Cenovus Energy Inc T.CVE.WT

RBC

[retiredcf]

December 6, 2022

Cenovus Energy Inc. 2023 Budget—Looks Good to Us

TSX: CVE | CAD 26.08 | Outperform | Price Target CAD 32.00

Sentiment: Neutral

Cenovus released its 2023 budget which pointed towards in-line upstream mid-point production of 820,000 boe/d and 7% higher capital spending of $4.25 billion (both vs. Bloomberg consensus).

2023 Budget:

$4.25 billion 0% $0.0 billion $3.96 billion 7% $0.3 billion

• Capital expenditures of $4.0-$4.5 billion includes sustaining capital of approximately $2.8 billion, reflecting the increase to 100% working interest in Sunrise oil sands for the full year, the planned restart of the Superior Refinery (expected to ramp up in the first-quarter of 2023) and the assumed Toledo acquisition and restart, as well as the impact of inflation across the company’s portfolio.

• Cenovus expects to invest between $1.2-$1.7 billion in optimization and growth capital in 2023, including construction of the West White Rose project and progressing the Narrows Lake tie-back to Christina Lake in the upstream.

• In the downstream, the company has identified several margin expansion and debottlenecking opportunities, which include feedstock replacement at the Lloydminster Refinery as part of the company’s Rewire Alberta initiative and increasing heavy conversion capacity and distillate output at the Wood River (50% wi) and Borger (50% wi) refineries. These initiatives should help to balance the company’s exposure to light-heavy oil differentials as crude production grows over time.

• Cenovus now expects its assumed acquisition of the outstanding 50% interest in the Toledo refinery to close by the end of the first-quarter of 2023.

• Oil sands mid-point 2023 production guidance of 612,000 bbl/d includes mid-point Christina Lake production of 245,000 bbl/ d and Foster Creek mid-point production of 190,000 bbl/d. Elsewhere, the company is guiding towards Sunrise mid-point production of 47,500 bbl/d, Lloydminster thermal mid-point production of 110,000 bbl/d, and Lloydminster conventional heavy oil mid-point production of 19,500 bbl/d.

• At Sunrise, Cenovus expects to increase production above its nameplate capacity of 60,000 bbl/d within the next two to three years.

• In the downstream, Canadian & US Manufacturing throughput in 2023 is expected to be between 610,000-660,000 bbl/d, including mid-point throughout of 105,000 bbl/d in the Canadian segment and 530,000 bbl/d in the US segment.

• The company’s crude oil throughput is expected to increase 28% from 2022 with the restart of the Superior Refinery and the closing of the additional 50% interest in the Toledo Refinery.

• Cenovus expects cash taxes of between $1.5-$1.8 billion in 2023 (under a WTI outlook of US$77.00) (vs. RBC at $2.8 billion under a US$91.25 WTI price).

• Cenovus expects to be well on its way to reaching its $4 billion net debt floor around year-end 2022, which should open the door to 100% of excess free funds flow to shareholder returns.