Cenovus Energy Inc.
(CVE-T, CVE-N) C$27.93 | US$20.51
Q3/22 Conference Call Highlights and Updated Estimates
Event
Updated estimates following Q3/22 call (highlights below). Initial thoughts here.
Impact: NEUTRAL
Fast approaching $4bln net debt target, boosting shareholder returns:
Management expects to hits its $4bln net debt target by year-end (we model H1/23), at which point shareholder returns will increase to 100% of excess FFF. CVE intends to continue to opportunistically execute on its NCIB program, with a preference towards buybacks over variable dividends when its share price dips below its internal estimate of intrinsic value.
Maintenance capex could increase by 17% in 2023: CVE now forecasts maintenance capex in the $2.7-$2.9bln range in 2023+ (vs. $2.4bln at the time of the HSE transaction) after factoring in inflation and consolidating acquisitions (Sunrise/ Toledo). We model total 2023E capex of $3.9bln (consensus $4.0bln), pending formal guidance later this year.
Superior on track for Q1/23 restart: Activity at Superior has shifted from construction to commissioning as inventory is now being built up ahead of restart in Q1/23. Q4/22 U.S. downstream opex is expected to be above guidance due to Toledo remaining offline (timing of restart TBD) and costs being incurred at Superior absent throughput volumes.
Sunrise now the focus of upstream optimization: With Spruce Lake North now online and producing above nameplate capacity of 10 mbbl/d, we expect upstream asset optimization efforts to shift to Sunrise (81% trailing six-month utilization). CVE acquired the remaining 50% W.I. from BP in Q3/22 (note) and plans to drill three new well pads over the next 24-months (first since 2017).
Additional steps required for Canada to become globally competitive on CCUS: Management expects government discussions to extend into 2023, and highlighted the need for support on both capital and operating costs.
TD Investment Conclusion
The fundamental outlook for CVE remains positive. The HSE merger added significant downstream integration and stability to the business model, while increased scale ensures market relevance. It should also enjoy significant CF tailwinds in 2023 with COP contingent payments and its hedging program having wound down. Transitioning to a 100% return of FFF, from 50% currently, also puts CVE on a very competitive footing, in our view.