The Successful Investor We love Cenovus Energy’s prospects
Cenovus Energy is expanding its production and refining capacity as it focuses on cost-efficient management. We like its prospects for share price appreciation and it should be on your buying list as a top oil & gas pick.
The oil and gas producer has a strong track record of managing costs and generating cash flow while the stock trades at just 8.2 times the company’s 2023 earnings forecast.
CENOVUS ENERGY INC. (Toronto symbol CVE) is an integrated energy company with oilsands, conventional oil and natural gas production operations in Canada and the Asia Pacific region. It also owns upgrading, refining and marketing operations in Canada and the United States. The company is focused on managing its assets in a safe, innovative and cost-efficient manner, integrating environmental, social and governance considerations into its business plans.
The company completed its acquisition of rival oil producer Husky Energy Inc. in a friendly all-stock takeover on January 1, 2021. The combined firm is now Canada’s third-largest producer of oil and natural gas, and the country’s second-largest refiner.
Cenovus Energy Inc. has seen a surge in financial performance and share price due to booming oil prices in the first nine months of 2022, with operating cash flow increasing to $8.43 billion.
The company plans to invest between $4.0 billion and $4.5 billion in 2023, including about $2.8 billion of sustaining capital to maintain base production and support continued safe and reliable operations. A range of $1.2 billion to $1.7 billion will be directed towards optimization and growth, including construction of the West White Rose project in Atlantic Canada, continued optimization of Cenovus’s oil sands assets and opportunities in the downstream business to improve reliability and increase margin capture.
Energy Stocks: Restored Refinery Capacity Should Help Boost Cash Flow For Cenovus Energy
Cenovus was forced to curtail operations at its refineries in December 2022 due to a colder-than-normal winter and storms.
As a result, output at its Canadian refineries fell to between 90,000 and 95,000 barrels a day in the fourth quarter of 2022 from 98,500 barrels in the third quarter. Production at the U.S. refineries also dropped, likely to between 370,000 and 380,000 barrels a day from 435,000 barrels. However, Cenovus expects these facilities to regain full capacity by the end of the first quarter of 2023.
The company has now completed its purchase of the 50% of the oil refinery in Toledo, Ohio, that it doesn’t already own from U.K.-based oil giant BP plc (New York symbol BP). The facility, which opened in 1919, supplies the U.S. Midwest with gasoline and diesel fuels.
Cenovus paid $370 million U.S. for this additional interest. To put that price in context, its cash flow was $2.35 billion (Canadian), or $1.19 a share, in the fourth quarter of 2022.
The Toledo refinery had to shut down in September 2022 due to an explosion and fire. However, Cenovus expects the facility will return to full capacity in the second quarter of 2023. That will increase its refining capacity by 80,000 barrels a day to about 740,000 barrels.
The company has a strong track record of managing costs and generating cash flow, which makes it an attractive option for investors seeking exposure to the oil and gas industry.
Recommendation in The Successful Investor: Cenovus Energy Inc. is a buy.