TDHave been tied up all morning so just logging on and a bit surprised to see us in the green. Will hunt down the RBC report. Meanwhile, TD currently has a $29.00 target. GLTA
Cenovus Energy Inc.
(CVE-T, CVE-N) C$23.81 | US$18.06
FFOPS Misses as Downstream and Offshore Weigh on Performance
Event
Q2/23 results. Call at 11 a.m. ET (1-888-664-6383/1-416-764-8650/webcast).
Impact: NEGATIVE
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FFOPS misses, production in-line: FFOPS of $0.96/share was 4%/6% below consensus/TD estimates, while production of 730mboe/d (572mbbl/d oil sands production) was in-line. The FFOPS miss vs. our estimate was primarily driven by much lower-than-expected U.S. downstream/offshore operating performance, partially offset by lower-than-expected cash taxes ($226mm vs. our estimated $353mm).
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U.S. downstream EBITDA of $27mm was below consensus/TD estimates at $160mm/$169mm. Results were negatively impacted by several factors including: 1) a ~$170mm FIFO headwind; 2) the phased restart of the Superior and Toledo refineries (increased crude purchases/opex with limited associated sales); and 3) the unplanned outage at the PSX-operated WRB JV (now fully restarted).
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Toledo is now fully operational, while CVE continues to progress the start-up of the FCC unit at Superior. On the conference call, we will be looking for more detailed commentary on the expected trajectory for Superior as it remains a key focus for investors from an execution perspective.
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$310mm in Q2/23 share buybacks drives 61% return of excess FFF (vs. 50% target): At the current share price, we expect opportunistic buybacks to remain the first call on FFF to meet its targeted return threshold, with variable dividends used for top-ups. Recall, CVE declared its first (and only to-date) variable dividend in Q3/22 (note).
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Exits quarter with $6.4bln ND (vs. $6.6bln exiting Q1/23) as a weak quarter weighed on deleveraging; inching towards 100% return of excess FFF: Recall, once ND hits $4bln, CVE has committed to moving to 100% of excess FFF to shareholders (we estimate Q1/24E on strip).
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Operationally noisy Q2/23 prompts several tweaks to 2023E upstream guidance (Exhibit 2): CVE's total production guidance was revised lower to 775-795mboe/d, from 790-810mboe/d previously (-2%). Conventional segment guidance was lowered by 8% to 115-130mboe/d following Q2/23 wildfire related impacts, while Lloydminster thermal guidance lowered by 5% to 100-110mbbl/d to reflect YTD performance.
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Recent CEO succession prompts several follow-on organizational changes: Notably, Kam Sandhar will become CFO (previously EVP Strategy & Corporate Development) while Keith Chaisson will assume the COO role (previously EVP Downstream).