Currently have a $31.00 target. GLTA
Cenovus Energy Inc.
(CVE-T, CVE-N) C$21.97 | US$16.25
Beats vs. Low Expectations; March Investor Day Next on Docket
Event
Q4/23 results. Conference call at 11 a.m. ET (1-888-664-6383/webcast).
Impact: POSITIVE
Rounds out 2023 with FFOPS beat but vs. low baseline expectation;
production broadly in-line: FFOPS of $1.06/share was 5%/7% ahead of
consensus/TD estimates. Production of 809mboe/d (oil sands—613mbbl/d) was
in-line. The FFOPS beat vs. our estimate was driven by stronger-than-expected
conventional/offshore performance and lower-than-expected cash taxes and
G&A, partially offset by weaker-than-expected U.S. downstream results.
U.S. downstream EBITDA of -$430mm was materially below consensus/TD
estimates at -$188mm/-$148mm (note a material FIFO headwind) on U.S.
refinery utilization of 75% (TD est. 82%/consensus est. 84%). The Borger
(non-operated) and Lima refineries underwent planned maintenance, and
experienced unplanned outages in Q4/23. In December, CVE opportunistically
optimized throughput across its refining network in response to the weak margin
environment.
For Q1/24, CVE has 20-24mbbl/d of planned U.S. downstream maintenance
(not new). It should also benefit from a strong rebound in Chicago 3-2-1 refining
margins triggered by the bp Whiting refinery outage (now ~US$19/bbl vs. the
late-January low of only ~US$4/bbl).
$461mm in Q4/23 share buybacks (incl. warrants cancellations) drove 98%
return of excess FFF (vs. current 50% target): Share buybacks should remain
CVE's first-call on excess FFF to meet its capital return commitments and should
now accelerate given the full cancellation of warrants.
Exits quarter with ~$5.1bln ND (vs. $6.0bln exiting Q3/23); continues to
inch toward 100% return of excess FFF: Recall, once ND hits $4bln, 100% of
excess FFF will be returned to shareholders. On strip, we see CVE achieving this
milestone by YE2024 (vs. peer CNQ which is guiding to Q1/24). Note a $949mm
non-cash working capital draw in Q4/23.
YE2023 proved reserve life index of ~21 years: On a proved plus probable, this
jumps to ~31 years.
Setting expectations for CVE's March 5 Investor Day: We expect next month's
Investor Day to broadly reflect strategic consistency and potentially serve as
an opportunity to refocus investors on CVE's high-performing upstream assets
(overshadowed by the negative U.S. downstream narrative and return of capital
delays, in our view) and a sharp ramp-up in FCF generation once growth spending
winds down.