Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) has delivered a
disciplined 2021 capital budget focused on maintaining safe and
reliable operations while positioning the company to drive enhanced
shareholder value. The budget includes sustaining capital of
approximately $2.1 billion to deliver upstream production of
approximately 755,000 barrels of oil equivalent per day (BOE/d) and
downstream throughput of approximately 525,000 barrels per day
(bbls/d).
The budget anticipates Cenovus achieving nearly $1 billion of
synergies in 2021 as a result of its recent transaction with Husky
Energy, putting the company firmly on track to reach its planned
$1.2 billion in annual run-rate synergies by the end of 2021. The
budget also includes $520 million to $570 million for the Superior
Refinery rebuild, with a substantial portion of the go-forward
costs expected to be recovered through insurance proceeds.
“With this budget we’re delivering on the commitments we made
when we announced the Husky transaction,” said Alex Pourbaix,
Cenovus President & Chief Executive Officer. “In 2021 we’ll
remain focused on disciplined capital allocation, investing
selectively in the highest return opportunities available in our
expanded asset portfolio, and we expect to make significant
progress towards achieving our synergy targets.”
2021 budget highlights:
- Total upstream production of 730,000
BOE/d to 780,000 BOE/d
- Total downstream throughput of
500,000 bbls/d to 550,000 bbls/d
- Total capital expenditures of $2.3
billion to $2.7 billion, including
- Sustaining capital of approximately
$2.1 billion, compared to the $2.4 billion annual average estimated
at transaction announcement
- Superior Refinery rebuild costs of $520 million to $570 million
(excluding insurance proceeds)
2021 Guidance (C$, before royalties) |
UPSTREAM |
Production(MBOE/d) |
Capex($Millions) |
Operating costs 1($/BOE) |
Oil Sands (includes thermal &
cold/EOR) |
524 – 586 |
850 – 950 |
9.50 – 11.50 |
Conventional |
132 – 151 |
170 – 210 |
10.00 – 12.00 |
Offshore |
61 – 72 |
200 – 250 |
12.00 – 14.00 |
Total upstream 2 |
730 – 780 |
1,220 – 1,410 |
|
DOWNSTREAM |
Throughput (Mbbls/d) |
|
|
Canadian & U.S. Manufacturing |
500 – 550 |
480 – 630 |
|
Superior Refinery rebuild |
|
520 – 570 |
|
Total downstream |
500 – 550 |
1,000 – 1,200 |
10.00 – 11.50 |
CORPORATE |
|
75 – 100 |
|
TOTAL |
|
2,300 – 2,700 |
|
1 Reflects presentation differences between Cenovus and legacy
Husky as well as the inclusion of certain turnaround costs in
operating expense.2 Production ranges for segments are not intended
to equal total upstream.
Budget overview
Cenovus’s $1.2 billion synergy target from its combination with
Husky includes $600 million in estimated annual corporate and
operating synergies and $600 million in estimated capital
allocation synergies. The 2021 budget positions the company to
achieve about $400 million of the estimated annual corporate and
operating synergies and all of the estimated capital allocation
synergies this year.
Work to achieve these synergies in 2021 is well underway. This
includes consolidating information technology (IT) systems and
eliminating other service overlaps, applying Cenovus’s
industry-leading practices and processes, including sub-surface
optimization techniques, across Husky’s legacy oil sands assets and
standardizing field operating models. At the time the transaction
with Husky was announced, Cenovus said it would reduce the combined
company’s workforce by 20 percent to 25 percent to eliminate role
duplication and increase efficiency, and the company has already
made significant progress towards that target.
“Our 2021 budget puts us firmly on track to achieve the $1.2
billion in annual run-rate synergies we identified, with nearly $1
billion of that total expected to be achieved this year,” said
Pourbaix. “I’m highly confident we will meet or even exceed our
target.”
Cenovus remains committed to maintaining and improving its
current investment-grade credit ratings. This includes the
company’s continued focus on allocating free funds flow to reduce
its net debt to less than $10 billion and targeting a longer-term
net debt level at or below $8 billion.
Both Cenovus and Husky have demonstrated meaningful improvements
in process safety events and total recordable injury frequency over
the past three years, and the 2021 budget maintains the combined
company’s focus on enhancing safety and asset integrity. A key
priority for Cenovus this year is to harmonize safety management
systems across the combined business.
The company expects between $500 million and $550 million of
one-time integration-related costs such as consultation and legal
fees, transfer of licensed seismic data, integration of IT systems,
severance associated with workforce reductions and change of
control obligations.
Operating highlights
Oil Sands
Cenovus’s Oil Sands segment has six producing assets located in
Alberta and Saskatchewan — the Christina Lake, Foster Creek,
Sunrise and Tucker oil sands projects as well as the Lloydminster
thermal projects and Cold/Enhanced Oil Recovery.
In 2021, the company plans to spend $850 million to $950 million
on its Oil Sands segment. Oil Sands capital is primarily for
sustaining production with the vast majority intended for Christina
Lake, Foster Creek and the Lloydminster thermal assets. This
reflects the company’s philosophy of disciplined investment focused
on higher-return opportunities.
The company continues to evaluate the application of operating
strategies successfully employed at Foster Creek and Christina Lake
across all of its oil sands assets.
Oil sands operating costs are expected to be in the range of
$9.50/bbl to $11.50/bbl. This reflects presentation differences
between Cenovus and legacy Husky as well as the inclusion of
certain turnaround costs in operating expense.
Average oil sands production in 2021 is expected to be in the
range of 524,000 bbls/d to 586,000 bbls/d. Christina Lake and
Foster Creek expected production ranges are 220,000 bbls/d to
240,000 bbls/d and 165,000 bbls/d to 185,000 bbls/d, respectively.
Foster Creek production estimates reflect incremental production
anticipated from three new well pads scheduled to come online in
the first half of the year. Cenovus expects production in the range
of 80,000 bbls/d to 90,000 bbls/d at the Lloydminster thermal
assets.
Conventional
The Conventional segment includes conventional oil and natural
gas production and processing operations in the Deep Basin and
other parts of Western Canada. Cenovus also maintains an interest
in the Marten Hills area of Alberta through its investment in
Headwater Exploration Inc.
Cenovus plans to spend between $170 million and $210 million on
its Conventional portfolio in 2021, which includes economic
development in various plays to generate strong returns, improve
underlying cost structures through volume enhancement and offset
declines.
Production is expected to be in the range of 132,000 BOE/d to
151,000 BOE/d, including 590 million cubic feet per day (MMcf/d) to
650 MMcf/d of natural gas.
Per-unit operating costs are forecast to be in the range of
$10/BOE to $12/BOE. This reflects a planned increase in turnarounds
due to deferral of turnaround activity from 2020. The company
continues to reduce absolute costs across its conventional
portfolio and evaluate opportunities to improve the overall
competitiveness of the assets.
Offshore
Cenovus’s Offshore segment includes operations and exploration
prospects in the Asia Pacific region and offshore Newfoundland and
Labrador. Assets in Asia include the Liwan Gas Project offshore
China and natural gas projects in the Madura Strait offshore
Indonesia. In Atlantic Canada, the company operates in the Jeanne
d'Arc Basin, home to the White Rose oil field.
In 2021, Cenovus plans to spend between $200 million and $250
million on its Offshore segment. This capital spend includes
planned wells in China and continued development of the MDA-MBH and
MDK fields in the Madura Strait, as well as baseline preservation
capital for the West White Rose Project, which has been deferred
for 2021 while the company continues to evaluate its options.
Working interest production from the company’s assets in China
is expected to range between 43,000 BOE/d and 50,000 BOE/d, and
working interest production from the assets in Indonesia is
forecast to be between 7,000 BOE/d and 9,000 BOE/d. Working
interest production from the company’s Atlantic assets is expected
to range between 11,000 BOE/d and 13,000 BOE/d in 2021.
Overall operating
costs for the Offshore segment are expected to average in the range
of $12/BOE to $14/BOE.
Downstream
Cenovus’s Downstream segment is comprised of the company’s
Canadian Manufacturing, Retail and U.S. Manufacturing
businesses.
Canadian Manufacturing includes the Cenovus owned and operated
upgrader and asphalt refinery in Lloydminster, the company’s
crude-by-rail terminal and two ethanol plants. The Lloydminster
upgrader and asphalt refinery are well positioned to capture heavy
oil-to-synthetic, diesel and asphalt margins and are expected to
generate strong free funds flow for the company in 2021. The Retail
business includes Cenovus’s Canadian retail and commercial
channels.
U.S. Manufacturing includes wholly owned refineries in Lima,
Ohio and Superior, Wisconsin as well as a 50 percent stake in both
the Phillips 66-operated Wood River Refinery in Roxana, Illinois
and Borger Refinery, in Borger, Texas, and a 50 percent stake in
the Toledo Refinery near Toledo, Ohio, which is operated by BP
Products North America Inc.
In 2021, Cenovus plans to spend $1.0 billion to $1.2 billion on
its Downstream segment. This includes capital for base maintenance,
reliability and safety projects, high-return optimization
opportunities at the Wood River and Borger refineries, as well as
C$520 million to C$570 million in 2021 for the Superior Refinery
rebuild project, which will further improve the company’s
integration while reducing Alberta heavy exposure. The full
completion cost for the rebuild is estimated to be approximately
US$950 million, with US$324 million already invested. Cenovus has
reviewed this project in detail and the revised cost estimate is
consistent with the due diligence completed as part of the
transaction. The company expects a large portion of the go-forward
capital cost of the project to be offset by insurance proceeds. The
refinery is expected to restart around the first quarter of 2023,
with a nameplate processing capacity of 49,000 bbls/d, including
capability to process up to 34,000 bbls/d of heavy oil while
producing asphalt, gasoline and diesel.
Operating costs for Canadian refining are expected to be in the
range of $8.50/bbl to $10/bbl. U.S. refining operating costs are
expected to be in the range of $10/bbl to $12/bbl. Refining and
upgrading throughput is expected to be in the range of 500,000
bbls/d to 550,000 bbls/d, with an anticipated utilization rate of
approximately 85 percent reflecting all planned turnarounds as well
as the expected continuation of a challenging environment for
downstream product demand in 2021.
Sustainability
Cenovus remains dedicated to delivering leading environmental,
social and governance (ESG) performance. Its expanded portfolio
presents additional opportunities for the company to lower
greenhouse gas emissions intensity and address other key ESG
areas.
The company is now refreshing its ESG materiality assessment to
identify priority areas based on stakeholder feedback and analysis
of the external sustainability landscape. Cenovus will then develop
meaningful, practical climate and other ESG targets, along with
plans for achieving them, to align with the company’s long-term
business plan.
Guidance
Additional details on 2021 guidance are available at cenovus.com
under ‘Investors.’
Conference Call Today9 a.m. Mountain Time
(11 a.m. Eastern Time) |
Cenovus will host a 2021 budget conference call today, January 28,
2021, starting at 9 a.m. MT (11 a.m. ET). To participate,
please dial 888-231-8191 (toll-free in North America) or
647-427-7450 approximately 10 minutes prior to the conference call.
A live audio webcast of the conference call will also be available
via cenovus.com. The webcast will be archived for approximately 90
days. |
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 September
30, 2020 (available on SEDAR at sedar.com, on EDGAR at sec.gov and
Cenovus's website at cenovus.com).
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 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 “achieve”, “anticipate”, “believe”, “capacity”,
“challenging”, “committed”, “commitment”, “continue”, “dedicate”,
“deliver”, “drive”, “estimate”, “exceed”, “expect”, “focus”,
“forecast”, “guidance”, “improve”, “maintaining”, “meet”, “on the
path”, “on track”, “opportunity”, “plan”, “position”, “priority”,
“reduce”, “reliable”, “schedule”, “target”, “will” or similar
expressions and includes suggestions of future outcomes, including
statements about: the integration of the company following its
transaction to combine with Husky Energy Inc. and the resulting
synergies; strategy and related milestones and targets; projections
for 2021 and our plans and strategies to realize such projections;
priorities and other statements relating to forecast capital
discipline and investment, production and throughput guidance,
per-barrel operating cost, throughput, and debt reduction,
maintaining and improving current investment-grade credit ratings;
continuous improvement in process safety and operations integrity,
and to maintaining robust COVID-19 protocols to protect our staff;
reducing our cost structure and enhancing value across the full
value chain; ability of integrated assets to reduce Alberta heavy
exposure; the Superior Refinery rebuild project, including costs
and estimated insurance proceeds; dedication to leading
environmental, social and governance (ESG) performance and plans to
set and achieve ESG targets; and all statements related to the
company’s updated 2021 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: ability to
achieve the benefits and anticipated synergies anticipated from the
transaction with Husky Energy Inc.; the duration of the market
downturn; the impacts of COVID-19 and related restriction on
movement on our staff, business, the industry and the economy;
updated price and sensitivities assumptions in Cenovus’s 2021
Guidance (dated January 28, 2021) available at cenovus.com;
projected capital costs and investment levels; reliability of our
assets including in order to meet production and throughput
targets; ability to achieve debt targets; ability to continuously
improve process safety and operations integrity; ability to
complete the Superior Refinery rebuild on time and on budget and
receipt of expected insurance proceeds; ability to leverage the
company's storage capacity to increase optionality and capture
higher margins; continued improved Canadian commodity prices;
accounting estimates and judgments; ability to develop meaningful,
practical climate and other ESG targets and plans for achieving
them; future development of, use of and ability to access
technology and associated expected future results; ability to
obtain necessary regulatory and partner approvals; and the
successful and timely implementation of capital projects.
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, 2019
and its MD&A for the period ended September 30, 2020 as well as
its Annual Information Form and Form 40-F for the year ended
December 31, 2019 (all available on SEDAR at sedar.com, on EDGAR at
sec.gov and Cenovus's website at cenovus.com).
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 an
integrated energy company with oil and natural gas production
operations in Canada and the Asia Pacific region, and 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. 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 |
Media Media
Relations general line403-766-7751 |
Cenovus Energy (NYSE:CVE)
Historical Stock Chart
From Aug 2024 to Sep 2024
Cenovus Energy (NYSE:CVE)
Historical Stock Chart
From Sep 2023 to Sep 2024