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Cenovus Energy, Inc. (NYSE:CVE)

April 24, 2013 4:00 pm ET

Executives

Michael A. Grandin - Chairman, Chairman of Nominating & Corporate Governance Committee, Ex-Officio Member of Audit Committee, Ex-Officio Member of Human Resources & Compensation Committee and Ex-Officio Member of Reserves Committee

Brian C. Ferguson - Chief Executive Officer, President and Non-independent Director

John K. Brannan - Chief Operating Officer and Executive Vice-President

Michael A. Grandin

Good afternoon, ladies and gentlemen. Thank you very much for your attendance this afternoon. My name is Michael Grandin. I'm Chairman of the Board of Cenovus, and it's my pleasure to welcome you here this afternoon to the third annual meeting of shareholders. I'd like to welcome as well all those shareholders who are attending and participating in the audio webcast of this meeting. We have people here at The Westin Calgary who have been designated as our safety volunteers. In the unlikely event of an alarm, they will make sure that you know who they are, and they'll make sure that everyone is able to leave here safely.

Today's agenda will follow our customary format, the formal meeting, followed by management's presentation and then a question-and-answer period. Before we begin though, I'd just like to offer a few comments. At our first AGM 3 years ago, we spoke about the company's start, great assets and really a good initial beginning. Last year, we talked about the company's long-life assets and its need for staying power to fully realize their value. Brian highlighted results, holding the promise of predictable, profitable growth, and updated the company's progress on net asset value, a measure which we consider to be the best aggregate measure for stewarding performance over a very long investment horizon, which would be associated with our type of assets.

This year's annual report theme is building momentum, which I thought was a very appropriate theme for Cenovus at this stage in its life. it provides an informative way for management, the board and investors to look at results and combine them into a single indicator, which is a pretty good predictor of not only -- a pretty good look at last performance and a good predictor of future performance, I think. As you may recall, momentum is quantified in the vernacular as size and speed, modified by a direction and a frame of reference through which you're looking at it. I think these are good ways to look at a company for Cenovus, a company that's on the move at this point in time.

The size of Cenovus, if you want to use that analogy, may be measured in terms of resources, P&NG resources, of course, but also human resources, financial resources, technological resources. In terms of speed, you can look at the pace of development. And both of those, I think you have to agree, increased significantly in 2012.

For direction, we can look at the company's disclosed 10-year business plan. Production, cash flow, net asset value and dividends have grown in line with this plan, and the company's execution has gone very, very well. So I think it's safe to say that Cenovus is actually doing what it said it would do. An appropriate frame of reference to which of you, Cenovus's momentum is described by its stated policies, principles and values and colored somewhat by comparison to its peer group performance. Cenovus's strong performance has been achieved while complying with its covenants with respect to risk management, application of technology, environmental impact and corporate responsibility. So not only is Cenovus doing what it said it would do, but it's doing it in a way that it said it would do it. And the result of all that, I think, has been reflected in the fact that Cenovus's total shareholder return into 212 places ahead of that -- of the broader TSE Energy Index.

So after reading the annual report and listening to Brian's presentation later on in the meeting, I hope you'll agree that Cenovus has significant momentum headed in the direction that will serve investors and all other stakeholders well. And I think the fact that momentum has actually been building in the face of today's headwinds indicates a very promising future for the company.

So I now take the moment to call this meeting to order. In accordance with bylaw #1 of Cenovus Energy, I will chair the meeting, and Kerry Dyte to my left here, our Corporate Secretary, will act as secretary of the meeting.

The current directors, other than myself, Ralph Cunningham and Brian Ferguson are seated in the front row, and I would like to introduce them to you now. Patrick Daniel, if you'd stand up and be recognized, please; Ian Delaney; Valerie Nielsen; Charles Rampacek; Colin Taylor; Wayne Thomson; and Ralph Cunningham, who is unable to be with us today. So please join me in acknowledging your Cenovus board.

I would also like to introduce the head table to you starting at a very far end to my left, Brian Ferguson, President, Chief Executive Officer; John Brannan, Executive Vice President, Chief Operating Officer; Ivor Ruste, Executive Vice President, Chief Financial Officer; and Kerry Dyte, Executive Vice President, General Counsel and Corporate Secretary.

The other members of our executive team are also here today in the front row. So if they will please stand as I introduce them. Harbir Chhina, Sheila -- oh, sorry, Harbir's Executive Vice President of Oil Sands; Sheila McIntosh, Executive Vice President, Environment and Corporate Affairs; Don Swystun, Executive Vice President, Refining, Marketing, Transportation and Development; and Hayward Walls, Executive Vice President, Organization and Workplace Development.

Also with us today representing our auditor, PricewaterhouseCooper, are Courtney Hall and Don Cormack. Maybe they'd just stand up or wave or something so people would know where they are. Thank you very much.

If there's no objection, I appoint Robyn Hall and Stephen Bandola from Computershare Trust Company of Canada to act as scrutineers of the meeting.

The business of today's meeting is, first, to receive the audited financial statements for the year ended December 31, 2012; second, to elect directors; third, to appoint our auditors; and fourth, to consider on an advisory basis Cenovus's approach to executive compensation. The business is further described in the Notice of Meeting and Management Proxy Circular dated March 1, 2013, that was delivered and filed in advance of the meeting as required by law. A statutory declaration is on hand, confirming that notice of this annual meeting was mailed on March 27, 2013, to shareholders of record as of March 1, 2013. I direct the secretary to file a statutory declaration with the minutes of the meeting.

A preliminary scrutineers' report has been provided, confirming that there are 21 shareholders present in person or by proxy, representing 543,350,349 shares, which is 71.8% of the outstanding common shares of Cenovus Energy. I direct the secretary to file a final report of the scrutineers with the minutes of the meeting.

A notice of the meeting has been properly given, and a quorum is present. I declare the meeting properly called and constituted for the transaction of business.

We will now proceed with the formal business of the meeting. Those present are reminded that only registered shareholders or duly appointed proxy holders are entitled to participate in today's formal business. You are registered shareholder or a proxy holder if you were given a blue admittance card when you registered today.

After the formal part of the meeting, Brian Ferguson will review Cenovus' highlights from 2012 and provide an overview of priorities for the company in 2013. Following Brian's presentation, we will provide an opportunity for you to ask questions. Please hold any questions not related to the formal business until the question-and-answer period at the end.

The first item of business then is to receive the consolidated financial statements for the year ended December 31, 2012. Copies of the 2012 annual report containing these audited financial statements were mailed to shareholders on March 28, 2013. Additional copies are available at the shareholders' information tables in the foyer at the back of this meeting room. The next item of business is the election of directors. The Board of Directors has set the number of directors to be elected at 9. The meeting is now open for nomination of directors.

Unknown Shareholder

Mr. Chairman, my name is Margaret Lemay, and I am a Cenovus proxy holder. I nominate the following individuals set out in the management proxy circular. They are Ralph Cunningham, Patrick Daniel, Ian Delaney, Brian Ferguson, Michael Grandin, Valerie Nielsen, Charles Rampacek, Colin Taylor, and Wayne Thomson.

Michael A. Grandin

Thank you, Ms. Lemay. Are there any nominations? There being no further nominations, I declare the nominations closed. There will be a ballot on this resolution. May I have a motion?

Unknown Shareholder

Mr. Chairman, my name is Sonia Lonson, and I am a Cenovus shareholder. I move that the nominees presented to this meeting be elected as directors of the corporation.

Michael A. Grandin

Thank you, Ms. Lonson. Is there a seconder for the motion?

Unknown Shareholder

Good afternoon, Mr. Chairman. My name is the Dean McCluskey, and I'm a shareholder of Cenovus Energy. I second the motion.

Michael A. Grandin

Thank you, Mr. McCluskey. Is there any discussion on the matter? Proxy holders and shareholders who have not voted should have received the blue ballot when they registered. If you did not receive one, please raise your hand and the scrutineers will provide you with one. Please vote on the ballot by marking an x in the appropriate box. Please sign and print your name on the lines provided and raise your ballot in the air and it will be collected. When the scrutineers have collected all the ballots, they will count the results and report back to us at the end of the meeting.

The next item of business is the appointment of auditors. May have a motion?

Unknown Shareholder

Mr. Chairman, my name is Cathy Stuart, and I'm a Cenovus shareholder. I move that PricewaterhouseCoopers LLP, Chartered Accountants be appointed as auditors of Cenovus until the close of the next annual meeting of shareholders or until a successor is duly appointed.

Michael A. Grandin

Thank you, Ms. Stuart. Is there a seconder for the motion?

Unknown Shareholder

Mr. Chairman, my name is James Hedad, and I'm a Cenovus shareholder. I second the motion.

Michael A. Grandin

Thank you Mr. Hedad. Is there any discussion on the matter? All in favor, please signify by raising your right hand. Oh, come on. There we go. Oppose, if any? I declare the motion carried.

The last item of business is the nonbinding executive advisory on executive compensation pursuant to our shareholder advisory vote on executive compensation policy. In this item, we are asking for your advisory view on our compensation policy and for your acceptance of our approach to executive compensation, as described in the compensation and discussion analysis in our proxy circular. As this is an advisory vote, the results will not be binding on the board. However, the board will take the results of the vote into account as appropriate when considering future compensation policies, procedures and decisions. There will also be a ballot on this resolution. May I have a motion?

Unknown Shareholder

Mr. Chairman, my name is Heather Dyer, and I'm a Cenovus shareholder. I move that on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, shareholders accept the approach to executive compensation, as disclosed in the compensation discussion and analysis in the corporation's Management Proxy Circular dated March 1, 2013, and delivered in advanced of the 2013 Annual Meeting of Shareholders.

Michael A. Grandin

Thank you, Ms. Dyer. Is there a seconder for the motion?

Unknown Shareholder

Mr. Chairman, my name is Patricia Dranville, and I'm a Cenovus shareholder. I second the motion.

Michael A. Grandin

Thank you, Ms. Dranville. Is there any discussion on the matter? Proxy holders and shareholders who have not voted should have received a purple ballot when you registered. If you did not receive one, please raise your hand and the scrutineers will give you a ballot. Please vote on the ballot by marking an x in the appropriate box. Please sign and print your name on the back and -- in the lines provided and raise your ballot, and it will be collected by the scrutineers. And when they've collected them all, they will count them and report the results at the end of the meeting.

While we're waiting for the scrutineers to count the ballots, we'd like to show you a couple of videos. The first is a video that was created to describe the company's purpose, promise and values late last fall, and Brian will talk a little bit more about that later on in the program. And the second is a compilation of our commercials to give you a sense of how we're telling our story through our advertisements.

[Presentation]

Michael A. Grandin

I hope you enjoyed the videos. For me anyway, the first one shows the high level of enthusiasm we see throughout the country, and you do get very good results from people who are enthusiastic about what they're doing and like where they're doing it. And the second one, I think, actually tells a pretty good story, and the company, I think, really has a good story to tell on many fronts.

So I've now received the scrutineers' report on ballots. First, I am pleased to report that the resolution to elect directors has been approved by more than 96% of the votes cast by shareholders, and so I declare that motion carried. And the second, nonbinding advisory vote to accept the approach to executive compensation, as discussed in the compensation discussion and analysis in our management proxy, has been approved by more than 94% of the votes cast by shareholders. And so I also declare the nonbinding motion carried. I direct the scrutineers' report be annexed to the minutes of the meeting.

This now concludes today's business. Is there any other business to be brought before the meeting? There's no further business. May I have a motion to terminate the meeting?

Unknown Shareholder

Mr. Chairman, my name is Aaron Penton, and I'm a Cenovus shareholder. I move that this meeting terminate.

Michael A. Grandin

Thank you Mr. Penton. Is there a seconder for the motion?

Unknown Shareholder

Mr. Chairman my name is Darryl Warren, and I'm a Cenovus shareholder. I second the motion.

Michael A. Grandin

Thank you Mr. Warren. All in favor, please signify by raising your right hand. Opposed, if any? I declare the meeting terminated.

So before we move to the presentation, does anyone wish to receive or submit a question card? If you do, please raise your hand and someone will come and assist you. Your questions will be addressed after Brian's presentation. I'll now ask Brian to come to the podium and present his material. Brian?

Brian C. Ferguson

Well, thanks, Mike, and good afternoon, everyone. It gives me great pleasure to welcome you to the third annual meeting of Cenovus shareholders. It's been some time now since I first sat down with the rest of the executive team. We did that before Cenovus was officially launched to discuss the future of our company. One of the first things that we did was to take a little time to ask ourselves what I think is a very important question. What kind of company do we want to be? It's now more than 3 years since Cenovus was launched, and I am extremely proud of what we've become in such a short period of time. We're open and transparent, innovative and ready to embrace new ideas. We've attracted some of the brightest minds in the industry. We've consistently done what we said we were going to do. And I'm excited about the tremendous store of potential that we have created that has yet to be unlocked.

Before I turn to some of our accomplishments from this past year, I'd like to draw your attention to the advisory that you see here on the screen with regard to the use of forward-looking information. There is also this advisory on the preparation of our oil and gas resource estimates and the calculation of our net asset value. You can find additional information on these in our annual report, copies of which are available here today if you would care to read them.

As Cenovus enters its fourth year of operations, I believe that we are firmly on track with our strategy. We said that we would double our net asset value between 2010 and 2015. We said that we would pay a strong and growing dividend. We'd increase net oil production to 500,000 barrels a day by the end of 2021 and that we would fund it all with strong internally generated cash flow and a solid balance sheet. Today, we're well on our way to achieving those goals. But we cannot afford to be complacent. We overcame some difficult market conditions last year, and there's potentially even greater ones ahead of us in 2013 and beyond. We must remain focused.

The theme of this year's annual report to shareholders, as Mike mentioned, is momentum. This morning -- or pardon me, this afternoon, I'd like to talk more about how we're building the momentum that we need to take Cenovus through decades of future growth. We're doing it by, first, delivering on our promises; second, by building an even stronger foundation for your company; and third, by facing the challenges head-on.

Let's start with our promises. 2012 was another great example of how we do what we say that we will do. Last year, we generated record cash flow of more than $3.6 billion. Oil sands production grew by 35% compared with 2011, and once again, we expanded our reserves and our resource. Commodity prices last year were a challenge. In 2012, our heavy oil sold at historically steep discounts to West Texas Intermediate. That's the benchmark crude for pricing of all North American crude sales. That's usually bad for oil producers. But at Cenovus, we have an advantage. We own 1/2 of 2 U.S. refineries that buy Canadian heavy oil and turn it into products like gasoline and jet fuel, and those fetch premium prices on the world market. Last year, our refineries benefited strongly from cheap heavy oil prices, giving a significant boost to our bottom line. Our decision to invest in these refineries is part of our integration strategy, which allows us to benefit and continue funding growth even when commodity prices are relatively weak. Clearly, that strategy is paying off.

As we continue to grow, one of my top priorities is to make sure that we continue providing predictable, reliable performance for all our stakeholders, and that we are creating value for our investors. That doesn't mean growth at any cost. It means smart growth, continuing to expand our resource base and moving those products into production while keeping our costs per barrel low. That is one of the ways that we are building net asset value.

At the end of 2012, Cenovus had an estimated net asset value of about $40 per share. That is 43% higher than the baseline illustrative net asset value when we launched the company December of 2009. We also created shareholder value through our dividend, which is now 21% higher than when we launched the company. That includes a 10% increase, which was instituted in the first quarter of this year. Together, our dividend and share price growth drive total shareholder return. On that basis, Cenovus outperformed the TSX Energy Index last year by about 2 percentage points, and as this chart shows, by almost 25% in our first 3 years as a company. In just a few moments, I am going to address for you the recent weakness that we've seen quite broadly across the Canadian energy shares, also talk about what could be done to improve that situation.

First off, let's talk about this year and beyond. We're off to a very solid start in 2013 with another strong showing from our refineries. This morning, Cenovus reported first quarter operating cash flow from refining that was nearly double from the same period in 2012. And despite a more than 20% drop in the average realized price for our oil production, Cenovus's first quarter operating earnings were 15% higher than the preceding year. We also reported a 22% increase in oil sands production, driven primarily by significant capacity increases at our Christina Lake operations. As the year progresses, we expect to add even more production with a plan to start up another 40,000 barrels per day expansion at Christina Lake. Also exciting is the addition of our third major oil sands project, Narrows Lake. We plan to start construction on the initial phase of that project in the third quarter of this year. And ultimately, that project is forecast to have a capacity of 130,000 barrels per day. In 2013, we'll also drill hundreds of additional stratigraphic test wells to continue to expand our resource base. We'll provide updates on our emerging Grand Rapids and Telephone Lake projects, and we'll continue evaluating our promising light oil opportunities here in Alberta. In short, we are building an even stronger foundation for future growth.

As we build though, we must work hard to maintain one of our key competitive advantages. That's our low-cost base. Lately, we have started to see that our operating costs and capital costs are beginning to creep up. In 2013, I pledge to you that we will redouble our efforts to keep costs under control by finding ways to work smarter and by using our purchasing power to reduce our costs for supplies and services.

Something else that is a priority for me and crucial to our continued success is Cenovus's corporate culture. To improve our performance, minimize our environmental impact, reduce costs and stay safe, it is more important than ever that we all pull together and work as a team as one Cenovus.

Last year, we defined the 3 main pillars of our corporate culture, the reason that we exist, what we do and what our values are. Our purpose, that's the reason that we exist, is to inspire bright minds to help fuel world progress. Our promise, what we do is work collectively to unlock challenging oil resources in a way that makes Canadians proud. And our values, that is what guides our behavior, are to be rigorous and respectful in how we conduct our business and be ready to embrace new ideas. If we can get everyone at Cenovus to understand these pillars of our culture and to take them to heart, if we can communicate them to all of our stakeholders, to the investors and to the public, I believe we can make this company even stronger. And we'll be working towards that goal this year.

Let me turn now to some of the challenges that we face. Nothing we do at this company is more important than safety. Unfortunately, we're not doing a good enough job here. Despite the many safety programs that we have in place, safety incidents rose last year. That is a big concern for the entire executive team. In January, we launched Start Safe, a program to reinforce safe working habits, to make sure that our safety practices are followed year round. We've also asked our leaders to spend more time in the field, and we'll be working closely with our contractors this year to ensure that they are also living up to our high safety standards.

The other significant challenge we faced as an industry is growing -- getting our growing oil production to new markets. As you know, oil sands critics have become increasingly vocal in their opposition to new pipelines. Delays in building these pipelines have already contributed to the very steep discount for Canadian heavy oil that I referred to earlier. Discounts that are short-changing the Canadian economy, literally of billions of dollars a year, in export revenues, in royalties and in corporate taxes. These pipeline delays are also having a significant impact on energy shares in the Canadian companies.

Access to new markets for Canada is growing. Oil sands production seems uncertain at the moment, and investors do not like uncertainty. They perceive it as a risk, and in this market, there's not much appetite for risk. That is one of the reasons behind the down graph that we've seen in Canadian energy shares over the last few weeks.

At Cenovus, we are tackling this market access challenge head-on with our portfolio approach. Today, we have spaced on a number of existing pipelines, including lines that go to the West Coast and to the U.S. Gulf Coast. We're also big supporters of proposed pipelines to the East, to the West and to the South that would give us access to international markets. That includes the Keystone XL, Northern Gateway and TransCanada's new Energy East project. We think these projects are crucial for the energy sector and for the Canadian economy and that they should be built.

In addition to pipelines, we're expanding our use of rail shipments to get our oil to markets where we can get much higher prices. This year, we expect to nearly double our rail capacity to about 10,000 barrels per day. Another important step that we've recently taken is to establish an internal task force to study other ways of getting our oil production to market in the future.

Environmental performance also plays into our market access strategy. To gain greater acceptance for new pipelines, we need to show the world that Canadians are developing oil responsibly and improving our environmental performance through innovation. A great example of innovation at Cenovus is our award-winning SkyStrat drilling rig. We've developed a scaled-down version of the stratigraphic test well rig that can actually be flown to remote locations by helicopter. By reducing the need to build access roads, we expect that SkyStrat will significantly cut our environmental footprint and operating costs in these areas. And that's just one example of a more than 140 technology development projects that we are working on at Cenovus.

I believe Cenovus has a great story. But that's not enough. If we want to succeed in finding new markets for our oil, and that is going to be a challenge, we and the industry must do a better job of telling our story. When people misrepresent the oil sands, we need to speak up and set the record straight. We need to encourage and engage with average Canadians to let them know why oil sands are an economic treasure, not just for Alberta but for the entire country. We need to remind them that the oil we produce fuels our busy lives and is a key building block in products that we all use every day. We must take every opportunity to talk about how we're using innovation and technology to develop this vast resource responsibly and in a way that all Canadians can be proud of. And this year, we're going to do just that.

Let me close by saying that we should all be encouraged by what this company has been able to achieve in just 3 short years. I believe there is good reason to be excited about the future. In 2013, we continued to create value for our shareholders by expanding our production capacity, maintaining industry-leading cost base by improving our efficiency and building an even healthier organization. With your help, we'll get the message out that new market access is crucial not just for Cenovus but for the entire oil industry and for the entire country of Canada.

Thank you, and I'll turn back to Mike now.

Michael A. Grandin

Thank you very much, Brian. Before we begin the question-and-answer period, I'd just like to know if there are any questions or question cards to be collected from the floor. Here's one over here and one over there. Okay. So we will now take questions from both the audience and the webcast participants. To ask a question, just raise your hand, and I guess we'll come and take your question. So for the audio participants, we just ask that you use the ask question button to register your question, and I'll start with questions from the floor.

Question-and-Answer Session

Michael A. Grandin

Okay. Yes, please, go ahead.

Unknown Shareholder

My name is Lance Karonsky. I'm a beneficial shareholder of Cenovus. In 2006, Encana, the mother corporation of Cenovus, entered into an agreement with ConocoPhillips whereby a 50% interest in Encana's Foster Creek and Christina Lake oil sands projects were traded for 15% to 50% interest in ConocoPhillips, Wood River and Borger refineries in the U.S. sea. Included in the agreement was a commitment to invest $5.4 billion to grow bitumen production and $5.3 billion to expand the bitumen processing capacity in the Wood River and Borger refineries. When Cenovus spun off from Encana in 2009, Cenovus became responsible for the implementation of this agreement. Now ConocoPhillips is attempting to sell its interest in the oil sands assets. My question has 2 parts. First, are there any terms in the agreement that allow and govern the sale of a partner's interest? Second, has ConocoPhillips met its investment obligations in the upstream and downstream operations?

Michael A. Grandin

Thank you for your question, Mr. Karonsky. Brian, I think I'll let you answer that.

Brian C. Ferguson

Yes. Thank you for that question. I'd like to start by saying that in my opinion and our experience since the joint venture arrangement with ConocoPhillips, which is now ConocoPhillips and Phillips 66, so we've now been operating for about 6 years, that both Conoco and Phillips 66 have been an excellent partner. And the second part to your question was how they honored all of their obligations. And they have absolutely done that. They have been a very good partner, as I mentioned. With respect to your question about them selling their oil sands interests, the oil sands interests that Conoco is currently actively marketing do not include their interest in Foster Creek, Christina Lake joint venture in which they are our partner. There are other assets that they have. They don't include Foster Creek and Christina Lake.

Michael A. Grandin

Next, another question? Let's have a question from K. Maitland. That's initial K. At our operations such as Christina Lake, please describe, first, the number of acres cleared for the extraction site, and second, the area in acres from which wells discharge oil, i.e., the footprint for each of the above. So Brian, do you want to have a shot at that or John? I don't.

Brian C. Ferguson

Why don't I let John to answer that one. I'm sure he's got the acreage down by heart.

John K. Brannan

I don't know if I have the exact acreage of the entire development. But the reality is that we work very hard every day to minimize our footprint. The pictures that you saw are the central plant that's probably, and I'm -- just rough acres, about 15 or 20 acres that, that main plant is on. But then when we go out to develop the fields, we put our drilling rigs on about a 5-acre plot. That 5 acres develops about 20 times -- 20 to 25 times the area underneath the Boreal Forest as we produce that wells. We have some 10-well platforms that produce as much as 20,000 barrels a day -- 10-well pads, I should say, that produce as much as 20,000 barrels a day. A comparison is a bit like if you take an envelope and you put the postage stamp on, that postage stamp is our surface impact in comparison to the size of the envelope.

Michael A. Grandin

Okay. Thank you, John. So the next question I have here is -- I'm not sure who asked it, but the question is, you have mentioned that you are considering the international market. If you had access to tidewater, where would be your potential market internationally? Could you please elaborate? So Brian?

Brian C. Ferguson

So when we're able to access tidewater, we're currently able to do that at the port in Vancouver through the firm service that we have on the Trans Mountain pipeline. We've also been able to get volumes down into the U.S. Gulf Coast region. What we're able to do is quite literally, access any market in the world that we wish to. Today, we've been selling principally down into the California market. We have actually made shipments that have gone over into Asia as well out of Vancouver. As I look forward, when we're able to get more volumes to either the West Coast or the East Coast, we can quite literally choose whether we want to go to India, to Asia, to the U.S. Gulf Coast or to any other market in the world. The key and the objective here will be to optimize and maximize the price that we're able to receive for our production.

Michael A. Grandin

Thank you, Brian. The next question here is from Irene Brusgav. I hope I pronounced that correctly. And the question is, what is the long-term view of Cenovus in allowing foreign investment from countries such as China who are seeking to buy into energy companies and the oil sands? And I guess just more generally, our views on foreign investment. Brian?

Brian C. Ferguson

I would have thought the Chairman wanted to answer that one. Canada has a century of experience with foreign investment. One of the best examples that I can cite is the automotive industry in Canada. That has been developed because of foreign investment. In the oil and gas industry, we've also got a very rich history of foreign investment and how it has helped to develop the Canadian economy. So here in Canada, we have the world's third largest oil resource, literally the third largest resource on the planet. We need access to foreign capital markets to be able to fund the full development of that, and our view as a company is that provided any foreign company, whether it's from China or India, United States or the U.K., wherever, provided they follow Canadian law, they honor Canadian regulatory system and they are a strong corporate citizen here and follow all the same rules that any corporation must do here in Canada, then they should be allowed to continue to proceed and invest. The federal government has instituted new guidelines, which govern the foreign investment, which came out just before Christmas time. And they're very clear that they will continue to allow foreign investment in a joint venture form as a preferred route, and that would certainly be something that as one of a larger companies here in Canada, that we will think again if they abide by our laws and the rules and the regulations, that, that would be a good thing for our country.

Michael A. Grandin

Thank you, Brian. And the last question, which perhaps you don't want to answer, is from Walter Fridley. Please encourage your older directors to retire and appoint younger ones. So maybe I'll give my views. And I guess the more general question really though, it's a serious question, is, do we have age requirements for members of the board? And actually, we don't have age requirements. When the company was separated from Cenovus -- from Encana, we did -- we did use to have 72 age for compulsory retirement. And we discussed it quite a bit when we started, and we decided that we wouldn't do that because we have a number of directors who have an awful lot of experience who are still active in other businesses and in other boards and bringing an awful lot to bear in terms of the judgments that we have to make and the strategy and direction that the company is heading in. So our decision was rather than have an arbitrary retirement age, we would just watch the performance. We do an annual evaluation. We have quite a good rapport between each of the directors. And if and when a director decided that they wanted to step down or if and when the rest of the board felt someone wasn't able to or willing to pull their weight anymore, then we would ask them to step down from the board. It's a little harder to do that, but we decided that, that's actually the right way to do it as opposed to push someone off the board when they're making a great contribution and not maybe pushing someone off the board who's no longer making a contribution but is not at the retirement age. So that was our decision, and that's the way we're handling that. So thank you for that question. Are there other questions? No more. Oh, there's a hand up over here.

Unknown Shareholder

[indiscernible] you were talking about future concerns for the company, and I heard on BNN this morning that you were not going to be able to sell assets because you -- small companies or whoever wanted to buy them could not raise the funds. Could you talk about that and the impact that will have on Cenovus?

Brian C. Ferguson

Thank you for the question. That question specifically relates to 2 smaller noncore oil properties that we have in Southern Saskatchewan that we decided that given the fact that we've had pretty good success there, we're currently producing 6,000 barrels to 7,000 barrels per day today, in the overall context of Cenovus, the great resource that we have, and we're currently producing north of -- and operating north of 350,000 barrels per day, that we're better off to be very disciplined to divest those smaller assets and redeploy those proceeds into other higher growth, better value opportunities that we have. What's impacting that today, it's really a timing question. It has absolutely no impact on Cenovus's strategy, no impact on Cenovus's financial performance. What we're seeing today is that smaller oil and gas companies, because of this down graph I just talked about earlier, are not able to go to capital markets to raise funds to pay for other assets today. So it's going to take us a little bit longer to divest the assets. We are going to take -- be a very patient seller, and we're in the fortunate situation where we can optimize the production of those assets, and they actually generate more cash flow than the capital that we have to invest in. And so they're are a net contributor here in the short term to us, and we'll wait and choose the time to sell when we think it's appropriate.

Michael A. Grandin

Thanks, Brian. Anything else? All right. Well then, that sort of brings the meeting to an end. So on behalf of your Board of Directors and executive management team of Cenovus, I'd like to thank you once again very much for your attendance this afternoon. We appreciate you coming out. There will be some refreshments outside in the foyer, and the management team and some of the board will be around for a few minutes if there's something you'd like to discuss with any of us individually, we certainly encourage you to do that. So thanks again.

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