Q3/24 CONFERENCE CALL HIGHLIGHTS AND UPDATED ESTIMATES
THE TD COWEN INSIGHT
Q3/24 CC Q&A largely focused on 1) CVE's U.S. downstream ops where initiatives to improve operating reliability and margin capture were highlighted, and 2) de-risking of the growth profile. However, there remains an element of 'wait-and-see' for many investors given numerous, recent challenges. Updated financial estimates within, takeaways below, and initial Q3 thoughts here.
Impact: NEUTRAL
Downstream reliability enhancement opportunities remain front-and-center, but investors now need results: CVE reiterated that its refineries are core to its integrated value chain since: 1) they're pipeline connected to Western Canada, and 2) they insulate against future heavy differential volatility (although largely mitigated over the mid-term through TMX).
Through enhanced reliability, CVE believes it should achieve more predictable capture rates on benchmark cracks, and lower opex, thereby increasing margins. We continue to believe it will take several consecutive quarters of positive U.S. downstream EBITDA generation for investors to begin to ascribe meaningful value to this business segment, and be convinced that downstream is a net contributor to stability in corporate EBITDA.
$250mm of pref shares to hit rate reset on Dec. 31: Management highlighted that it will assess numerous metrics and prevailing market conditions in deciding whether to continue to hold, or pay out, prefs inherited from HSE in 2021. If CVE elects to take them out, it would typically be done at par with 30-days notice provided.
Evaluating opportunities to move more refined product out of PADD 2 and into Canadian/ PADD 1 (East Coast) markets: CVE expects to begin shipping refined product east by late-2025 following the flow reversal of a regional products pipeline. It also highlighted a unique opportunity to load refined product onto barges at its Toledo refinery.