RBC global energy best ideas list. Cenovus and RD Shell
Cenovus Energy (CVE) Greg Pardy, Head of Global Energy Research
Integration On-track. The company’s merger with Husky Energy was strategically sound in our eyes fusing Husky’s diverse upstream/mid-stream/downstream operations with Cenovus’ bitumen-weighted upstream portfolio. Under one roof, Cenovus-Husky has become a more balanced integrated oil company with increased cash flow diversification. Our bullish stance towards Cenovus reflects its strong leadership and favorable rate of operational/financial improvement which is already underway.
Net Debt in Focus. Cenovus remains laser focused on reducing its net debt to its interim target of $10 billion – which it anticipates sometime in the fourth-quarter – and ultimate goal of under $8 billion. Achievement of Cenovus’ interim debt target opens the door to incremental flexibility and shareholder returns. This could include a normal course issuer bid that would address Conoco’s initiatives to reduce its stake via open market selling—and occur alongside release of the company’s third-quarter results in November.
Non-Core Dispositions – Potential Tailwind. Non-core asset dispositions could also accelerate the pace at which Cenovus’ balance sheet deleverages and were explored in our recent The Coming Yard Sale report. The company affirmed that it has several non-core disposition processes underway which are expected to yield hundreds of millions of proceeds in 2021.