Cenovus Energy Inc T.CVE

RBC

[retiredcf]

November 2, 2023

Cenovus Energy Inc.
3Q First Glance— US Downstream Steps Up

TSX: CVE | CAD 26.36 | Outperform | Price Target CAD 30.00

Sentiment: Neutral

Cenovus Energy’s robust third-quarter results reinforce our confidence in its integrated model and cash flow/free cash flow generation. The company reported 11% higher AFFO/share amid lower capital spending and in-line production volumes vs. Street consensus. Cenovus’ net debt (company definition) stood at $5.98 billion as of September 30—a touch higher than our $5.52 billion estimate amid working capital movements.

Conference Call

• Time: 10:00 am ET on Thursday, November 2 • Dial-In: [phone]

Key Points

• Cenovus generated $2.42 billion of free funds flow (before dividends) in the quarter with its net debt (company definition) down around $391 million to $5.98 billion (vs. RBC at $5.52 billion, before working capital movements) as of September 30. The company pointed toward a working capital build in the third-quarter.

• Christina Lake production came in at 237,600 bbl/d (in-line with RBC at 236,600 bbl/d), while Foster Creek production came in at 189,300 bbl/d (ahead of RBC at 185,000 bbl/d).

• Sunrise production volumes were 54,500 bbl/d in the third-quarter (vs. RBC at 52,000 bbl/d), rising 17% sequentially as Cenovus completed its 2023 redevelopment plan.

• Refining margin (US + Canadian manufacturing) of $922 million (including $400 million related to processing crude purchased in prior periods at lower prices vs. RBC at $75 million), came in above our $815 million estimate. This included Canadian manufacturing margins of $170 million in the third-quarter and $752 million in the US Manufacturing segment, reflective of the ramp up of the Toledo refinery.

• Cenovus reported a cash tax expense of $563 million in the third-quarter, slightly above the $546 million factored into our estimate ($0.01 per share impact).

• Offshore volumes were 66,400 boe/d in the third-quarter, with the company highlighting in Indonesia it achieved first gas production from the MAC field in September.

• At Terra Nova (34% wi), Cenovus stated the FPSO vessel returned to offshore Newfoundland & Labrador and commissioning activities are ongoing, with production expected to resume in the fourth-quarter.

  Downstream Update

  • Cenovus has planned maintenance in its US Manufacturing segment in the fourth-quarter of 2023 which should impact quarterly throughput by 55,000-65,000 bbl/d.

  • Cenovus’ Superior refinery achieved a full and stable start-up of its fluid catalytic cracking unit in early-October, following operating challenges in the second-quarter.

  • At Toledo, the refinery performed well following its restart in the second-quarter (90% utilization). 
  
  Guidance Update

  • Based on what we see, there is no change to Cenovus’ 2023 guidance.