(Reuters) - Canadian oil producer Cenovus Energy Inc's (>> Cenovus Energy Inc) second-quarter operating profit missed analysts' expectation by a wide margin as higher crude costs hurt refining operations.

Strong prices for heavy crude from oil sands cut into profits for the two U.S. refineries the company runs along with Phillips 66 (>> Phillips 66), as Cenovus lost its low-cost advantage due to the narrowing gap between the U.S. and Canadian benchmarks.

The benchmark Western Canada Select oil increased about 6 percent in the second quarter, from a year earlier.

However, Cenovus' upstream operations, which produces oil and gas, benefited from higher prices for heavy crude from oil sands. The company is best known for its Foster Creek and Christina Lake oil sands projects in northern Alberta.

"The miss was primarily driven by downstream in addition to higher operating costs and lower than expected oil production in the quarter," Global Hunter Securities analyst Sameer Uplenchwar said in a research note to clients.

Cenovus said production from its oil sands operations rose 16 percent to 93,797 barrels per day, while the company's total output was 10 percent higher at 171,127 barrels of oil equivalent per day.

Cenovus' operating cash flow from refining decreased 8 percent to C$871 million.

Cenovus' operating profit fell 10 percent to C$255 million, or 34 Canadian cents per share. Analysts expected a profit of 48 Canadian cents per share, according to Thomson Reuters I/B/E/S.

Hedging gains dropped 83 percent to C$21 million and the company reported a C$97 million foreign exchange loss, up from C$14 million a year ago.

The company tightened its total capital expenditures forecast to reflect the effect of higher costs to between C$3.3 billion and C$3.5 billion, from C$3.2 billion to C$3.6 billion.

($1 = 1.03 Canadian dollars)

(Reporting by Scott Haggett and Kanika Sikka; Editing by Joyjeet Das)

Stocks treated in this article : Cenovus Energy Inc, Phillips 66