C Citigroup Inc

Cenovus Energy Inc. on Thursday posted a hefty second-quarter loss and an 8% decline in cash flow as lower oil-sands operating costs and stronger production failed to offset a slump in oil and gas prices.

The Calgary, Alberta-based company said oil-sands operating costs declined 24% per barrel in the quarter ended June 30, while oil-sands production climbed 9%. Still, a steep decline in oil and gas prices compared with a year earlier—including a 21% drop in West Texas Intermediate oil prices—weighed on results.

"We've achieved significant sustainable improvements in our cost structure over the last year and a half, and we'll remain vigilant on costs to maximize our competitive position in this challenging and volatile commodity price environment," said Chief Executive Brian Ferguson in a release.

Cenovus swung to a loss of 267 million Canadian dollars ($202 million), or 32 Canadian cents a share, in its latest quarter from a profit of C$126 million, or 15 Canadian cents a share, a year earlier.

Adjusted to exclude items, it lost 5 Canadian cents a share, compared with a profit of 18 Canadian cents a year earlier. Analysts polled by Thomson Reuters were expecting a loss of 19 Canadian cents.

Cash flow declined to C$440 million from C$477 million a year earlier.

Cenovus said it's on track to lower capital, operating and general and administrative costs by up to C$500 million this year compared with its original budget. It noted that it completed its planned workforce cuts in the latest quarter, resulting in total staff reductions since the end of 2014 of 31%. It booked about C$19 million of severance costs related to workforce reductions this year in the latest quarter, it said.

Like its peers in the oil patch, Cenovus has been battling slumping oil and gas prices and has been focused on cost-cutting efforts. However, it said stronger oil and gas prices recently compared with multiyear lows in the first three months of the year helped boost cash flow from first-quarter levels.

"Given the strength of our balance sheet and financial position as well as our high level of confidence that the cost reductions we've achieved will be largely sustainable, I'm optimistic about the potential to resume construction on some of our deferred projects," Mr. Ferguson said.

Cenovus deferred some oil-sands expansion projects amid the extended slump in commodity prices, but said Thursday it is completing engineering work at its Christina Lake operations for the possible restart of an expansion project that was put on hold in late 2014.

Write to Judy McKinnon at judy.mckinnon@wsj.com

(END) Dow Jones Newswires

July 28, 2016 08:15 ET (12:15 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.