(Recasts, adds quotes, share price)
By Nia Williams
CALGARY, Alberta, April 24 (Reuters) - Canada's Cenovus Energy on Wednesday swung to a quarterly net profit following government-ordered oil production cuts that resulted in a dramatic improvement in Canadian crude oil prices.
The government of Canada's main oil-producing province Alberta ordered producers to cut output by 325,000 barrels per day (bpd), effective Jan. 1, 2019, to deal with a pipeline bottleneck that led to a glut of crude in storage and deep price discounts.
Benchmark Canadian heavy crude averaged $42.53 a barrel in the first quarter of 2019, more than doubling from the previous quarter and up 10 percent on the first quarter of 2018.
Cenovus, the first of the country's major producers to report earnings since the cuts took effect, said the resulting improvement in local prices more than offset the impact of reduced production and increased operating costs during the first quarter.
"These results emphasize the true potential of our company," said Cenovus chief executive Alex Pourbaix. "At current commodity price levels, I'm optimistic we will generate material free funds flow over the remainder of the year."
The Calgary-based company reduced its 2019 oil sands production guidance by 7 percent. It now expects total oil sands production to average between 350,000 and 370,000 barrels per day (bpd) in 2019, below the 377,000- and 395,000-bpd range it forecast in December.
Net income for the quarter was C$110 million ($81.79 million), or 9 Canadian cents per share, compared with a loss of C$914 million, or 74 Canadian cents per share, a year earlier.
Operating earnings from continuing operations came in at 6 Canadian cents per share, below analysts' estimate of 23 Canadian cents per share, according to IBES data from Refinitiv.
Cenovus reported free cash flow of C$731 million compared with a shortfall of C$565 million a year earlier, and said its top financial priority will be deleveraging its balance sheet.
Total production from continuing operations fell to 447,270 barrels of oil equivalent per day (boepd) from 487,464 boepd in the quarter ended March 31 as a result of curtailments.
"With oil stocks still greatly lagging the rally in crude prices we were looking for opportunities to buy, and we believe Cenovus is good value right now," said Norman Levine, managing director of Portfolio Management Corp in Toronto.
Cenovus shares were last down 1.3 percent at C$13.83 on the Toronto Stock Exchange, tracking a broader drop in Canadian energy stocks. ($1 = 1.3449 Canadian dollars) (Additional reporting by Shradha Singh in Bengaluru; Editing by Anil D'Silva, Shinjini Ganguli and Jonathan Oatis)