CALGARY, Alberta, June 20, 2017 (GLOBE NEWSWIRE) -- Cenovus Energy Inc. (TSX:CVE) (NYSE:CVE) today put forward a
five-year plan that the company expects will generate 14% annualized free funds flow growth through 2021 at a West Texas
Intermediate (WTI) price of US$55 per barrel (bbl) while increasing production at a 6% compound annual growth rate and reducing its
debt. The plan entails disciplined capital investment to maintain the company’s current oil sands production and add barrels from
expansion phase G at Christina Lake as well as grow volumes at its newly acquired Deep Basin assets. As part of its continued
commitment to cost leadership, Cenovus also plans to achieve an additional $1 billion of cumulative capital, operating and general
and administrative cost reductions over the next three years.
Photos accompanying this announcement are available at
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Cenovus is progressing its plan to divest non-core assets and is targeting between $4 billion and $5 billion in announced sales
agreements by the end of the year, which is expected to more than satisfy the $3.6 billion asset sale bridge facility used to help
fund the acquisition from ConocoPhillips. The company is now targeting to reach divestiture agreements by the end of 2017 for its
entire legacy conventional portfolio. The divestiture processes for the Pelican Lake and Suffield assets are already well underway,
and the company is now in the process of preparing data rooms for its Palliser asset in southern Alberta and its Weyburn
CO2 enhanced oil operation in southern Saskatchewan. Combined, all of these assets are expected to produce approximately
112,000 barrels of oil equivalent per day (BOE/d) in 2017.
“We’ve had significant interest in our assets by a variety of potential purchasers and we’re confident we can achieve our
divestiture target,” said Brian Ferguson, Cenovus President & Chief Executive Officer. “Reducing our debt position is our number
one priority and we remain committed to strengthening our balance sheet and maintaining investment grade credit ratings. By taking
these actions, we believe we’re poised to deliver significant value to shareholders over the coming years.”
Cenovus is focused on returning to its target of being below two times net debt to adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA) in 2019. Once the targeted asset divestitures are complete and the company has made
substantial progress on its deleveraging plan, it will consider options to increase returns to shareholders, including potential
dividend growth and share repurchases.
The integration of Cenovus’s newly acquired short-cycle, high-return-potential Deep Basin assets in Alberta and British Columbia
is proceeding well. The company plans to double production from those assets to an average of 240,000 BOE/d in 2021 and has
identified approximately 1,500 net drilling opportunities in the Deep Basin that have the potential to generate strong returns.
Cenovus expects to increase production at its best-in-class oil sands operations to more than 440,000 barrels per day (bbls/d) over
the next five years, including the addition of 50,000 bbls/d of production capacity at Christina Lake phase G, which is expected to
start producing in 2019. The company also has the option to add an additional 40,000 bbls/d of capacity at Foster Creek and 65,000
bbls/d through its proposed Narrows Lake phase A project. Decisions about those expansions will be considered once Cenovus’s
planned asset sales are complete and the balance sheet is deleveraged.
“We’re now a larger, stronger and more resilient company with a track record of execution that positions us well to provide
sustainable returns-focused growth and withstand commodity price volatility,” Ferguson said. “We remain committed to cost and
margin leadership and capital discipline to help generate free funds flow growth. Our estimated corporate break-even price now sits
at US$41 WTI a barrel and we will continue our drive to reduce costs further by leveraging our added size and scale as well as
through the advancement of technologies and enhancement of our base business.”
Cenovus plans to undertake a more robust approach to its hedging strategy in the near-term to help maintain financial resilience
while the asset sale process is underway. While the underlying strategy of using hedging to help manage targeted cash outflows
remains unchanged, the company now has approval from its Board of Directors to hedge up to 75% of forecast crude oil volumes this
year and in 2018. This is up from 50% prior to the acquisition. As of June 15, 2017, the company had hedges in place on
approximately 143,000 bbls/d of crude oil for the remainder of this year at an average floor price of about US$51.50/bbl and 50,000
bbls/d of crude oil hedged for the first half of 2018 with an average floor price of approximately US$49.70/bbl.
The company completed its acquisition of assets in Alberta and British Columbia from ConocoPhillips on May 17,
2017. The transaction included ConocoPhillips’ 50% interest in the FCCL Partnership, which was the companies’ jointly owned oil
sands venture, as well as the Deep Basin assets and doubled Cenovus’s current crude oil and natural gas production and reserves
base.
Cenovus has updated its 2017 full-year guidance to reflect the company’s outlook for the remainder of the year following the
completion of the acquisition as well as the projected impact of planned asset divestitures. Updated guidance can be found at
cenovus.com under “Invest in us”.
2017 Investor Day webcast
8 a.m. Eastern Time (6 a.m. Mountain Time)
A live audio webcast of today's Investor Day presentation will begin at 8 a.m. ET (6 a.m. MT) via cenovus.com or the following URL: http://webcast.fmav.ca/CenovusJune2017/ The webcast will be archived for approximately 90
days at cenovus.com.
ADVISORY
Barrels of Oil Equivalent. Natural gas volumes have been converted to barrels of oil equivalent (BOE) on
the basis of six thousand cubic feet (Mcf) to one barrel (bbl). BOE may be misleading, particularly if used in isolation. A
conversion ratio of one bbl to six Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip
and does not represent value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil
compared with natural gas is significantly different from the energy equivalency conversion ratio of 6:1, utilizing a conversion on
a 6:1 basis is not an accurate reflection of value.
Production Presentation Basis. Cenovus presents production volumes on a net to Cenovus before royalties
basis, unless otherwise stated.
Drilling Locations and Opportunities. This news release discloses potential future drilling locations in
two categories: (a) proved locations and (b) probable locations. This news release also discloses additional un-booked future
drilling opportunities. Proved locations and probable locations are proposed drilling locations identified in reserve reports
prepared for assets acquired pursuant to the acquisition from ConocoPhillips that have proved and/or probable reserves, as
applicable, attributed to them in such reports. Un-booked future drilling opportunities are internal Cenovus estimates based on
prospective acreage and an assumption as to the number of wells that can be drilled per section based on industry practice and
internal Cenovus technical analysis and review. Un-booked future drilling opportunities have been identified by Cenovus management
based on evaluation of applicable geologic, seismic, engineering, production and reserves information. Un-booked future drilling
opportunities do not have proved or probable reserves attributed to them in the relevant reserves reports. Of the approximately
1,500 identified drilling opportunities within the Deep Basin, 212 are proved locations, 221 are probable locations and the
remainder are un-booked future drilling opportunities.
Cenovus’s ability to drill and develop these locations and opportunities and the drilling locations on which Cenovus actually
drills wells depend on a number of uncertainties and factors, including, but not limited to, the availability of capital, equipment
and personnel, oil and natural gas prices, capital and operating costs, inclement weather, seasonal restrictions, drilling results,
additional geological, geophysical and reservoir information that is obtained, production rate recovery, gathering system and
transportation constraints, net price received for commodities produced, regulatory approvals and regulatory changes. As a result
of these uncertainties, there can be no assurance that the potential future drilling locations and opportunities Cenovus has
identified will ever be drilled or if Cenovus will be able to produce oil, natural gas liquids (NGLs) or natural gas from these or
any other potential drilling locations or opportunities. As such, Cenovus’s actual drilling activities may differ materially from
those presently identified, which could adversely affect Cenovus’s business. While certain of the identified un-booked drilling
opportunities have been de-risked by drilling existing wells in relatively close proximity to such un-booked drilling
opportunities, some of the other un-booked drilling opportunities are farther away from existing wells where Cenovus management has
less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled
and, if drilled, there is further uncertainty that such wells will result in additional proved or probable reserves or
production.
Non-GAAP Measures and Additional Subtotal. The following measures do not have a standardized meaning as
prescribed by IFRS and therefore are considered non-GAAP measures. You should not consider these measures in isolation or as a
substitute for analysis of our results as reported under IFRS. These measures are defined differently by different companies in our
industry. These measures may not be comparable to similar measures presented by other issuers.
Free Funds Flow is a non-GAAP measure defined as Adjusted Funds Flow less capital investment. Adjusted Funds Flow is used in the
oil and gas industry to assist in measuring a company’s ability to finance its capital programs and meet its financial obligations.
Adjusted Funds Flow is defined as Cash From Operating Activities excluding net change in other assets and liabilities and net
change in non-cash working capital. Net change in other assets and liabilities is composed of site restoration costs and pension
funding. Non-cash working capital is composed of current assets and current liabilities, excluding cash and cash equivalents and
risk management.
Net debt to adjusted EBITDA is a ratio that management uses to steward the company’s overall debt position as a measure of the
company’s overall financial strength. Debt is defined as short-term borrowings and long-term debt, including the current portion.
Net debt is defined as debt net of cash and cash equivalents. Adjusted EBITDA is defined as earnings before finance costs, interest
income, income tax expense, depreciation, depletion and amortization, goodwill and asset impairments, unrealized gains or losses on
risk management, foreign exchange gains or losses, gains or losses on divestiture of assets and other income and loss, calculated
on a trailing 12-month basis.
Forward-Looking Information. This news release contains certain forward-looking statements and
forward-looking information (collectively referred to as “forward-looking information”) within the meaning of applicable securities
legislation, including the United States Private Securities Litigation Reform Act of 1995, about our current expectations,
estimates and projections about the future, based on certain assumptions made by us in light of our experience and perception of
historical trends. Although we believe that the expectations represented by such forward-looking information are reasonable, there
can be no assurance that such expectations will prove to be correct.
Forward-looking information in this news release is identified by words such as “anticipate”, “believe”, “expect”, “estimate”,
“plan”, “forecast”, “future”, “target”, “position”, “project”, “committed”, “can be”, “poised”, “pursue”, “capacity”, “could”,
“confident”, “should”, “focus”, “on track”, “outlook”, “potential”, “priority”, “may”, “strategy”, “forward”, “will” or similar
expressions and includes suggestions of future outcomes, including statements about: our strategy, business plans and related
milestones and schedules, including expected timing for oil sands expansion phases and associated expected production capacities;
projections for 2017 and future years and our plans and strategies to realize such projections; our future development
opportunities; forecast operating and financial results; targets for our net debt to adjusted EBITDA ratios; planned capital
expenditures, including the amount, timing and financing thereof; expected future production, including the timing, stability or
growth thereof; project capacities; our ability to preserve our financial resilience and various plans and strategies with respect
thereto; forecast cost savings and sustainability thereof; potential for development of emerging assets; expected ability for free
funds flow generation; potential drilling opportunities; potential impacts of our hedging program; anticipated use of proceeds of
planned asset sales; anticipated impacts to Cenovus of the acquisition from ConocoPhillips; availability and repayment of the
existing credit facility and the Bridge Facility; Cenovus's ability to successfully complete planned asset sales, including with
desired transaction metrics and on targeted timelines; future access to and implementation of technology and their potential
impacts on performance; potential for growth and value creation; and projected shareholder return. Readers are cautioned not to
place undue reliance on forward-looking information as our actual results may differ materially from those expressed or
implied.
Developing forward-looking information involves reliance on a number of assumptions and consideration of certain risks and
uncertainties, some of which are specific to Cenovus and others that apply to the industry generally. The factors or assumptions on
which the forward-looking information is based include: forecast oil and natural gas prices and other assumptions inherent in
Cenovus’s 2017 guidance, available at cenovus.com; our projected capital investment levels, the flexibility of our capital spending
plans and the associated source of funding; the achievement of further cost reductions and sustainability thereof; expected
condensate prices; estimates of quantities of oil, bitumen, natural gas and liquids from properties and other sources not currently
classified as proved; future use and development of technology; Cenovus's ability to obtain necessary regulatory and partner
approvals; the successful and timely implementation of capital projects or stages thereof; our ability to generate sufficient funds
flow to meet our current and future obligations; estimated abandonment and reclamation costs, including associated levies and
regulations; Cenovus's ability to successfully integrate the Deep Basin assets; Cenovus's ability to obtain and retain qualified
staff and equipment in a timely and cost-efficient manner; Cenovus's ability to access sufficient capital to pursue its development
plans; Cenovus's ability to successfully complete planned asset sales, including with desired transaction metrics and on targeted
timelines; anticipated impacts of the acquisition from ConocoPhillips and related financing; forecast crude oil and natural gas
prices, forecast inflation and other assumptions inherent in Cenovus's current guidance set out below; Cenovus's projected capital
investment levels, the flexibility of capital spending plans and the associated sources of funding; sustainability of achieved cost
reductions, achievement of future cost reductions and sustainability thereof; expected condensate prices; estimates of quantities
of oil, bitumen, natural gas and NGLs from properties and other sources not currently classified as proved; future use and
development of technology; Cenovus's ability to access and implement all technology necessary to efficiently and effectively
operate Cenovus's assets (including, but not limited to, the acquired assets) and achieve and sustain cost reductions; Cenovus's
ability to implement capital projects or stages thereof in a successful and timely manner; Cenovus's ability to generate sufficient
cash flow to meet its current and future obligations; and other risks and uncertainties described from time to time in the filings
we make with securities regulatory authorities.
2017 guidance, as updated on June 20, 2017, assumes: Brent prices of US$53.30/bbl, WTI prices of US$50.65/bbl; Western Canadian
Select (WCS) of US$37.55/bbl; NYMEX natural gas prices of US$3.35/MMBtu; AECO natural gas prices of $3.00/GJ; Chicago 3-2-1 crack
spread of US$12.50/bbl; and an exchange rate of $0.74 US$/C$.
Unless otherwise specifically stated or the context dictates otherwise, the financial outlook and forward-looking metrics in
this news release, in addition to the generally applicable assumptions described above, do not include or account for the effects
or impacts of planned asset sales.
The risk factors and uncertainties that could cause Cenovus's actual results to differ materially, include: possible failure to
successfully complete planned asset sales, including with desired transaction metrics and on targeted timelines; possible failure
to realize the anticipated benefits of and synergies from the acquisition; possible failure to access or implement some or all of
the technology necessary to efficiently and effectively operate our assets (including, but not limited to, the acquired assets) and
achieve and sustain future cost reductions; volatility of and other assumptions regarding commodity prices; the effectiveness of
Cenovus's risk management program, including the impact of derivative financial instruments, the success of its hedging strategies
and the sufficiency of its liquidity position; the accuracy of cost estimates; commodity prices, currency and interest rates;
possible lack of alignment of realized WCS prices and WCS prices as calculated under the contingent payment arrangement between
Cenovus and a subsidiary of ConocoPhillips following closing of the acquisition; product supply and demand; market competition,
including from alternative energy sources; risks inherent in Cenovus's marketing operations, including credit risks; exposure to
counterparties and partners, including ability and willingness of such parties to satisfy contractual obligations in a timely
manner; risks inherent in the operation of Cenovus's crude-by-rail terminal, including health, safety and environmental risks;
maintaining desirable ratios of Debt (and Net Debt) to Adjusted EBITDA as well as Debt (and Net Debt) to Capitalization; ability to
access various sources of debt and equity capital, generally, and on terms acceptable to Cenovus; ability to finance growth and
sustaining capital expenditures; changes in credit ratings applicable to Cenovus or any of its securities; changes to dividend
plans or strategy, including the dividend reinvestment plan; accuracy of reserves, resources, future production and future net
revenue estimates; ability to replace and expand oil and gas reserves; ability to maintain relationships with Cenovus's partners
and to successfully manage and operate its integrated business; reliability of assets including in order to meet production
targets; potential disruption or unexpected technical difficulties in developing new products and manufacturing processes; the
occurrence of unexpected events such as fires, severe weather conditions, explosions, blow-outs, equipment failures, transportation
incidents and other accidents or similar events; refining and marketing margins; inflationary pressures on operating costs,
including labour, natural gas and other energy sources used in oil sands processes; potential failure of products to achieve or
maintain acceptance in the market; risks associated with fossil fuel industry reputation; unexpected cost increases or technical
difficulties in constructing or modifying manufacturing or refining facilities; unexpected difficulties in producing, transporting
or refining of crude oil into petroleum and chemical products; risks associated with technology and its application to Cenovus's
business; risks associated with climate change; the timing and the costs of well and pipeline construction; ability to secure
adequate and cost-effective product transportation including sufficient pipeline, crude-by-rail, marine or alternate
transportation, including to address any gaps caused by constraints in the pipeline system; availability of, and our ability to
attract and retain, critical talent; possible failure to obtain and retain qualified staff and equipment in a timely and
cost-efficient manner; changes in labour relationships; changes in the regulatory framework in any of the locations in which
Cenovus operates, including changes to the regulatory approval process and land-use designations, royalty, tax, environmental,
greenhouse gas, carbon, climate change and other laws or regulations, or changes to the interpretation of such laws and
regulations, as adopted or proposed, the impact thereof and the costs associated with compliance; the expected impact and timing of
various accounting pronouncements, rule changes and standards on Cenovus's business, its financial results and its consolidated
financial statements; changes in general economic, market and business conditions; the political and economic conditions in the
countries in which we operate or supply; occurrence of unexpected events such as war, terrorist threats and the instability
resulting therefrom; and risks associated with existing and potential future lawsuits and regulatory actions against Cenovus.
Readers are cautioned that the foregoing lists are not exhaustive and are made as at the date hereof. Events or circumstances
could cause Cenovus's actual results to differ materially from those estimated or projected and expressed in, or implied by, the
forward-looking information. For a full discussion of Cenovus's material risk factors, see “Risk Factors” in the company's Annual
Information Form (AIF) or Form 40-F for the period ended December 31, 2016, and the updates under "Risk Management" in the
company's first quarter 2017 Management's Discussion and Analysis available on SEDAR at sedar.com, on EDGAR at sec.gov and on Cenovus's website at cenovus.com.
Cenovus Energy Inc.
Cenovus Energy Inc. is a Canadian integrated oil company. It is committed to applying fresh, progressive thinking to safely and
responsibly unlock energy resources the world needs. Operations include oil sands projects in northern Alberta, which use
specialized methods to drill and pump the oil to the surface, and natural gas and oil production in Alberta, British Columbia and
Saskatchewan. The company also has 50% ownership in two U.S. refineries. Cenovus shares trade under the symbol CVE, and are listed
on the Toronto and New York stock exchanges. For more information, visit cenovus.com.
Find Cenovus on Facebook, Twitter, LinkedIn, YouTube and Instagram.
CENOVUS CONTACTS: Investor Relations Kam Sandhar Vice-President, Investor Relations & Corporate Development 403-766-5883 Steven Murray Investor Relations 403-766-3382 Media Media Relations general line 403-766-7751