BMO analyst updateStrong Q3/23 Results; Downstream Is Back
Bottom Line:
Cenovus posted third-quarter results that were above expectations as the oil sands and U.S. manufacturing segments outperformed. The company decreased its net debt to $5.98 billion, which was higher than consensus’ estimate of $5.53 billion due to a large working capital build. Downstream performance benefited from Toledo being fully back online and a $400 million FIFO gain, while Superior’s FCC came online subsequent to quarter-end. We maintain our Outperform rating and $33 target price.
Key Points
Consolidated results. Cenovus reported Q3/23 cash flow of $1.82/share (diluted), above our estimate of $1.60 and consensus of $1.64. Earnings of $0.98/share was generally in line with our and consensus’ estimate of $0.99. Capital expenditures were $1.03 billion compared to our estimate of $1.06 billion and consensus’ $1.10 billion. Net debt decreased by $391 million quarter over quarter to $5.98 billion, but still came in higher than consensus’ $5.53 billion estimate.
Upstream results beat. The upstream segment reported an operating margin of $3.45 billion, above our estimate of $3.20 billion and consensus of $3.13 billion. The oil sands segment primarily drove the beat, while the conventional segment fell short of expectations. Production of 797,000 boe/d was just ahead of our 794,336 boe/d estimate and consensus’ 790,000 boe/d. Sunrise volumes rose by 17% quarter over quarter as Cenovus completed the asset’s 2023 redevelopment program. Additionally, the Terra Nova FPSO is currently being commissioned with production expected to resume in Q4/23.
Downstream outperforms. The downstream segment reported an operating margin of $922 million, well above our estimate of $770 million and consensus of $774 million. Throughput averaged 664,000 b/d throughout the quarter, relative to our estimate of 674,685 b/d and consensus of 668,000 b/d. The beat was primarily driven by strongerthan-expected refining margins at the company’s U.S. manufacturing operations as it benefited from a $400 million FIFO gain. The company noted that operating performance at Toledo was strong following its Q2/23 restart and Superior’s fluid catalytic cracking unit started up in October.
Free cash flow and returns. Cenovus generated free cash flow of $2.42 billion with excess funds flow coming in at $1.99 billion. The company reduced its warrant payment obligation by $600 million and bought back $361 million worth of shares.