Brian C. Ferguson

“We know that producing oil has an impact on the environment, as does the consumption of oil. That’s why it’s so important for us at Cenovus to look for new ideas and new approaches to reduce our impact in all areas of our operations.”
 
Brian C. Ferguson
President & Chief Executive Officer

2013 Cenovus Corporate Responsibility Report

About this report

Message from our President & Chief Executive Officer

At Cenovus we take our commitment to responsible energy development seriously and are doing our utmost to live up to that commitment. As a Canadian oil company with a focus on Alberta’s oil sands, we understand the concerns people have about the development of this vast resource because we share those concerns.

We know producing oil has an impact on the environment, as does the consumption of oil. That’s why it’s so important for us at Cenovus to look for new ideas and new approaches to reduce our impact in all areas of our operations.

Canadian ingenuity helped us figure out how to get the thick oil from deep underground in the oil sands – by drilling for it, heating it up and pumping it to the surface. That same kind of innovative thinking is now helping us minimize the impact our production has on the environment. In this report, you’ll read about some of the accomplishments in our environmental performance in areas such as land reclamation, water use and greenhouse gas emissions intensity at our oil sands operations.

You’ll also see how we seek out different points of view from independent researchers, academics, other companies and even our critics to help us be better at what we do. We want to be the best we can be at how we develop Canada’s resources.

That’s important because as the world’s population grows and the standard of living improves for people in developing countries, the demand for energy will continue to increase. And while all forms of energy will be needed to help meet growing demand over the coming decades, oil will continue to play a significant role. That’s because it’s so versatile. It can be used as a building block for the thousands of products we use and rely on every day, like plastics and antibiotics. It can also be used to heat our homes and generate electricity. And, it’s the primary source of energy keeping the global economy moving – transporting people, products and services around the world. Its central role in people’s lives means it’s not going to be easily replaced.

We applaud the advancements being made in renewable energy, which will enable other energy sources to play a larger role. And one day smart people will come up with ways to produce energy that haven’t even been dreamed of yet. Energy that is as affordable, as available and as versatile as oil.

Until that happens, you can count on us to continue to develop oil responsibly.

All of our achievements are a result of the energy of our people. We pride ourselves on being a company where people want to work. Our people have passion for what we do and the responsible way in which we do it. And because of that, I believe our culture is a huge competitive advantage.

We keep our momentum by reinforcing and embedding the essence of our purpose, promise and values in how we do our work – today, and as we grow. They speak to the pride we have in the work we do and in the way we do it. But, most importantly, they speak to the kind of company we are. The kind of company we want to be.

Take safety for example. Nothing we do is more important than keeping our people and neighbouring communities safe. In 2013, we sharpened our focus on safety, launching our Start Safe campaign to remind us all to keep safety as our first thought. Our increased efforts saw a 12 percent improvement over our 2012 total recordable injury frequency. However, we recognize that we can still be much better. With more people working at our project sites, there continues to be an increase in the total number of incidents. We'll be putting even more effort into turning that around in 2014.

In this report, you’ll find more detail about the progress we’ve made in 2013 and the areas that still need improvement. You’ll also learn about the Cenovus story through examples of how we incorporate corporate responsibility into our daily work.

We’ve come a long way in a short time and look forward to sharing our continued progress in the years ahead.


Brian C. Ferguson
President & Chief Executive Officer


Our approach to corporate responsibility

Our Corporate Responsibility Policy helps guide our approach to operating our business responsibly. We're putting those commitments into action by:

Demonstrating leadership

Our Executive Team ensures that safety, health, environmental, social, ethical and financial considerations are integrated into our business decisions. Leading by example, our Executive Team makes sure that performance expectations across the company are consistent with our corporate responsibility commitments and are communicated to all staff.

Strengthening our governance and business practices

Strong governance is the foundation of our business and is fundamental to delivering long-term value. Our governance framework is directed at protecting all our assets, including financial, physical, intellectual, informational and reputational, as well as the people who work for us and those in the communities where we operate. Our Board of Directors works with our Executive Team to oversee our strategy development and risk management.

Creating a safe and healthy organization

Health and safety are core values at Cenovus and apply to everyone involved directly and indirectly in our activities. We want everyone to focus on being safe not only at work but also at home. We're also committed to building a healthy organization. We want to create a work environment that attracts employees and helps them grow throughout their careers.

Improving our environmental performance

Responsible development is about finding the right balance between economic, social and environmental performance. When that balance is achieved, we believe everyone stands to benefit. It's challenging work, but we're determined to continue building and operating our projects efficiently and continuously improving our environmental performance. We're tackling these challenges every day so we can be even better at what we do.

Engaging our stakeholders

Whether we're meeting with community leaders, non-governmental organizations or landowners, working with Aboriginal communities, presenting to investors or government officials, or conducting media interviews, we remain committed to listening to our stakeholders, understanding their perspectives and telling our story. We work with our stakeholders so they have a better understanding of our company, the quality of our asset base, the strength and expertise of our teams, our solid financial position and our commitment to operating safely and responsibly.

Investing in our communities

We're a company that's committed to ensuring the communities where we live and work are stronger and better off as a result of us being there. We want these communities to share in the benefits associated with our operations. One of the ways we do this is through our community investment program, where we look to create shared value by investing in community programs that help address local needs and challenges.


Our approach to reporting

We’ve continued to advance our approach to corporate responsibility reporting by reviewing our performance indicators and reporting process annually to ensure they align with stakeholder expectations in addition to our business strategy.

We use a process known as a materiality assessment to help identify the corporate responsibility issues that could have a significant impact on our business. The assessment also allows us to engage with our key stakeholders and continue to understand the issues that are of significant interest to them from a governance, social, environmental or economic perspective. We do this by working with an independent corporate responsibility advisory firm to facilitate internal and external stakeholder workshops. We identify a list of corporate responsibility issues based on topics and indicators that may be of concern to our stakeholders, with specific emphasis on issues related to the oil and gas industry. We then gather feedback from our stakeholders on these issues.

In 2013, we also refined our reporting materiality process in the following ways:

  • We incorporated the feedback from research we conducted to identify the larger social and environmental concerns of Canadians, residents of our operating areas, key stakeholders and Aboriginal communities. As a result of this research, we added issues such as public health and safety, market access and pace of development to our assessment.
  • We expanded our external stakeholder materiality assessment workshop to include a Cenovus supplier, financial analyst, representative of government, an oil and gas industry association, and a sustainability think tank. These additional stakeholders joined the group that already comprised representatives from academia, community investment, the Aboriginal community, non-governmental organizations, post-secondary students, and socially responsible investors to discuss and prioritize material topics.
  • We used an anonymous online polling system during the internal and external materiality assessment stakeholder workshops to ensure confidentiality and improve accuracy. Each issue was polled to get a baseline placement of the topic on the materiality matrix. After these results were revealed, a constructive debate and conversation on the issue took place. A second poll was then taken to finalize the placement of issues on the matrix. This approach meant that all participants could contribute equally.

Using the feedback we received from materiality assessment workshops, we finalized a materiality matrix which helps inform our reporting approach and identify topics we discuss in this year’s Corporate Responsibility report. The feedback has also been used across our company to influence business processes such as our annual environment planning process.

The data and charts in our corporate responsibility report are based on available information from January 1, 2009 until December 31, 2013. Some of the stories we've highlighted in this report cover activities across the company up until April 30, 2014. We use the Global Reporting Initiative G3.1 guidelines as a framework for reporting and align our performance metrics with the standards set out by the Canadian Association of Petroleum Producers' Responsible Canadian Energy program. View our Global Reporting Initiative content index.

We're committed to ensuring the report is accurate, balanced and complete. We did this through:

  • An external review by Ernst & Young LLP, an independent auditing firm, to provide assurance on 15 environmental, governance, health and safety, and social indicators
  • A review by our internal audit team to assess the design effectiveness of the reporting processes and controls for a select number of our key performance indicators

We welcome your feedback - it's important to us that we continuously improve our performance and corporate responsibility reporting practices.

Stakeholder reporting materiality assessment matrix

The feedback from our materiality assessment workshops helps identify topics that are of significant interest to our stakeholders and informs our annual reporting approach.

Contributing to the economy

As a Canadian oil company committed to developing the oil sands responsibly, we contribute to the economy and to the wealth and prosperity of the communities where we operate. Our contributions include:

  • Providing employment and compensation to our employees and contractors
  • Paying taxes to multiple levels of government
  • Paying dividends to our shareholders and interest to our creditors
  • Purchasing goods and services from local and Aboriginal businesses
  • Driving innovation through investments made in research and technology
  • Enhancing quality of life and opportunities for the communities where we work and live through our community investment programs and in-kind donations

Paying taxes
We pay the following taxes in Canada and the United States:

  • Corporate income taxes to federal, provincial and state governments
  • Royalties to provincial governments
  • Property taxes on our field facilities and office buildings to municipalities
  • GST and sales taxes
  • Income taxes payable by employees and contractors

In response to increasing awareness by stakeholders of tax-related issues we have established an internal code of conduct for income taxes, which is intended to guide the way we do business in relation to tax law.

2013 contributions $ (millions)
Capital expenditures
  Procurement of goods and services
  from Aboriginal businesses
3,262
  395
Gross employee salaries, bonuses and short-term benefits1 705
Pension and other post-employment costs 33
Interest expense2 432
Current income tax expense 188
Dividends 732
Royalties 336
Community investment 14

1Employee salaries and benefits are recorded in either operating and general and administrative expenses, as well as property, plant and equipment and exploration and evaluation assets, corresponding to the type of service provided
2Includes premium on redemption of long-term debt


Reporting data

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Footnotes

  1. Effective January 1, 2011, we adopted International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. For all periods up to and including the year ended December 31, 2010, we prepared our Consolidated Financial Statements in accordance with Canadian generally accepted accounting principles (“previous GAAP”). In accordance with the standard related to the first time adoption of IFRS (“IFRS 1”), our transition date to IFRS was January 1, 2010 and therefore the financial information subsequent to 2009 has been prepared in accordance with IFRS. Financial information prior to 2010 had been prepared following previous GAAP.
  2. Non-GAAP measure as referenced in our Advisory.
  3. Operating expenses for 2011 and 2012 have been restated to conform to the presentation adopted for the year ended December 31, 2013.
  4. 2009 based on NYSE closing share price at year end using annualized dividend. 2010, 2011, 2012 and 2013 based on TSX closing share price at year end.
  5. Gross production numbers are disclosed in this report as we calculate our emissions and water intensities using 100 percent of production. Our financial results report our Foster Creek and Christina Lake production on a net basis to account for the 50 percent ownership of these properties with ConocoPhillips.
  6. Natural gas converted using a 6:1 oil equivalent. See our Advisory.
  7. Investigations can include (but are not limited to) compliance with laws and regulations, conflict of interest, fraud, confidentiality and disclosure and other potential breaches of policies and practices.
  8. Data includes regulatory fines related to environmental, health and safety contraventions paid during the stated year.
  9. The decrease in recordable health and safety injuries in 2013 was primarily associated with our contractor workforce. We believe employee and contractor commitment is essential to our safety performance.
  10. Employee total is based on full-time equivalent.
  11. The four main reasons why employees left Cenovus were 1) Better job fit and career opportunity; 2) Personal and family related; 3) culture and/or work environment; and 4) relocate and work closer to home.
  12. Tracking of employee development is under review and will progress through 2014.
  13. Dependents of employees are eligible for student scholarships.
  14. Periodic health assessments occur every two years for employees in safety-sensitive positions, where an employee has the responsibility for his or her own safety or the safety of other people, or as determined by regulatory requirement. The assessment includes:
    • Health history check review
    • Audiometric testing (to meet regulatory requirements)
    • Vision (for driving)
    • Pulmonary function testing (to determine fitness for respirator use)

    Fitness for work requires that staff be in a condition to carry out their day-to-day job duties safely and effectively without putting at risk their own health and safety or the health and safety of other staff members, customers, the public or the environment. We revised our Fitness for Work Practice in 2013 and will recommence the program in late 2014.

  15. SO2 emissions and intensity increase is primarily due to the increase in flaring as a result of unforeseen upsets at our Weyburn enhanced oil recovery operation.
  16. NOx emissions decreased in our conventional operations due to decreasing natural gas production in our Alberta Brooks and Drumheller assets. Emissions increased at Christina Lake due to increased production from the start-up of Phase E. NOx emissions intensity decrease reflects the shift of our total production towards oil sands, which is less NOx intensive than our conventional oil and natural gas operations.
    NOx is the by-product of the fuel combustion process. We’re going beyond regulatory requirements to reduce NOx emissions in our oil sands operations. We introduced a new technology called flue gas recirculation to one of our boilers which contributed to a reduction in NOx emissions.
  17. Increase corresponds with the increase in flaring volumes due to result of unforeseen upsets at our Weyburn enhanced oil recovery operation.
  18. Decrease primarily due to the divestiture of our Shaunavon operation in Saskatchewan. Reductions also occurred in our conventional oil and natural gas operations in Alberta and heavy oil operations at Pelican Lake.
  19. Increase due primarily to the 14 percent growth in our oil sands production and the new expansion of Christina Lake phase E. Direct GHG emissions reporting includes the release of fugitive emissions. Despite the increase in oil sands production, we’ve been able to keep our GHG emissions intensity at relatively steady levels as a result of our energy efficiency initiatives, the quality of our reservoirs and our drive to maintain industry-leading steam to oil (SOR) performance.
  20. Increase due to increased fuel consumption across our oil sands facilities with the addition of Christina Lake phase E expansion.
  21. Increase due to increased use of electricity and natural gas with the addition of Christina Lake phase E oil sands expansion and increased flaring at our Weyburn CO2 enhanced oil recovery operation.
  22. The increase in reportable spills correlates to increased activity and production at our oil sands operations. We continue to reinforce the importance of spill prevention at all our operations through our Every Drop Counts program.
    The volume of spills is the aggregate volume associated with all unintended liquid or solid releases to the environment greater than 2m3 on site; any amount that may have an adverse environmental effect or pose a danger to public safety; any amount not confined to a site; any release from a pipeline; or any release into a watercourse, groundwater or surface water.
  23. The increase in volume spilled was primarily due to two large spill volumes of process water and emulsion at our Foster Creek  oil sands operations. Spill volumes were recovered and cleaned up.
  24. Increase due to the increase in demand at our Pelican Lake operation, an increase in production across all of our operations, and the dewatering pilot at our Telephone Lake project. In preparation for the steam-assisted gravity drainage (SAGD) process, the dewatering pilot removes top fresh water that sits above the oil replacing it with air, and injects this top fresh water back into a similar aquifer below the oil formation. There is no related production with this process, which increases our overall and oil sands fresh water use intensity.
  25. Increase due to the increase in production across all of our operations.
  26. Increase due to increased production at our Christina Lake oil sands operations, increase in drilling activity in all areas except for conventional oil and natural gas operations in Alberta and Saskatchewan and improvements made to the data collection process through a new waste tracking system. In mid-2012, the Energy Resources Conservation Board (ERCB) implemented a new directive containing more stringent land application criteria capturing more drilling waste volumes.
  27. The Cenovus Environmental Opportunity Fund Limited investments are opportunity driven. Of the total investment amount in 2013, $2.5 million was invested in Skyonic Corporation, which transforms CO2 emissions into commercial products. The remainder was invested to provide financial support to our other existing portfolio companies. Investment amounts will vary year by year depending on the financial requirements of the companies in our portfolio.
  28. Since the inception of the Cenovus Energy Efficiency Fund in 2009, Cenovus has committed $26.8 million to energy efficiency initiatives. The decrease in 2013 is due to our commitments to multi-year efficiency projects in 2011, where commitment will vary year by year depending on the execution stage of the projects. This decrease is also due to smaller, less expensive, projects in 2013.
  29. Environmental impact reductions estimated by the third-party program administrator.
  30. Total upstream technology development.
  31. While we continued to maintain a top-quartile average industry SOR, we slipped a little from our position as the industry leader in SOR at our Foster Creek operations to a SOR of 2.5 from a SOR of 2.2 in 2012. In 2013, due to operational issues and unplanned outages, expected production was affected. Since we continued to produce the same volume of steam, our SOR increased. In addition, Cenovus continues to assess its operating procedures to optimize steam allocation and production as the reservoir supporting phases A to E evolves into common steam chambers.
  32. In 2013, our Christina Lake operations SOR was in the 1.7 – 1.9 range, which is not only the lowest SOR in the industry today, but also historically the lowest SOR at a commercial SAGD operation in Alberta. We met this objective at Christina Lake through improved startup techniques referred to as the ‘accelerated startup program’. We also continued to optimize steam injection and fuel combustion. As our Christina Lake oil sands project has expanded, we’ve accessed higher quality reservoirs that exhibit a lower SOR. The high quality reservoirs consist of clean sand formations, high oil saturation, and high permeability with few laminations.
  33. Industry average steam to oil ratio equals volume weighted average SOR for significant Alberta projects. Industry average source: Energy Resources Conservation Board.
    On average, it takes about two barrels of steam to produce one barrel of oil at our oil sands operations – well below the industry average of 3.1. Less steam means using less water. It also means less natural gas is needed to create steam for the steam-assisted gravity drainage (SAGD) process, which results in fewer emissions.
  34. All goods and/or services provided by either an Aboriginal-owned company (51 percent or more ownership) or an Aboriginal joint venture. This number reflects the total at the time the Aboriginal business spend report was generated on February 10, 2014.
  35. 2013 annual capital investments.
  36. Total direct cash investments made through community investment donations and employee programs (employee volunteer grant program, matching gifts, and Thanks & Giving).
  37. Total Cenovus donations made from matching employee contributions in the Thanks & Giving and matching gifts programs. Cenovus matches employees’ charitable donations dollar for dollar up to $25,000 per employee per year. Total does not include employee contribution.
  38. Cenovus recognizes and rewards the personal time contributed by our employees and their family members through volunteer grants. Cenovus will give $250 for every 15 hours volunteered (to a maximum of $1,000 per employee per year) to the organization(s) where the volunteer hours took place.
  39. Total number of organizations that received a direct cash donation through community investment funding, the employee volunteer grant program, and matched employee contributions in the Thanks & Giving and matching gifts programs.
  40. Total value of company investments as audited by the London Benchmarking Group (LBG) Canada.

Advisory

Non-GAAP measures

Cash flow, debt and capitalization are non-GAAP measures described and presented in this report in order to provide shareholders and potential investors with additional information regarding Cenovus's liquidity and its ability to generate funds to finance its operations. 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, both of which are defined on the Consolidated Statement of Cash Flows. In Cenovus's interim and annual consolidated financial statements, available at cenovus.com, debt is defined as short-term borrowings and long-term debt, including the current portion, excluding any amounts with respect to the partnership contribution payable and receivable. Capitalization is defined as debt plus shareholders' equity. For further information, refer to our most recent Management's Discussion and Analysis available at cenovus.com.

Oil and gas information

The estimates of reserves were prepared effective December 31, 2013 by independent qualified reserves evaluators in accordance with National Instrument 51-101.

Certain 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 a value equivalency at the wellhead.

Forward-looking information

This report 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 report is identified by words such as "believe", "expect", "plan", "forecast", "target", "could", "focus", "goal", "committed", "potential", "may" or similar expressions and includes suggestions of future outcomes, including statements about our growth strategy and related schedules, environmental plans, targets and goals, forecast operating and financial results, estimates of total and bitumen proved reserves, planned capital expenditures, expected future production, including the timing, stability or growth thereof, 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 and the risk factors and uncertainties that could cause our actual results to differ materially are discussed under "Risk Management" and "Advisory" in our most recent quarterly report. For a full discussion of our material risk factors, see "Risk Factors" in our most recent Annual Information Form/Form 40-F available at cenovus.com. Readers should also refer to the risk factors described in other documents we file from time to time with securities regulatory authorities, available at www.sedar.com, www.sec.gov and cenovus.com.

 

Measurement abbreviations used throughout the report

 

bbls barrels
BOE/d barrel of oil equivalent per day
CO2 carbon dioxide
CO2E carbon dioxide equivalent
GJ gigajoules
GHG greenhouse gas
m³OE cubic metres of oil equivalent
mg/L milligrams per litre
MMcf/d million cubic feet per day
SOR steam to oil ratio