Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) today announced its
updated corporate strategy and five-year business plan. Building on
the company’s excellent financial performance in the first half of
2019, Cenovus’s strategy through 2024 will focus on sustainably
growing shareholder returns and further reducing net debt. The
five-year business plan allows for disciplined production growth at
Cenovus’s best-in-class oil sands assets, subject to improved
market access, and provides potential for cumulative free funds
flow of approximately $11 billion at mid-cycle West Texas
Intermediate (WTI) prices averaging between US$57 and US$60 per
barrel (bbl). In addition, Cenovus has reduced its 2019 capital
budget guidance to between $1.1 billion and $1.2 billion, a $150
million reduction from the midpoint of the company’s April 23, 2019
guidance.
“Our updated business plan is focused on maximizing the value of
every barrel we produce,” said Alex Pourbaix, Cenovus President
& Chief Executive Officer. “With the tremendous improvements
we’ve made to our cost structure and balance sheet over the past
few years, I’m confident we are in a strong position to generate
significant value for shareholders through 2024 and beyond.”
Key highlights of the five-year business
plan
- Cumulative free funds flow of approximately $11 billion through
2024
- Disciplined compound production growth of 2% to 3% per year,
increasing total volumes to approximately 550,000 barrels of oil
equivalent per day (BOE/d) by the end of 2024
- 25% dividend increase for the fourth quarter of 2019
- After achieving the company’s $5 billion net debt target,
potential for approximately $9 billion in remaining free funds flow
to finance opportunistic share repurchases, further dividend
growth, additional debt reduction and disciplined investments
Shareholder returnsCenovus believes the
strength of its balance sheet and significant capacity within its
business plan for free funds flow generation will position the
company to consider share repurchases while also sustainably
growing its dividend. Share repurchases would be considered when
Cenovus’s shares are trading below intrinsic value at mid-cycle
commodity prices. Potential share repurchases could include the
option to participate in a monetization of Cenovus shares currently
owned by ConocoPhillips.
As an immediate measure to return value to shareholders, Cenovus
is announcing a 25% dividend increase. For the fourth quarter of
2019, the Board of Directors has declared a dividend of $0.0625 per
share, payable on December 31, 2019 to common shareholders of
record as of December 13, 2019. The company believes it will have
capacity for further dividend increases at a potential growth rate
of 5% to 10% annually, even in a WTI price environment of
US$45/bbl. Declaration of dividends is at the sole discretion of
the Board and will continue to be evaluated on a quarterly
basis.
“We’ve built significant financial resilience into our business
over the past few years, and under our updated strategy we expect
our financial flexibility to continue to grow,” said Pourbaix.
“Over the next five years, we believe we will have the capacity to
fund opportunistic share repurchases, sustainably grow our
dividend, further reduce our debt and make disciplined investments
in our business.”
Deleveraging remains a top priority for Cenovus. The company
continues to progress toward its long-term net debt target of $5
billion, which Cenovus believes is achievable over the next 12 to
18 months at mid-cycle commodity prices.
Financial and capital frameworkCenovus’s
business plan is focused on maintaining the company’s
industry-leading cost structure and financial flexibility. The plan
is designed to allow the company to fund its capital programs,
invest in projects capable of generating returns at a WTI price of
US$45/bbl and grow shareholder returns. The plan includes modest
production growth of 2% to 3% per year, with total production
expected to reach approximately 550,000 BOE/d by the end of 2024,
subject to improved market access. Cenovus’s planned capital
profile remains very modest, not exceeding $1.9 billion in any
given year, even with the potential construction of expansion
phases at the company’s Foster Creek and Christina Lake oil sands
projects in northern Alberta. The company currently has regulatory
approval for phase H expansions at each site. Cenovus will continue
to progress development work on these projects for potential
sanctioning in 2020, although the timing of final investment
decisions will depend on gaining more certainty around takeaway
capacity. Christina Lake phase H is planned to include the tieback
of the company’s Narrows Lake oil sands asset to take advantage of
the nearby Christina Lake central plant.
Integration and market accessCenovus’s
downstream portfolio is designed to maximize the company’s exposure
to global oil prices and mitigate pipeline congestion through a
range of options to reduce cash flow volatility and increase
margins. The company continues to build a diversified
transportation strategy to address takeaway capacity constraints
and get its oil to the highest value markets, particularly the
heavy oil refining complex on the U.S. Gulf Coast.
Pipelines remain the cornerstone of Cenovus’s transportation
strategy. Over the course of 2019, the company has continued to
expand its pipeline portfolio with the addition of 22,500 barrels
of oil per day (bbls/d) of incremental takeaway capacity from
Alberta. This brings Cenovus’s combined current firm pipeline
capacity to the U.S. Gulf Coast, the U.S. Midwest and the Canadian
West Coast to more than 133,000 bbls/d. As previously announced,
Cenovus has committed capacity to ship another 275,000 bbls/d to
the U.S. Gulf Coast and Canadian West Coast on expansion pipeline
projects currently under development. The company continues to
explore the potential for additional committed pipeline capacity to
high-value markets.
In addition to pipelines, Cenovus views rail as an important
component of its transportation strategy to bridge the gap until
expansion pipelines are completed. The company remains on track to
ramp up its crude-by-rail capacity to approximately 100,000 bbls/d
by the end of 2019.
Cenovus is exploring the potential to build a diluent recovery
unit (DRU) at its Bruderheim transloading terminal in Alberta,
potentially allowing crude by rail to become a more permanent
structural component of the company’s transportation strategy. The
decision to proceed with a DRU will depend on whether currently
planned expansion pipeline projects are delayed further and whether
a DRU would be able to compete against other opportunities based on
Cenovus’s capital allocation priorities.
Advancing sustainability
leadershipSustainability has always been engrained in
Cenovus’s culture and development practices. Delivering strong
environmental, social and governance (ESG) performance contributes
to the company’s business achievements, helps it attract and retain
staff and improves the company’s ability to gain support from its
stakeholders, including local communities.
Cenovus recently identified four ESG focus areas that it plans
to emphasize to add further value for the company. These are:
climate and greenhouse gas emissions, Indigenous engagement, land
and wildlife, and water stewardship. In addition to these
environmental and social ESG focus areas, delivering strong safety
and governance performance will remain foundational to Cenovus.
Potential opportunities and impacts related to the four focus
areas are being embedded into project planning and capital
allocation decisions at the company. Cenovus is also developing
metrics and targets to track progress on maximizing value for the
ESG focus areas. The company is committed to ensuring its
consideration of ESG topics is integral to its business plan as it
focuses on thriving through the ongoing energy transition.
Guidance updateCenovus has updated its 2019
full-year guidance to reflect the company’s updated outlook for
capital investment, production and operating costs for the
remainder of the year. Updated guidance can be found at cenovus.com
under “Investors”.
Investor Day Webcast8:30 a.m. Eastern Time
(6:30 a.m. Mountain Time)Cenovus will present its updated
business strategy at its Investor Day in Toronto today. A live
audio webcast of the Investor Day presentations will begin at 8:30
a.m. ET (6:30 a.m. MT) via cenovus.com or the following URL:
https://live.webcastcanada.ca/go/cenovus2019. The webcast
will be archived for approximately 90 days at cenovus.com. |
ADVISORY Basis of Presentation
– Cenovus reports financial results in Canadian dollars and
presents production volumes on a net to Cenovus before royalties
basis, unless otherwise stated. Cenovus prepares its financial
statements in accordance with International Financial Reporting
Standards (IFRS).
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.
Non-GAAP Measures and Additional Subtotal This
news release contains references to free funds flow and net debt,
which are non-GAAP measures. These measures do not have a
standardized meaning as prescribed by IFRS. Readers should not
consider these measures in isolation or as a substitute for
analysis of the company's results as reported under IFRS. These
measures are defined differently by different companies and
therefore are not comparable to similar measures presented by other
issuers. For definitions, as well as reconciliations to GAAP
measures, and more information on these and other non-GAAP measures
and additional subtotals, refer to “Non-GAAP Measures and
Additional Subtotals” on page 1 of Cenovus's Management's
Discussion & Analysis (MD&A) for the period ended June 30,
2019 (available on SEDAR at sedar.com, on EDGAR at sec.gov and
Cenovus's website at cenovus.com).
Forward-looking InformationThis 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 Cenovus believes that the expectations
represented by such forward-looking information are reasonable,
there can be no assurance that such expectations will prove to be
correct. Readers are cautioned not to place undue reliance on
forward-looking information as actual results may differ materially
from those expressed or implied.
Forward-looking information in this document is identified by
words such as “believe”, “committed”, “expect”, “explore”, “focus”,
“guidance”, “plan”, “provide”, “target”, “will”, “would be” or
similar expressions and includes suggestions of future outcomes,
including statements about: strategy and related milestones and
schedules; projections for 2019 and future years and our plans and
strategies to realize such projections; priorities and other
statements relating to forecast capital discipline and investment,
production guidance and debt reduction; ability to generate
substantial cash flow, adjusted funds flow and free funds flow in
the current commodity price environment, including approximately
$11 billion in cumulative free funds flow through 2024; targeted
reductions of net debt to $5 billion; sustainable growth in
shareholder returns; willingness to consider share repurchases; the
impact of the Alberta government mandated production curtailment;
expected ramp-up of rail commitments; the planned timeline for
ramping up oil-by-rail movement; the potential to build a diluent
recovery unit (DRU) and related timing; the potential value added
by increased focus on environmental, social and governance (ESG)
performance; pipeline capacity commitments; Christina Lake phase H
expansion start-up flexibility; Foster Creek phase H expansion
start-up flexibility; and all statements related to the company’s
2019 Guidance.
Developing forward-looking information involves reliance on a
number of assumptions and consideration of certain risks and
uncertainties, some of which are specific to Cenovus and others
that apply to the industry generally. The factors or assumptions on
which our forward-looking information is based include: updated
price and sensitivities assumptions as disclosed in the following
table, available in Cenovus’s 2019 Guidance (dated October 1, 2019)
at cenovus.com;
PRICE ASSUMPTIONS & ADJUSTED FUNDS FLOW SENSITIVITIES (1) |
|
|
Independent base case
sensitivities |
Increase |
Decrease |
Brent
(US$/bbl) |
$64.00 |
|
(for the last three months of
2019) |
($ millions) |
($
millions) |
WTI
(US$/bbl) |
$57.20 |
|
Crude oil (WTI)* |
25 |
(30) |
Western
Canada Select (US$/bbl) |
$45.10 |
|
Light-heavy differential
(WTI-WCS)* |
(20) |
15 |
AECO
($/Mcf) |
$1.55 |
|
Chicago 3-2-1 crack
spread* |
25 |
(25) |
Chicago
3-2-1 Crack Spread (US$/bbl) |
$16.25 |
|
Natural gas (AECO)** |
15 |
(20) |
Exchange
Rate (US$/C$) |
$0.75 |
|
Exchange rate (US$/C$)*** |
(15) |
15 |
*US$1.00 change ** C$1.00 change |
*** $0.01 change(1) Sensitivities include current hedge positions
applicable to the remainder of 2019. Refining results embedded in
the sensitivities are based on unlagged margin changes and do not
include the effect of changes in inventory valuation for first-in,
first-out/lower of cost or net realizable value. |
projected capital investment levels, the flexibility of capital
spending plans and associated sources of funding; achievement of
further operating efficiencies, cost reductions and sustainability
thereof; lower production as a result of the government-mandated
production curtailment contributing to improvement in Western
Canadian Select (WCS) prices, narrowing of the price differential
between WTI and WCS; rail above curtailment is in place by January
1, 2020; achievement of approximately $11 billion in cumulative
free funds flow through 2024 assumes WTI prices averaging between
US$57/bbl and US$60/bbl and a price differential between WTI and
WCS of US$12.08/bbl for 2019 and US$15.00/bbl for 2020 through
2024; future improvements in availability of product transportation
capacity, including Canadian oil-by-rail activity ramping up as
planned; realization of expected impacts of the company's storage
capacity within its oil sands reservoirs; the ability of our
refining capacity, existing pipeline commitments and plans to ramp
up crude-by-rail loading capacity to mitigate a portion of heavy
oil volumes against wider differentials; continued improved
Canadian commodity prices; bottom-of-the-cycle commodity prices of
US$45/bbl WTI and C$44/bbl WCS; Cenovus’s projected five-year
cumulative free funds flow is subject to all the risks and
uncertainties associated with our business including commodity
price volatility and access to market limitations; estimates of
quantities of oil, bitumen, natural gas and liquids from properties
and other sources not currently classified as proved; accounting
estimates and judgments; future use and development of technology
and associated expected future results; ability to obtain necessary
regulatory and partner approvals; the successful and timely
implementation of capital projects or stages thereof; opportunities
to repurchase shares for cancellation at prices acceptable to us;
ability to complete asset sales, including with desired transaction
metrics and expected timelines; changes to Cenovus’s dividend plans
or strategy; and ability to access and implement all technology
necessary to achieve expected future results.
Additional information about risks, assumptions, uncertainties
and other factors that could influence Cenovus’s actual results is
provided in Cenovus’s MD&A for the year ended December 31, 2018
and its MD&A for the period ended June 30, 2019 as well as its
Annual Information Form (AIF) and Form 40-F for the year ended
December 31, 2018 (all available on SEDAR at sedar.com, on EDGAR at
sec.gov and Cenovus's website at cenovus.com).
Cenovus’s five-year cumulative free funds flow is a measure of
our ability to generate funds in excess of our capital investment
to meet our financial obligations. Readers are cautioned that the
free funds flow measure may not be appropriate for other
purposes.
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, projected, expressed, or implied
by the forward-looking information. Cenovus undertakes no
obligation to update or revise any forward-looking information
except as required by law.
Cenovus Energy Inc.Cenovus Energy Inc. is a
Canadian integrated oil and natural gas company. It is committed to
maximizing value by responsibly developing its assets in a safe,
innovative and efficient way. Operations include oil sands projects
in northern Alberta, which use specialized methods to drill and
pump the oil to the surface, and established natural gas and oil
production in Alberta and British Columbia. 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
RelationsInvestor Relations general
line403-766-7711 |
MediaSonja
Franklin Senior Media Advisor 403-766-7264 Media
Relations general line403-766-7751 |
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