Cenovus Energy Inc T.CVE.WT

RBC

[retiredcf]

Cenovus Energy Inc.
Highlights from the RBC Capital Markets Stampede Roundtable

TSX: CVE | CAD 23.00 | Outperform | Price Target CAD 27.00

Sentiment: Neutral

Cenovus Energy (TSX: CVE – Outperform) presented yesterday at the RBC Capital Markets Stampede Roundtable Event, with Jon McKenzie (President & CEO) and Pamela Bremer (Specialist, IR) in attendance. Highlights from the company’s roundtable session —which delved into its integrated model—are summarized below:

In one line: Cenovus’ integrated model should be on full display in the second half of 2023 with the ramp-up of the Toledo and Superior refineries, which should drive increased free cash flow and support the company’s path to its $4 billion net debt floor— unlocking 100% payout of excess free cash flow to shareholders.

• Full contribution in second half. Cenovus’ operating momentum should improve as all assets in both the upstream and downstream are expected to be running at full steam (with the exception of Terra Nova) through the second half of the year.

• Net debt floor timing. Cenovus anticipates reaching its ultimate net debt target of $4.0 billion around the end of 2023 depending on commodity prices, which would open the door to 100% allocation of excess quarterly free cash flow toward shareholder returns, with an accent on share buybacks.

• Toledo refinery. At Toledo (160,000 bbl/d), Cenovus’ ramp-up of the facility was substantially completed at the end of June and the facility is running well and according to plan.

• Superior refinery. Cenovus’ Superior refinery’s (49,000 bbl/d) restart has been somewhat challenging, although the company is now starting its last unit (catalytic cracker).

• Integrated model. With both the Toledo and Superior refineries ramping up, Cenovus highlighted its integrated model where its downstream processing capacity and substantial takeaway capacity in western Canada dampens exposure to the volatility of heavy oil pricing and egress shocks.

• M&A. Cenovus indicated it’s focused on regaining operating momentum with its existing assets and organic growth opportunities in the near term. Longer term, the company views itself as strategic and opportunistic in evaluating opportunities in their core portfolio (heavy oil, natural gas, refining).

• Wood River & Borger refineries. At Wood River (50% non-operated wi, 173,000 bbl/d net), the company is seeing normalized rates following unplanned downtime in the first quarter and planned maintenance activities completed in mid-May. At Borger (50% non-operated wi, 75,000 bbl/d net), Cenovus indicated that the facility has been running normally after unplanned downtime in the second quarter. There is planned maintenance in the US manufacturing segment in the second half of this year as previously disclosed.

• Implications of TMX. The Trans Mountain Pipeline Expansion (TMX)—which is slated to come in service in the first quarter of 2024—is expected to lead to more export optionality and more barrels headed for PADD V (and especially California). Cenovus expects this dynamic to drive tighter differentials in PADD II (Mid Continent) as they compete for heavy sour barrels. Please see our recent Energy Insights report Canada—The Coming of TMX for our outlook on Canada’s oil egress picture and impact on WCS-WTI differentials.

• Please see Highlights from the RBC Global Energy, Power & Infrastructure Conference for our latest on Cenovus.

  RBC Capital Markets is acting as financial advisor to Cenovus Energy in connection with the Warrant Repurchase Transactions with Hutchison Whampoa Europe Investments S.a r.l. (HWEI) and L.F. Investments S.a r.l. (LFI) as announced in the press on June 14th , 2023.