Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) remains committed to
delivering increasing shareholder value through cost leadership,
capital discipline and continued safe and reliable operations.
These commitments, combined with its top-tier upstream assets,
successful crude-by-rail program and joint ownership in two
high-performing U.S. refineries, position Cenovus to continue
generating significant free funds flow while enabling the company
to further strengthen its balance sheet in 2020.
Cenovus plans to invest between $1.3 billion and $1.5 billion in
2020, about 70% of which is sustaining capital primarily to
maintain base production at its Foster Creek and Christina Lake oil
sands operations. The increase in total planned capital spending,
compared with Cenovus’s 2019 forecast, is consistent with the
outlook provided at the company’s Investor Day earlier this year
and is largely due to the deferral of sustaining capital in 2019
following the introduction of mandatory production curtailment in
Alberta. Cenovus also plans to advance high-return projects to
sanction-ready status for possible final investment decisions as
early as the second half of 2020, conditional on improved market
access.
As a result of structural improvements achieved over the past
several years at its oil sands operations, Cenovus expects to
further reduce non-fuel per-barrel operating costs and maintain low
sustaining capital costs in 2020.
“This budget positions us well to generate adjusted funds flow
of more than $3 billion in 2020 under our price assumptions –
a strong start for the first year of our five-year business plan
designed to generate significant free funds flow,” said Alex
Pourbaix, Cenovus President & Chief Executive Officer. “Our
priorities for 2020 include further strengthening our balance
sheet, improving market access, returning cash to shareholders and
advancing high-return organic opportunities to sanction-ready
status.”
Highlights:
- Total capital expenditures of $1.4 billion, consistent with
Investor Day outlook
- Total production increase of 7% compared with 2019 guidance as
Cenovus’s crude-by-rail program, coupled with the Government of
Alberta’s Special Production Allowances, positions the company to
move to unconstrained production levels
- Per-barrel oil sands non-fuel operating costs decrease by
approximately 5%
|
Capital investment by asset ($ millions) |
|
2020 Budget |
2019 Guidance |
Oil sands assets1 |
705 – 820 |
595 – 640 |
Technology & exploration2 |
160 – 190 |
70 – 80 |
Deep Basin |
80 – 95 |
50 – 60 |
Refining & marketing |
285 – 330 |
260 – 290 |
Corporate |
90 – 100 |
150 – 165 |
Total capital investment3 |
1,300 – 1,500 |
1,100 – 1,200 |
1 Includes Foster Creek, Christina Lake and Narrows Lake oil
sands assets.2 Includes Marten Hills and other emerging
plays.3 Totals may not add due to rounding.
|
Average production forecast1 |
|
2020 Budget |
2019 Guidance |
% change2 |
Foster Creek (Mbbls/d) |
165 – 175 |
155 – 163 |
7 |
Christina Lake (Mbbls/d) |
225 – 235 |
190 – 198 |
19 |
Total oil sands (Mbbls/d) |
390 – 410 |
345 – 361 |
13 |
Deep Basin liquids (Mbbls/d)3 |
20 – 24 |
23 – 29 |
-15 |
Deep Basin natural gas (MMcf/d) |
370 – 380 |
430 – 450 |
-15 |
Total Deep Basin (MBOE/d)3 |
82 – 86 |
95 – 103 |
-15 |
Total production (MBOE/d)3,4 |
472 – 496 |
440 – 464 |
7 |
1 2019 guidance includes the impact of mandatory production
curtailment. The 2020 Budget forecast does not assume any expected
impact from curtailment.2 Percentage change based on the midpoint
of the ranges.3 Includes oil and natural gas liquids (NGLs). See
Advisory for information on conversion to barrels of
oil equivalent (BOE).4 Totals may not add due to rounding.
Oil sandsCenovus has among the best assets in
the in-situ oil sands industry with top-tier resources,
industry-leading steam to oil ratios and low operating costs. The
company’s oil sands facilities have a proven track record of
consistently delivering safe and reliable operating performance,
which will continue to be a focus in 2020.
The company plans to spend $705 million to $820 million on its
oil sands operations in 2020. Of that, between $625 million and
$675 million will be focused on maintaining base production at
Foster Creek and Christina Lake as well as completing the ramp-up
of Christina Lake phase G.
The balance of Cenovus’s planned oil sands investment in 2020
will be focused on advancing the proposed phase H expansions at
both Foster Creek and Christina Lake towards sanction-ready status
by the second half of 2020. Final investment decisions on these
organic opportunities remain subject to further clarity on market
access. In addition, the company will advance a multi-pad solvent
demonstration project at Foster Creek, with solvent injection
planned to begin in 2021.
Cenovus remains committed to maintaining its position as an
in-situ cost leader. In 2020, the company expects total non-fuel
per-barrel oil sands operating costs to decline compared with its
2019 forecast. This is largely due to a continued focus on cost and
an expected increase in production volumes at both of the company’s
oil sands operations.
Due to mandatory production curtailment in Alberta, Cenovus
delayed the ramp-up of Christina Lake phase G in 2019. Recently,
the Government of Alberta introduced Special Production Allowances,
enabling oil companies to produce barrels in excess of mandated
curtailment levels if those barrels are transported using
incremental crude-by-rail capacity compared with rail capacity in
the first quarter of 2019. With the company on track to achieve
crude-by-rail shipping capacity of approximately 100,000 barrels
per day by the end of this year, Cenovus expects to take advantage
of the Special Production Allowances to return to unconstrained
production and fully ramp up phase G in 2020.
Average oil sands production of 390,000 barrels per day (bbls/d)
to 410,000 bbls/d is forecast in 2020, a 13% increase at the
midpoint compared with Cenovus’s guidance for 2019. The 2020 volume
forecast assumes no production impact related to
government-mandated curtailment due to expected Special Production
Allowances. Cenovus’s ability to ramp up oil sands production due
to these allowances is expected to contribute to an increase in its
total sustaining capital investment in 2020, while maintaining the
company’s industry-leading per-unit sustaining capital costs.
Cenovus also continues to assess its exploration opportunities
in the promising Marten Hills area of northeastern Alberta, where
it holds a significant land position. The company views Marten
Hills as a high-value exploration opportunity targeting
conventional heavy oil in the Clearwater formation. Cenovus’s 2020
capital guidance includes potential investment of approximately
$110 million to continue the appraisal and development of Marten
Hills, with sanctioning of the program dependent on the outcome of
2019 program results. About 65% of the 2020 capital would be
directed toward initial construction work on a 10,000 bbls/d oil
battery and associated infrastructure. It also includes a modest
12-well drilling program and potential production of 2,000 bbls/d
to 4,000 bbls/d in 2020.
Oil sands operating costs |
|
2020 Budget |
2019 Guidance |
% change1 |
Foster
Creek ($/bbl) Fuel Non-fuel
Subtotal |
1.75 – 2.256.25 –
7.008.00 – 9.25 |
2.10 – 2.306.50 – 7.008.60 – 9.30 |
-9-2-4 |
Christina Lake ($/bbl) Fuel Non-fuel
Subtotal |
1.50 – 2.004.50 –
5.256.00 – 7.25 |
2.00 – 2.205.00 – 5.507.00 – 7.70 |
-17-7-10 |
Total oil sands2 ($/bbl) Fuel Non-fuel
Subtotal |
1.60 –
2.105.25 – 6.006.85 –
8.10 |
2.05 – 2.255.65 – 6.157.70 – 8.40 |
-14-5 -7 |
1 Percentage change based on the midpoint of the ranges.2 Based
on a volume-weighted average.
|
Oil sands sustaining capital costs |
|
2020 Budget |
2019 Guidance |
% change1 |
Total ($ millions) |
625 – 675 |
505 – 550 |
23 |
Per-unit ($/bbl)2 |
3.90 – 4.20 |
3.55 – 3.85 |
9 |
1 Percentage change based on the midpoint of the ranges.2 Based
on total installed capacity.
Deep BasinCenovus has a large land base in the
Deep Basin fairway in northwestern Alberta and northeastern British
Columbia with high-quality producing and development assets.
The company plans to spend $80 million to $95 million in the
Deep Basin in 2020, a modest increase in total capital spending
compared with the company’s 2019 forecast which reflected no
drilling activity. Capital investment will focus on maintaining
safe and reliable operations and the execution of a two-rig
drilling program targeting high-return, liquids-rich opportunities
in the Clearwater and Edson areas, beginning in the second half of
2020.
Production is expected to be between 82,000 barrels of oil
equivalent per day (BOE/d) and 86,000 BOE/d in 2020, down
approximately 15% from forecast 2019 levels primarily due to
capital investment not offsetting natural declines.
Operating costs for the Deep Basin are expected to increase to a
range of $9.50/BOE to $10.25/BOE in 2020, a 20% increase at the
midpoint compared with the company’s forecast for 2019, due to
lower production from natural declines. The company continues to
reduce absolute costs across the Deep Basin business and evaluate
opportunities to improve its overall competitiveness.
Deep Basin operating costs |
|
2020 Budget |
2019 Guidance |
% change1 |
Deep Basin2 ($/BOE) |
9.50 – 10.25 |
7.75 – 8.75 |
20 |
1 Percentage change based on the midpoint of the ranges.2
Includes oil, natural gas liquids and natural gas.
DownstreamCenovus’s Wood River and Borger
refineries in the U.S., which are jointly owned with and operated
by Phillips 66, continue to deliver strong operating and financial
performance. In anticipation of the scheduled introduction next
year of the new low-sulphur fuels standard (IMO 2020), the Wood
River refinery has advanced projects to allow the refinery to
produce additional IMO compliant fuels containing 0.5% sulphur or
less.
In 2020, Cenovus plans to spend $285 million to $310 million on
its Refining and Marketing segment, with slightly more than half of
the capital going towards base maintenance, reliability and safety
projects. The remainder of the capital will be designated for
optimization projects at the refineries that include improving
clean product yields and approximately $20 million to advance the
company’s Diluent Recovery Unit (DRU) project toward sanction-ready
status in the second half of 2020.
Market accessCenovus continues to advance its
crude-by-rail strategy. The company is on track to reach
approximately 100,000 bbls/d of rail shipping capacity by the end
of 2019. Utilizing its wholly-owned Bruderheim Energy Terminal near
Edmonton, Alberta and contracted capacity at USD Partners’ terminal
in Hardisty, Alberta, the company will be well positioned to
continue with oil shipments to high-value markets such as the U.S.
Gulf Coast in 2020. Cenovus expects higher transportation costs
related to increased rail shipments will be more than offset by
premium pricing available for its oil on the Gulf Coast, resulting
in increased netbacks.
With Cenovus’s existing pipeline and crude-by-rail commitments
as well as its net share of heavy processing capacity at the Wood
River and Borger refineries in the U.S., the company is in a
position to protect approximately 65% of its 2020 blended heavy oil
production capacity from the impact of wider heavy oil
differentials in the Alberta market.
CorporateCenovus anticipates 2020 general and
administrative (G&A) expenses to be between $280 million and
$300 million, or $1.63/BOE at the midpoint, compared with its 2019
forecast of $1.68/BOE. Absolute spending is forecast to be slightly
higher year-over-year due to continued investments in information
technology as well as additional initiatives to advocate for market
access and energy policy that will improve the competitiveness of
Canada’s oil and gas industry.
The company continues to invest in technology and equipment to
further modernize its workplace, improve its cost structure over
the long term and better manage risk. In 2020, this includes
planned spending on Cenovus’s Enterprise Resource Planning (ERP)
project designed to consolidate and optimize business processes.
The company is also investing in information technology initiatives
to support the advancement of data management, governance and
analytics across the business.
Cenovus has largely completed the transition to its new
Brookfield Place head office in Calgary and plans to further
mitigate real estate costs through the continuation of an active
subleasing program.
Sustainability targetsCenovus continues to
focus on delivering leading environmental, social and governance
(ESG) performance. The company is nearing completion of its work to
identify meaningful, practical targets as well as plans to achieve
them for its four ESG focus areas: climate and GHG emissions,
Indigenous engagement, land and wildlife, and water stewardship.
Cenovus anticipates providing details on its planned ESG targets in
January 2020.
Debt reductionThe company made significant
progress in deleveraging its balance sheet in 2019 and will
continue to prioritize the allocation of free funds flow to achieve
its net debt target of $5 billion.
In the fourth quarter of 2019, Moody’s Investors Service
affirmed Cenovus’s Ba1 credit rating and improved its outlook for
Cenovus from ‘stable’ to ‘positive’, citing the significant amount
of debt reduction the company has achieved. In addition to making
progress towards re-establishing an investment grade credit rating
at Moody’s, Cenovus remains committed to maintaining its current
investment grade credit ratings at S&P Global Ratings, DBRS
Limited and Fitch Ratings.
Cenovus Leadership Team updateEffective January
1, 2020, the company will shift the responsibilities of some its
leadership team members as part of Cenovus’s approach to continuous
executive development. Drew Zieglgansberger will move from his
current role as Executive Vice-President, Upstream to become
Cenovus’s Executive Vice-President, Strategy and Corporate
Development. Kam Sandhar, currently Senior Vice-President, Strategy
and Corporate Development, will remain on the Cenovus executive
team and assume responsibility for Cenovus’s conventional oil and
natural gas assets as Senior Vice-President, Deep Basin.
With Zieglgansberger’s move, Norrie Ramsay will join Cenovus to
become the company’s Executive Vice-President, Upstream. Ramsay
brings 30 years of experience in the oil and gas industry and has a
track record of successfully delivering large-scale projects in the
upstream, midstream and downstream sectors around the world.
Working for Talisman Energy, BP Exploration and Marathon Oil, he
has overseen the development of significant onshore and offshore
oil and gas projects and facilities. He most recently served as
Senior Vice-President at TC Energy leading operational excellence,
central engineering, pipeline integrity and the Health, Safety,
Security and Major Projects group.
“I’m confident that these new role assignments for Drew and Kam
will provide excellent opportunities for them to build on the
valuable experience they already bring in their core disciplines
and deepen our bench strength across the executive management
team,” said Pourbaix. “At the same time, with the addition of
Norrie, Cenovus gains a leader with deep experience running global
oil and gas operations and specific expertise managing large-scale
assets, which will be invaluable as we focus on generating
increased cash flow from existing operations while pursuing modest,
high-return growth projects.”
GuidanceCenovus has made its 2020 guidance
available at cenovus.com under ‘Investors.’
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 adjusted funds flow, debt, free
funds flow, netback 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, 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 “advance”, “anticipate”, “capacity”,
“committed”, “continue”, “deliver”, “expect”, “focus”, “forecast”,
“guidance”, “on track”, “opportunity”, “outlook”, “plan”,
“position”, “potential”, “priority”, “promising”, “strategy”,
“target”, “will” or similar expressions and includes suggestions of
future outcomes, including statements about: strategy and related
milestones and schedules; projections for 2020 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, per-barrel operating cost
reductions and debt reduction; ability to generate substantial free
funds flow in the current commodity price environment; targeted
reductions of net debt to $5 billion; the impact of the Alberta
government mandated production curtailment; expected ramp-up of
rail commitments; expected premium pricing for oil transported to
the U.S. Gulf Coast and the resulting increased netback; the
planned timeline for ramping up oil-by-rail movement; pipeline
capacity commitments; net share of heavy processing capacity;
Christina Lake phase G expansion start-up flexibility; advancement
of Christina Lake and Foster Creek phase H expansions; the
potential value added by increased focus on environmental, social
and governance (ESG) performance and plans to set and achieve ESG
targets; sustainable annual dividend increases over the next five
years; advancement of the Diluent Recovery Unit (DRU) project;
mitigation of real estate costs; and all statements related to the
company’s updated 2020 Guidance.
Developing forward-looking information involves reliance on a
number of assumptions and consideration of certain risks and
uncertainties, some of which are specific to Cenovus and others
that apply to the industry generally. The factors or assumptions on
which our forward-looking information is based include: updated
price and sensitivities assumptions as disclosed in the following
table, available in Cenovus’s 2020 Guidance (dated December 9,
2019) at cenovus.com;
PRICE ASSUMPTIONS & ADJUSTED FUNDS FLOW SENSITIVITIES (1) |
|
|
Independent base case
sensitivities |
Increase |
Decrease |
Brent
(US$/bbl) |
$60.00 |
|
(for the full year 2020) |
($ millions) |
($
millions) |
WTI
(US$/bbl) |
$55.00 |
|
Crude oil (WTI)* |
130 |
(130) |
Western
Canada Select (US$/bbl) |
$37.50 |
|
Light-heavy differential
(WTI-WCS)* |
(90) |
90 |
Differential WTI-WCS (US$/bbl) |
$17.50 |
|
Chicago 3-2-1 Crack
Spread* |
100 |
(100) |
AECO
($/Mcf) |
$1.80 |
|
Natural gas (AECO)** |
40 |
(45) |
Chicago
3-2-1 Crack Spread (US$/bbl) |
$16.00 |
|
Exchange rate (US$/C$)*** |
(55) |
55 |
Exchange
Rate (US$/C$) |
$0.76 |
|
|
|
|
*US$1.00 change ** C$1.00 change*** $0.01 change |
(1) Sensitivities include current hedge positions applicable for
the full year of 2020. 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 will continue to maintain a relatively
narrow price differential between WTI and WCS; future improvements
in availability of product transportation capacity, including
Canadian crude-by-rail activity ramping up as planned; realization
of premium pricing and the resulting higher netback for oil
delivered to the U.S. Gulf Coast; 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 about US$45/bbl WTI and C$44/bbl WCS; 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; 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 September 30, 2019 as well as
its Annual Information Form 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).
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.
Photos accompanying this announcement are available at
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