Cenovus Energy Inc.
(CVE-T, CVE-N) C$16.23 | US$12.83
Thoughtful Five-year Plan, Several Directional Positives Event
2022 budget and first five-year plan since Husky merger. Investor day at 10 a.m. ET (webcast).
Impact: SLIGHTLY POSITIVE
Stronger-than-expected 2022 outlook: 2022E production guidance of 800 mboe/ d is 3%/2% above consensus/TD estimates, while capex of $2.8bln (before Superior insurance recovery) is 2%/5% below consensus/TD estimates. Production guidance reflects ~15.3 mboe/d of divestitures in 2021.
2022E capex is up 12% y/y, primarily driven by deferred sustaining capex from 2020/2021 and major planned oil sands turnarounds. Its targeted $1.2bln/annum Husky synergies run-rate has been achieved, in line with its target (i.e., before YE2021).
Shareholder returns underway with future upside: CVE, with Q3/21 results, announced a dividend doubling and up to 146.5mm of opportunistic (i.e., not rateable) buybacks through YE2022 (note). By yesterday, it has already completed 7% of its NCIB (9.7mm shares or $154mm). At the current dividend and share price, we estimate a 2022E total cash return yield of 7% vs. its integrated peers at 8%-11%. We highlight that the remaining NCIB program, if fully executed (137mm shares), is more than enough to offset ConocoPhillips selling pressure (120mm shares remaining, note).
Five-year plan highlights sustained FCF growth, increasing shareholder returns, and improved ESG performance: CVE considers its 2022 budget and base dividends sustainable down to US$45/bbl WTI. This provides ample cushion vs. the current 2022 WTI strip of ~US$70/bbl. We therefore see significant deleveraging and shareholder returns upside should strip prices hold.
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CVE is guiding for up to 4x dividend growth over time, which would bring its dividend yield to 3.5% (assumes flat share price), in line with its peers at 2.4%-5.3%.
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It continues to guide to $2.4bln of sustaining capex and expects total capex to trend down to that level by 2025/2026.
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It is targeting a 5% absolute emissions reduction for 2022-2026, with a strong acceleration to a 35% targeted reduction for 2019-2035. Recall, the Oil Sands Pathways Alliance is targeting a 32% absolute reduction by 2030 (note).
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Other key ESG targets include: 1) a minimum $1.2bln investment in Indigenous businesses between 2019-2025; and 2) increasing women in leadership roles to 30% by 2030 (currently 18% at the executive level)