Cenovus Energy Inc T.CVE.PR.E

RBC

[retiredcf]

October 31, 2024

Cenovus Energy Inc.
3Q First Glance—Solid Upstream, Less-so in Downstream

TSX: CVE | CAD 23.18 | Outperform | Price Target CAD 29.00

Sentiment: Neutral

Cenovus Energy announced mixed third-quarter results punctuated by 2% higher production, 5% lower AFFO/share and 3% higher capital spending vis-a-vis Street consensus. The culprit—again—looks like a weaker US Refining segment.

Conference Call

• Time: 10:00am ET, Thursday, October 31 • Dial-In: [phone]

Key Points

• Cenovus generated $614 million of free funds flow (before dividends) in the quarter with its net debt (company definition) remaining largely flat at $4.20 billion, inclusive of a $607 million working capital tailwind (vs. RBC at $4.57 billion excluding working capital movements). This would imply a reduction in shareholder returns of about $200 million in the fourth quarter as per the company’s formulaic shareholder return framework.

• Christina Lake production came in at 211,800 bbl/d (7% above RBC at 197,900 bbl/d), with its planned turnaround completed well ahead of schedule—resulting in production exceeding company forecasts by 15,000-20,000 bbl/d.

• Cenovus’ Narrows Lake tie-back projects is now 93% constructed and on track for first production in mid-2025.

• Foster Creek production came in at 198,000 bbl/d (in line with RBC at 198,000 bbl/d). The optimization project remains on schedule for startup in mid-2026.

• Sunrise production volumes were 50,400 bbl/d in the third quarter (2% above RBC at 49,500 bbl/d). The company brought two new well pads online in the third quarter which will continue to ramp up into the fourth quarter.

• At West White Rose, planned maintenance work on the SeaRose FPSO was completed at the dry dock in Belfast with the vessel now returning to the White Rose field. The West White Rose project is now about 85% complete.

• Refining margin (US + Canadian manufacturing) of -$323 million (including a -$209 million of FIFO losses in the US refining segment vs. RBC with a -$225 million FIFO inventory adjustment), came in lower than our -$202 million estimate. US refining margins were negatively impacted by about $100 million of turnaround expenses and improvement projects related to the Lima turnaround.

• Cenovus reported a cash tax expense of $250 million in the third quarter, above the $191 million factored into our estimates ($0.03 per share impact).

• Cenovus returned $1.1 billion of capital to shareholders in the third quarter, including $732 million of share repurchases and  $329 of base dividends.

  Downstream Update

  • Cenovus’ third-quarter Canadian refining segment total processed inputs of 106,400 bbl/d was 4% above RBC at 102,600 bbl/d.

  • The company’s US refining segment total processed inputs of 568,000 bbl/d (29% above RBC at 439,800 bbl/d) reflected major planned maintenance activities at the Lima Refinery which commenced in September.

  • Cenovus highlighted that market capture in the US was lower than the previous quarter due to inventory timing impacts, the Lima Refinery turnaround, and unplanned outages in secondary units at the operated and non-operating refineries.

  • Subsequent to quarter-end, the turnaround at Lima was successfully completed in October.