Cenovus Energy Inc T.CVE

RBC

[retiredcf]

February 15, 2024

Cenovus Energy Inc.
4Q First Glance—Deleveraging Progress

TSX: CVE | CAD 21.97 | Outperform | Price Target CAD 28.00

Sentiment: Neutral

Cenovus Energy made further progress on its balance sheet deleveraging journey during the fourth-quarter amid mixed results. The company’s AFFO/share was favorably impacted by lower cash taxes, while its largely in-line upstream production of 808,600 boe/d (vs. Street consensus) reflects improved operating momentum. Cenovus’ net debt (company definition) stood at $5.06 billion as of December 31 (lower than our $5.2 billion estimate) amid a draw in working capital.

Conference Call

• Time: 11:00 am ET on Thursday, February 15 • Dial-In: [phone]

Key Points

• Cenovus generated $892 million of free funds flow (before dividends) in the quarter with its net debt (company definition) down around $916 million to $5.06 billion (vs. RBC at $5.20 billion) as of December 31 in part due to a working capital draw of about $877 million (vs. RBC at $750 million).

• Christina Lake production came in at 239,600 bbl/d (in-line with RBC at 241,900 bbl/d), while Foster Creek production came in at 198,800 bbl/d (largely in-line with RBC at 197,000 bbl/d).

• Sunrise production volumes were 50,100 bbl/d in the fourth-quarter (vs. RBC at 49,600 bbl/d) as the asset continues along its redevelopment plan.

• Refining margin (US + Canadian manufacturing) of -$304 million (including $430 million of FIFO losses and a non-cash write- down of refined product and crude oil inventory vs. RBC at $400 million), came in well below our $84 million estimate.

• Cenovus reported a cash tax expense of $65 million in the fourth-quarter, well below the $320 million factored into our estimates ($0.14 per share impact).

• Cenovus returned $731 million of capital to shareholders in the fourth-quarter, inclusive of the final payment of the common share warrants obligation.

Downstream Update

• Cenovus’ fourth-quarter Canadian refining segment throughput of 100,300 bbl/d (3% below RBC at 102,900 bbl/d) was impacted by an unplanned outage at the Lloydminster Upgrader in October, which returned to full rates in November.

• The company’s US refining segment throughput of 478,800 bbl/d (8% below RBC at 519,000 bbl/d) was impacted by planned turnaround activity at the non-operated Borger refinery (50% wi) and an unplanned outage delaying the start-up of the refinery following turnaround activities. The company’s Lima (100% wi) also underwent planned maintenance in the fourth-quarter, with a temporary unplanned outage occurring.

Reserves

• As at year-end, Cenovus’ total proved (1P) and proved + probable (2P) reserves were approximately 5.9 billion boe and 8.7 billion boe respectively, relatively unchanged compared to the prior year.

• The company’s 1P and 2P bitumen reserves were about 5.4 billion bbl and 7.9 billion bbl respectively, also relatively unchanged compared to the prior year.

• At year-end 2023, Cenovus pegs its 1P reserve life index (RLI) at approximately 21 years, with a 2P RLI of circa 31 years.