwill.

D) Exploration and Evaluation Assets, Property, Plant and Equipment, Right-of-Use Assets, Goodwill and Total Assets

	E&E Assets					PP&E				ROU Assets
As at	June 30, 2019		December 31, 2018			June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Oil Sands		653			639		21,364		21,646		353		-
Deep Basin		147			146		2,528		2,482		1		-
Refining and Marketing		-		-			4,120		4,284		94		-
Corporate and Eliminations		-		-			313		286		508		-
Consolidated		800			785		28,325		28,698		956		-

	Goodwill				Total Assets
As at	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Oil Sands		2,272		2,272		26,088		25,373
Deep Basin		-		-		2,779		2,742
Conventional (Discontinued Operations)		-		-		-		14
Refining and Marketing		-		-		5,495		5,621
Corporate and Eliminations		-		-		997		1,424
Consolidated		2,272		2,272		35,359		35,174

E) Capital Expenditures ⁽¹⁾

	Three Months Ended					Six Months Ended
For the periods ended June 30,		2019		2018			2019	2018
Capital Investment
Oil Sands		136		224			350	542
Deep Basin		8		26			22	171
Conventional		-		(2	)		-	-
Refining and Marketing		72		35			127	88
Corporate and Eliminations		32		9			66	15
		248		292			565	816
Acquisition Capital
Oil Sands		2	-				2	-
Deep Basin		1		-			3	-
Refining and Marketing		-		2			4	7
Total Capital Expenditures		251		294			574	823

(1)	Includes expenditures on PP&E and E&E assets.