Brian Ferguson - President and CEO John Brannan - EVP and COO Ivor Ruste - EVP and CFO Harbir Chhina - EVP, Oil Sands.

Greg Pardy - RBC Capital Markets Benny Wong - Morgan Stanley Chris Cox - Raymond James & Associates Mohit Bhardwaj - Citigroup Mike Dunn - FirstEnergy Capital Phil Skolnick - Canaccord Genuity.

Good morning. Good day ladies and gentlemen and thank you for standing-by. Welcome to Cenovus Energy’s First Quarter 2014 Financial and Operating Results. As a reminder, today’s call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.

(Operator Instructions) Members of the investment community will have the opportunity to ask questions first. At the conclusion of that session, members of the media may then ask questions. Please be advised that this conference call may not be recorded or rebroadcast without the expressed consent of Cenovus Energy.

I would now like to turn the conference call over to Ms. Susan Grey, Director, Investor Relations. Please go ahead Ms. Grey..

Thank you operator and welcome everyone to our first quarter 2014 results conference call. I would like to refer you to the advisories located at the end of today’s news release.

These advisories describe the forward-looking information, non-GAAP measures and oil and gas terms referred to today, and outline the risk factors and assumptions relevant to this discussion. Additional information is available in our annual information form.

The quarterly results have been presented in Canadian dollars and on a before royalties basis. Brian Ferguson, President and Chief Executive Officer will begin with an overview and then turn the call over to John Brannan, Executive Vice President and Chief Operating Officer, who will provide an update on our operating performance.

Following that, Ivor Ruste, Executive Vice President and Chief Financial Officer will discuss our financial performance. Brian will then provide closing comments before we begin the Q&A portion of the call. Please go ahead Brian..

Thank you, Susan. Good morning. In 2014, our focus remains on delivering reliable, predictable performance and executing with excellence. Our first quarter results have laid a good foundation, with consistent performance across our assets. We continue to benefit from our overall integrated approach.

Integration reduces volatility in our cash flow by reducing the impact of commodity price fluctuations. This quarter our growing oil production allowed us to capture value from strong commodity prices, while offsetting the impact narrowing light-heavy differentials had on our refining operations.

Another aspect of our integration evident this quarter, was our economic hedge on natural gas production. While higher natural gas prices increased operating costs at both our upstream and refining operations, the higher costs were much more than offset by increased revenue from our natural gas production.

We had solid performance at our oil sands operations in the quarter. Christina Lake approached full production capacity with the newest phase. The ramp-up of phase E and the performance of this asset over the last three years continues to demonstrate the excellent quality of this reservoir as well as the performance of our team.

Foster Creek has performed very consistently since the turnaround in October. It has delivered near the top of our expected range of 100,000 to 110,000 barrels per day throughout the first quarter. We expect production will remain within this range until the ramp-up of phase F begins later in the third quarter.

This quarter we also received regulatory approval for our 180,000 barrel per day Grand Rapids project. Like our existing SAGD projects, we plan to develop Grand Rapids in a series of phases. John Brannan will provide an update on our plans in a few minutes.

In our refining business, we received partnership sanctioning for the Wood River debottleneck project. This project will debottleneck the front-end of the refinery to fully utilize the assets installed with the original CORE project. It is expected to start-up in the first quarter of 2016, and have a capital cost of US$50 million net to Cenovus.

Overall our quarterly results are in line with our expectations and we are pleased with our performance to-date. For more details on operations, I’m going to hand the call over to John Brannan, Executive Vice President and Chief Operating Officer..

Thank you and good morning. As Brian mentioned, one of the highlights of our quarter was strong production at Christina Lake. Phase E successfully ramped-up and production rose to an average of over 131,000 barrels per day gross, or 65,700 barrels per day, net to Cenovus. This is a 48% increase year-over-year.

The ramp-up at phase E was consistent with the ramp-ups at Christina Lake phases C and D, and demonstrates the quality of this project and the assets. Operating costs at Christina Lake were $13.30 per barrel this quarter, which is slightly higher than the same period a year ago.

This was partially driven by higher AECO gas prices, but also partially offset by higher production volumes. Non-fuel operating costs were $8.47 per barrel, an 8% decrease from the first quarter of 2013, and within our 2014 guidance.

At Foster Creek the reservoir is performing as expected as we apply our recent learnings and we remain focused on optimization steam placement across the reservoir. Last quarter we discussed a number of initiatives targeting steam to oil ratio improvements and I’d like to give you an update on the team’s progress.

The first initiative is focused on the optimal placement of steam across our well pads. We have increased our instrumentation to better monitor steam movement and coalescence of the steam chambers. We are currently running at 95% with our down hole instrumentation and we plan to maintain this level going forward.

Next is the timely placement of older pads on blowdown and transferring steam to new pads at the most appropriate time. We currently have two pads in early stages of blowdown and one pad fully underway.

We are awaiting regulatory approval to move two additional pads to blowdown and have started the application process with the regulator for 6 more pads. The critical path of this initiative is having sustained pads ready to begin accepting steam.

We are fast-tracking the development of additional sustaining pads, and expect to be able to provide you with an update on this during the summer. In addition, we’re using Wedge Wells to capture production in areas where conformance is not ideal.

Current plans are to add 42 new wedge wells over the next 14 months, 31 of those wells have already been drilled and some are starting to come on production this month. The final initiative is focused on optimizing conformance along the wellbore.

We are addressing this by using steam circulation start-ups on new wells to encourage uniform distribution of steam along the length of the well. We plan to begin using this technique when we start steaming wells for phase F. We are also using flow control devices in our existing injectors and producers to improve conformance.

Operating costs at Foster Creek were higher this quarter, driven primarily by the increase in fuel costs. As noted earlier, the AECO gas price rose in the first three months of the year. The fuel component of operating costs increased by $2.54 per barrel 47% of this increase is a result of higher gas prices.

The variation in the price of natural gas is not a new phenomenon in SAGD and, as Brian mentioned earlier, our natural gas assets act as a hedge against such variations. As a Company we are long natural gas. Non-fuel operating costs at Foster Creek were $13.64 per barrel this quarter which is within our guidance range of $12.90 to $14.00.

Now let’s talk about the progress we have made on our development plans. As Brian stated in his introduction, we received regulatory approval for our wholly-owned Grand Rapids project. Pilot work at the site has been ongoing since 2010 and recent results have given us the confidence to move forward with that development.

Similar to our existing oil sands projects, we plan to develop Grand Rapids through a series of expansion phases. Phase A is expected to produce between 8,000 - 10,000 barrels per day, with first steam planned in 2017.

The project will benefit from an opportunity we had to purchase an existing central plant facility from the Joslyn SAGD project and relocate it to the Grand Rapids project site.

The decision to proceed with a smaller first phase will allow Cenovus to build on what we’ve learned from the pilot project at a lower capital risk, similar to how we first developed both Foster Creek and Christina Lake. We plan to continue our pilot work on the existing two wells as we build the facilities at phase A.

Christina Lake phase F is 50% complete and we are well into plant construction. In addition, we are working on engineering and procurement of the supporting well pad facilities with construction in progress. Production for phase F is expected in 2016. Foster Creek phase F is 93% complete as of the end of this quarter.

Many of the key systems for phase F steam were turned-over from construction to our commissioning team in the first quarter and the commissioning team remains on schedule for first steam in May. As mentioned previously, we will be using a steam circulation start-up technique.

Because of this we anticipate the overall steam to oil to increase throughout the second and third quarters. We expect to be within our guidance range for the year. Phases G and H are progressing as scheduled. Narrows Lake construction continues to progress.

Overall the phase is 19% complete, and we are primarily focused on the engineering, procurement, fabrication and construction of the central plant, as well as infrastructure associated with the permanent camps. Our conventional oil business, which includes Pelican Lake, averaged just over 76,400 barrels per day during the first quarter.

These operations provide stable cash flow to support our oil sands growth. Earlier this month we sold our operated Bakken production and properties. The Bakken sale was completed on April 1st for proceeds of approximately $36 million before closing adjustments. Cenovus has retained the royalty production from our fee lands in the Bakken area.

On the refining side of our business, Wood River and Borger performed planned maintenance and turnarounds in March. Wood River completed its activities by the end of the quarter while Borger’s turnaround was completed in early April. Both refineries are back at full rates and benefitting from the recent strengthening of refining margins.

We generated $241 million of operating cash flow from our refining business which positions us very well for the year. From a market access perspective, we are currently loading our fifth unit train so far in 2014. Rail is an integral part of the portfolio approach Cenovus has taken to access global markets for our crude oil.

Through our refining operations, firm pipeline capacities and rail strategy we expect to achieve global pricing for approximately 75% of our 2014 production. We continue to work on providing reliability in our operations in 2014 and I am pleased with the progress we have made this quarter.

I will now pass the call on to Ivor Ruste to discuss our financial performance..

Thanks John and good morning everyone. For the first quarter, Cenovus reported cash flow of $1.19 per diluted share and operating earnings of $0.50 per diluted share, slightly less than the first quarter of 2013 but generally consistent with street expectations.

To understand our cash flows for the quarter, it is helpful to look at the composition of our operating cash flows. Cenovus generated nearly $1.2 billion in operating cash flow this quarter, with very strong upstream results offset by softer refining margins.

While this is down 4% when compared with the same period in 2013, you may recall that Q1 2013 was a record for our refining business. Refining operating cash flow was $241 million. Using the last-in, first-out accounting method employed by most U.S. refiners, Cenovus’s first quarter operating cash flow would have been approximately $83 million lower.

Operating cash flow from our producing oil sands assets, Foster Creek and Christina Lake, was $428 million in the first quarter. Capital expenditures for these projects were $403 million for the same period.

Operating cash flow from conventional oil, including Pelican Lake, was $347 million in the quarter and capital spending for conventional was $263 million. Conventional production volumes decreased 4% year-over-year, primarily due to the sale of our Shaunavon asset in 2013 and expected natural declines.

This was partially offset by strong well performance in Southern Alberta associated with our current horizontal drilling program and higher production at Pelican Lake. In 2014, we are focusing our conventional spending to optimize free cash flow. Natural gas continues to be managed as a financial asset to help fund oil sands development.

Our natural gas business on a capital spend of $9 million generated $151 million of operating cash flow in the first quarter, compared with $115 million a year ago. As John mentioned earlier, we are long natural gas, and therefore benefit with stronger natural gas prices.

Moving to hedging, in this quarter we added summer 2014 gas hedges which will equate to approximately a third of our production for the remainder of 2014, at an AECO price of about $4.60 per Mcf. We also added 2015 crude oil hedges for 3,500 barrels per day at a Brent price of roughly $114 per barrel.

We continue to use our hedging program as a way to lock-in cash flow to help fund our overall capital commitments. During the quarter, we elected to prepay our Partnership Contribution Payable to WRB Refining of which Cenovus is a 50% owner. This resulted in a net cash payment of approximately US$1.4 billion from Cenovus.

The Partnership Contribution Payable carried an interest rate in excess of what we could earn on the cash used to make the prepayment and will result in savings on interest costs of approximately US$114 million, less than would have been paid over the next three years.

Our debt-to-capitalization ratio was 36% and our debt-to-adjusted EBITDA was 1.4 times this quarter. Both metrics are near the middle of our long-term targeted range of 30% to 40% and one to two times, respectively. Overall, we had a consistent quarter and again demonstrated the benefit of our integrated approach.

I will now turn the call back to Brian..

Thanks Ivor and John. I just need to correct one comment that John made with regard to the increase in fuel gas cost at Forester Creek, he indicated that 47% of the increase was due to April prices being higher. He actually meant to say 74% of the increase was due to higher prices for natural gas. Overall, it’s been a good start to the year.

Our teams have worked hard to deliver the performance the market expects of us and that we expect of ourselves. In 2014, we will continue to focus on delivering reliability from all of our operations. Our projects are delivering strong results and we continue to demonstrate the benefit of our integrated business plan.

These items, combined with our strong balance sheet, enable us to continue to focus on growing total shareholder return. With that, the Cenovus team is now ready to respond to your questions..

.

.

(Operator Instructions) Your first question comes from Greg Pardy from RBC Capital Markets. Your line is open..

Just a couple of questions for me, the first is should we be looking for much improved OpEx at Pelican Lake as we move in the second and third quarters of the year? And I'm wondering if can just can a general update on the performance of that infill drilling program? And then the second question is a little bit more strategic.

But I know you've got about 6,800, 7,000 Boe a day of royalty production. Wondering if that production and those lands essentially are long-term keepers or whether you would consider monetizing those in a strategic acquisition? Thanks very much..

Just a couple of questions for me, the first is should we be looking for much improved OpEx at Pelican Lake as we move in the second and third quarters of the year? And I'm wondering if can just can a general update on the performance of that infill drilling program? And then the second question is a little bit more strategic.

But I know you've got about 6,800, 7,000 Boe a day of royalty production. Wondering if that production and those lands essentially are long-term keepers or whether you would consider monetizing those in a strategic acquisition? Thanks very much..

Thanks Greg, it is Brian I will start answering the last question first and then ask John to respond to the question with regard to operating cost at Pelican Lake.

We do have some very profitable royalty production lands as you have mentioned and I know there is a couple of other companies that are talking about restructuring the way in which they hold those assets. Cenovus currently has no plans to change the nature of how we own these lands.

I will observe that we absolutely have an obligations management to be looking at how we can continue to surface value for shareholders and we will continue to monitor how these other transactions are proceeding. But as I say we at this point do not have any plans to change those asset holdings at this point. Thanks John..

Thanks Brian and thanks for that correction on the OpEx of Foster Creek sorry about that. But overall Greg to your question on Pelican Lake clearly our OpEx in -- at any rate -- thanks Brian for the update on the Foster Creek cost.

And when we look to Pelican Lake the first quarter our OpEx was higher than we had expected, we had fair number of workovers that we had to pull together and we are forecasted and as we go forward in the year for that OpEx to come down throughout the year.

In regard to the infill performance the higher pressure pads are performing as expected and even the lower pressure pads are starting now to increased production on those infill wells, so we are comfortable with that performance and are forecasted in our predictions we do expect production at Pelican Lake to increase as we go through the year, may be on the lower-end of our overall guidance but we still believe would be in the guidance for Pelican Lake production..

Okay, great. Thanks very much..

Okay, great. Thanks very much..

Your first question comes from Evan Calio from Morgan Stanley. Your line is open..

Benny Wong from Morgan Stanley calling in. Just wondering if you could provide some details around the pre-existing facilities you bought for Grand Rapids. Maybe some color around the logistics of it, how much it costs and maybe how much you will need to put in? And I've got a follow-up as well..

Benny Wong from Morgan Stanley calling in. Just wondering if you could provide some details around the pre-existing facilities you bought for Grand Rapids. Maybe some color around the logistics of it, how much it costs and maybe how much you will need to put in? And I've got a follow-up as well..

So I will ask John Brannan to respond to that question..

Yes thanks Benny, the facilities that we are picking up are the Joslyn facilities they have a capacity of about 8,000 to 10,000 barrels a day. We have extensively we view those facilities they are in very good shape, they have been well maintained.

We expect to be removing those sometime either later this year or into next year and relocating those to our Grand Rapids facilities.

The exact price of the transaction is confidential so we have not disclosed that, but we think it’s a huge opportunity for us to start this project at Grand Rapids with those facilities, it will help us keep our initial cost down and we think we can deliver a very good project there.

We are happy with the performance at the reservoir at Grand Rapids it’s from our testing program and we think we will be able to deliver very economical project there..

Great, thanks. My follow-up is regarding the Wood River debottleneck. Can you remind us around the details of that? I think you've mentioned in the past you might increase the heavy oil consumption there. And what do you think about -- how do we think about downtime that's expected around the work there? Thanks..

Great, thanks. My follow-up is regarding the Wood River debottleneck. Can you remind us around the details of that? I think you've mentioned in the past you might increase the heavy oil consumption there. And what do you think about -- how do we think about downtime that's expected around the work there? Thanks..

Thanks Benny. The project at Wood River is essentially to be able to handle more light ends at the front-end of the plant.

We think that it will be having minor impacts to overall downtime, when we are installing that we think it will increase the capacity about 18,000 barrels a day of overall heavies that we should be able to bring into the facility and minor impact to overall operations..

Great, thanks..

Great, thanks..

Your first question comes from Chris Cox from Raymond James. Your line is open. .

The first question I have, and just kind of sticking along Grand Rapids here is, given what you have seen on the pilot to-date are there any changes you're looking to employ on the phase A developments in terms of how you may exploit that reservoir?.

The first question I have, and just kind of sticking along Grand Rapids here is, given what you have seen on the pilot to-date are there any changes you're looking to employ on the phase A developments in terms of how you may exploit that reservoir?.

I will ask Harbir to comment on that..

Yes so far on the pilot we have done very well, one of the best news we had on the pilot was in December in ’13 where did a post team core and from our analysis we found out that we reduced our oil saturation from 70% to 9%. We have not seen that drop to residual oil saturation even at Foster or Christina within the three year period.

So fundamentally the reservoir is great and working well with respect to the production we currently our production has been varying anywhere from 100 to 300 barrels per day we reached peaks above 400.

We think it’s very doable to be in that 400 to 600 barrels per day range and we expect to be there by the end of this year so overall we are very encouraged about the Grand Rapids and the potential there..

Okay. And then just on Foster you mentioned you are inserting some infill control devices there.

Can you may be just comment in terms of what you are seeing out of response for the -- those wells where you have implemented them on? And how many wells have ICDs installed today?.

Okay. And then just on Foster you mentioned you are inserting some infill control devices there.

Can you may be just comment in terms of what you are seeing out of response for the -- those wells where you have implemented them on? And how many wells have ICDs installed today?.

First of all it’s too early ICDs is a new term for the industry but at both Foster and Christina we have been applying control devices for steam and production for approximately the last decade and we do continue to learn overtime.

We are trying to bring those costs down so it’s not anything new with respect to how many we have installed I would say at least somewhere between 6 to 10 type number throughout our assets..

Okay.

And then just the last question from me here, in the downstream can you maybe discuss what lead to the large increase in operating costs this quarter, and is this primarily planned downtime related or is there something else that impacted this figure?.

Okay.

And then just the last question from me here, in the downstream can you maybe discuss what lead to the large increase in operating costs this quarter, and is this primarily planned downtime related or is there something else that impacted this figure?.

Yes this is John Brannan both the Wood River and Borger Texas refineries we did do turnarounds this year in the first quarter.

We actually moved the one for Wood River into the first quarter both of those refineries are back up and operating now so some of the increased cost would have been associated with the turnarounds and less production associated with less refining throughput associated with the downtime..

Okay, thanks a lot guys..

Okay, thanks a lot guys..

Your first question comes from Mohit Bhardwaj from Citigroup. Your line is open..

Yes hi. Thanks for taking my question. My question is on Grand Rapids.

Just following on the theme here, can you guys provide how you are thinking about the project in terms of dollar per flowing barrel of capital intensity when you guys think about that? And also are you guys looking for a joint venture partner in the project?.

Yes hi. Thanks for taking my question. My question is on Grand Rapids.

Just following on the theme here, can you guys provide how you are thinking about the project in terms of dollar per flowing barrel of capital intensity when you guys think about that? And also are you guys looking for a joint venture partner in the project?.

It is Brian Ferguson I will answer the last part of the question there the Grand Rapids is 100% Cenovus project and we are currently as John mentioned we are doing some pilot testing on it, we are moving to the first phase of commercial development and we have not made any decision with regard to whether or not we would want to entertain another partner or not so it’s a 100% Cenovus project.

And then over to Harbir to respond to the first part of the question..

With respect to the capital efficiencies on the pilot side we expect to be very competitive to what our other projects are which is why we are going with this Joslyn facility it would have been a lot more expensive if we would have built the facility from grassroots so we are trying to keep our cost down on this first phase and trying to follow the same protocol we followed at Foster and Christina in terms of keeping the phases small and continuing to learn but continuing to demonstrate that we can make a good return and generate good cash flows from these projects..

And just to make this clear the $11 million of capital spent during the quarter on Grand Rapids that does not include the price paid for the facility?.

And just to make this clear the $11 million of capital spent during the quarter on Grand Rapids that does not include the price paid for the facility?.

That’s right..

Okay. And just -- and maybe this question is for John. If you look at the OpEx and also the CapEx spent for the first quarter it seems to be running at a higher rate, as far as the guidance is concerned, across the regions. So should we -- you answered part of the question on the OpEx side.

Does the CapEx for most of these projects come down going into the year or is it going to remain at the rates that we saw in the first quarter?.

Okay. And just -- and maybe this question is for John. If you look at the OpEx and also the CapEx spent for the first quarter it seems to be running at a higher rate, as far as the guidance is concerned, across the regions. So should we -- you answered part of the question on the OpEx side.

Does the CapEx for most of these projects come down going into the year or is it going to remain at the rates that we saw in the first quarter?.

Yes I think overall for the CapEx we expect to be within our guidance ranges for the year we are actually a little bit behind on our overall CapEx spending according to our budget in the first quarter..

And on OpEx, if you look at the OpEx across the regions, even for the conventional heavy oil sands, they were on the high side of the range as well..

And on OpEx, if you look at the OpEx across the regions, even for the conventional heavy oil sands, they were on the high side of the range as well..

Yes and clearly as we discussed before the majority of the reason for the higher ranging on the OpEx is associated with primarily fuel cost and the price of natural gas and in addition to that a little bit on electricity.

We were a bit higher on workovers both at Pelican and at Foster and Christina, we do expect through the year that those will come down to some extent..

Thank you for that.

And final one from me, John, how is the conversation going on with the regulators as far as bringing more pads to blowdown on Foster Creek? You mentioned that you had filed an application for six additional pads, but how is the conversation going and are they more sympathetic to your status right now at Foster Creek?.

Thank you for that.

And final one from me, John, how is the conversation going on with the regulators as far as bringing more pads to blowdown on Foster Creek? You mentioned that you had filed an application for six additional pads, but how is the conversation going and are they more sympathetic to your status right now at Foster Creek?.

Yes actually earlier this month both Harbir and myself Brian and others met with the AER in general and we discussed our applications of things that we have got other plans on the way forward and the regulators is doing a good job and we have got a good relationship with them on the way forward..

Alright, thanks for your thoughts..

Alright, thanks for your thoughts..

Your first question comes from Mike Dunn from FirstEnergy Capital. Your line is open..

Just good morning, everyone. Most of my questions have been answered but I still have three or four here. I will start with Grand Rapids.

Can you tell us when you acquired the facilities from Total? And I don't know if there is any previous precedence on moving a steam plant so what are the -- what would be the main challenges in doing so? And I'll have some follow-ups..

Just good morning, everyone. Most of my questions have been answered but I still have three or four here. I will start with Grand Rapids.

Can you tell us when you acquired the facilities from Total? And I don't know if there is any previous precedence on moving a steam plant so what are the -- what would be the main challenges in doing so? And I'll have some follow-ups..

We have been working with Total for a number of months on discussions and review of that particular facility and we are confident that we can move it forward we have had our construction expertise and those people in there. I think we actually closed the deal earlier this month..

Okay..

Okay..

With the movement of the plant essentially that will we are trying to and we are planning to use the existing engineering design we have got to cut it off at the piles and put it on trucks and put the piles in the same position in our facilities to just build then plant essentially in the same position the same profile as it would have been at their facilities at our facilities at Grand Rapids.

Clearly we have got to do a few a little modifications that fit to our reservoir and we have got to do a bit of instrumentation and control room and updates on kind of some of the control systems but we think all that is doable and should be pretty efficiently to start the Grand Rapids development..

And Mike we have done this before both at Foster Creek and Grand Rapids a lot of that equipment was used equipment because it’s on pilings it is pretty straight forward and it is something that we have done before..

Great. Thanks, John, Harbir. I guess next question on Foster Creek, production was at the high end of your guidance range but steam to oil ratio was a little bit above what you've been suggesting. So it looks like probably a record quarter in terms of steam injection there.

How did you achieve that? And were you benefiting at all from utilizing any of the Phase F facilities and injecting steam into the A-E wells?.

Great. Thanks, John, Harbir. I guess next question on Foster Creek, production was at the high end of your guidance range but steam to oil ratio was a little bit above what you've been suggesting. So it looks like probably a record quarter in terms of steam injection there.

How did you achieve that? And were you benefiting at all from utilizing any of the Phase F facilities and injecting steam into the A-E wells?.

I am going to ask Harbir to respond to that Mike..

So Mike Foster Creek is operating exactly where we expected it to operate. We think Foster Creek’s running rate and Christina too should be in that 90% to 95% on nameplate which means we should be running around that 108 to 114 and Foster is running at that 110 mark.

With respect to the steam oil ratios right now production in SOR is a delinked it’s normally those two are linked and so which means that once we get the blow down wells more sustaining pads on and once we get pass the start up of FGAs that’s when the SORs are going to start to come down. But we will continue operate at that 2.6 to 3 SOR.

We are not trying to minimize SOR right now we’re trying to maximize production and cash flow..

Yes, Mike, and with regard to Phase F we have not started up those facilities yet, so there is no steam coming from Phase F into the facilities..

Okay. So it sounds like you just had a good run rate out of the steam plants in Q1. Great. Telephone Lake regulatory approval is now second half of the year.

Can you just talk to what the holdup is there?.

Okay. So it sounds like you just had a good run rate out of the steam plants in Q1. Great. Telephone Lake regulatory approval is now second half of the year.

Can you just talk to what the holdup is there?.

Yes. So originally couple of years ago we told you Grand Rapids we would get approval by the end of 2013 it ended up taking a little bit longer three months. So, currently we’re still expecting Telephone Lake to be in that Q2 range towards the end of Q2. So everything is going as expected.

We are very, very happy with the dewatering test, we put in our final report to AER and we got back zero questions from them so that’s a complete done deal so every all our issues with Telephone Lake have been addressed. It’s just a question of time and getting our approvals going forward.

So, whether it’s in the middle or end of Q2 or the start of Q3, that’s kind of the timing that we’re looking at for Telephone Lake..

Okay, great.

So, not really much of a -- too much of a slippage?.

Okay, great.

So, not really much of a -- too much of a slippage?.

No, we’re pretty happy with the fact there were zero questions on the dewatering final report which means that they’re good to go..

Great. And last one from me, on the downstream just to follow on the operating costs, I mean, quite a bit of a jump there. In your MD&A you mentioned higher natural gas costs and FX would have had an impact as well.

But can you just, or can somebody remind us what the sensitivity on the OpEx is to Henry Hub gas prices?.

Great. And last one from me, on the downstream just to follow on the operating costs, I mean, quite a bit of a jump there. In your MD&A you mentioned higher natural gas costs and FX would have had an impact as well.

But can you just, or can somebody remind us what the sensitivity on the OpEx is to Henry Hub gas prices?.

Yes. Mike we’ll have to follow up with you on that one as it’s specific to the downstream itself..

Sure. Okay, thanks Brian. Thanks everyone for entertaining these questions..

Sure. Okay, thanks Brian. Thanks everyone for entertaining these questions..

Great, thanks Mike..

Ladies and gentlemen, we will now take questions from the media. (Operator Instructions) Your next question comes from Phil Skolnick from Canaccord Genuity. Your line is open..

Couple of questions, just back on that question around the AER on the discussion that you’re having with the blow down pads, have they kind of turned around in terms of way you look at that their goal is to maximize recoveries, your goal is to maximize return to profitability.

Are they willing to more look at the profitability and returns as opposed to just maximizing recoveries?.

Couple of questions, just back on that question around the AER on the discussion that you’re having with the blow down pads, have they kind of turned around in terms of way you look at that their goal is to maximize recoveries, your goal is to maximize return to profitability.

Are they willing to more look at the profitability and returns as opposed to just maximizing recoveries?.

I’ll answer that Phil. So over the last three-four years, we’ve been working with them very closely. To that point that you just made, we have done a number of tests to show them that we will get our recovery factors from, both Foster and Christina as well as the other oil sands projects whether it’s with SAGD blow down or combination of Wedge Well.

So I think the fact that we’re first start with the block that’s been pretty good. I think we’re on the same plate today that’s why when we put in the six pads we do not expect that to be a critical path item with respect to AER. However they do continue to still give us approval on a pad by pad basis rather than a whole project basis.

But we are on the same page, right now..

Okay, great. And just a final one, last quarter you said you’re looking at different rail solutions in terms diligent recovery units et cetera.

Any more clarity around that when it come to a closer decision?.

Okay, great. And just a final one, last quarter you said you’re looking at different rail solutions in terms diligent recovery units et cetera.

Any more clarity around that when it come to a closer decision?.

Phil, it is Brian. We’re continued to believe that rail is going to be permanent part of our transportation strategy as we go forward. I think it really complements what we’re doing on firm pipe capacity.

There is a number of things that we are continuing to work here internally and we’re not at the point where we can give any specific response as to that but certainly expect that rail is going to be a large and growing component of our transportation strategy as we go forward..

Okay.

And just finally number of your competitors are talking about getting to close to water so potentially exporting off of North American, are you looking at that solution as well?.

Okay.

And just finally number of your competitors are talking about getting to close to water so potentially exporting off of North American, are you looking at that solution as well?.

Yes, and we are actually doing that today..

Could you quantify it?.

Could you quantify it?.

Sure. We’ve been shipping to the East Coast and the U.S. Gulf Coast by rail for many, many months. We also have firm capacity on the existing trans-mountain system to Vancouver at 11,500 barrels per day.

And don’t forget that by virtue of being integrated in the location of our refineries on an integrated basis our volumes of refine products that flow through the refinery get tight order pricing too..

Alright, thanks..

Alright, thanks..

You’re welcome..

We have no further questions at this time. Mr. Ferguson, I turn the call over to you..

Thank you for joining us today. That completes today’s call..

This concludes today’s conference call. You may now disconnect..