Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) is implementing
additional measures to enhance its financial resilience in response
to the low global oil price environment that is expected to
continue for an unknown period. The company’s financial framework
and flexible business plan provide it with multiple options to
prudently manage its balance sheet. Cenovus has decided to reduce
its planned 2020 capital spending by an additional $150 million
which, combined with the $450 million reduction announced March 9,
2020, is a $600 million decrease from the budget released in
December. The company is also forecasting operating cost reductions
of about $100 million and general and administrative (G&A) cost
reductions of about $50 million compared with the initial December
budget. In addition, Cenovus is temporarily suspending its
dividend.
“We are taking proactive steps to address the current business
environment while continuing to focus on the safety of our people
and assets and maintaining reliable performance at our operations,”
said Alex Pourbaix, Cenovus President & Chief Executive
Officer. “It is challenging to predict the duration and depth of
these unprecedented low commodity prices. We have positioned the
company with ample liquidity and a strong balance sheet to manage
through this unpredictable global downturn.”
Revised 2020 budget forecast |
|
April 2, 2020 budget update |
March 9, 2020 budget update |
December 10, 2019 budget |
% change vs. December1 |
Total capital expenditures ($ billions) |
0.75 – 0.85 |
0.9 – 1.0 |
1.3 – 1.5 |
-43 |
General & administrative expenses ($ millions) |
230 – 250 |
|
280 – 300 |
-17 |
Total oil sands production (Mbbls/d) |
|
350 – 400 |
390 – 410 |
-6 |
Total Deep Basin production (MBOE/d) |
|
|
82 – 86 |
-- |
Total production (MBOE/d) |
|
432 – 486 |
472 – 496 |
-5 |
1 Based on the midpoint of the ranges.
Dividend suspensionCenovus had based its
ability to provide a sustainable dividend from free funds flow on a
West Texas Intermediate (WTI) price environment of US$45/bbl. In
the context of recent commodity price forecasts and economic,
market and business conditions in the oil and gas industry, Cenovus
has decided to suspend its quarterly dividend.
Strong liquidityBesides having top-tier assets
and one of the lowest cost structures in its industry, Cenovus has
a strong balance sheet, which places it in a solid position to
weather the current market environment. The company has $4.5
billion of undrawn committed credit facilities, with renewals in
late 2022 and late 2023, a further $1.6 billion of demand lines and
no bond maturities until late 2022. These provide ample liquidity
and runway to sustain its operations through a prolonged market
downturn.
Additional cost reductionsThe new capital
expenditure guidance of $750 million to $850 million is a 43%
reduction from the budget released in December 2019 and an
incremental $150 million reduction from the capital guidance update
provided March 9, 2020. The remaining capital budget is focused on
sustaining oil sands production and refining operations. Cenovus is
confident the revised capital spend will be sufficient to ensure
ongoing safe and reliable operations and adherence to regulatory
commitments and will enable the company to proceed with necessary
maintenance.
The nature of Cenovus’s oil sands and conventional assets
enables the company to safely ramp production up and down quickly
to respond to market conditions and maximize returns, as has been
demonstrated over the past couple of years. When the company
announced initial capital expenditure reductions and a ramp down of
its rail business on March 9, 2020, it also reduced its forecast
oil sands production by 6% to between 350,000 and 400,000 barrels
per day (bbls/d), and total production by 5% to between 432,000 and
486,000 barrels of oil equivalent per day (BOE/d), while
maintaining its Deep Basin production forecast. Cenovus expects
those updated production ranges can still be achieved with the
additional capital expenditure reductions announced today. The
company has managed its assets through similar commodity price
events in the recent past and is confident in its operating
practices.
Teams from across the company have identified cost-saving
measures, resulting in a reduction to G&A expenses of $50
million, or 17%, compared with the December budget, as well as
additional operating efficiencies of $100 million across Cenovus’s
operations. Although production volumes will be lower than
initially anticipated, Cenovus is maintaining its forecast
per-barrel oil sands operating costs within the guidance range
provided in December due to additional oil sands operating cost
efficiencies. As a result of the measures it is currently taking
and the quality of its assets, sustaining costs at its oil sands
operations have dropped to about $2.60/bbl for the year. The
company anticipates per-barrel sustaining costs will return to more
normal levels over the longer term.
A decision has been made to roll back salaries across the
company, with an emphasis on Board, executive and senior leader
compensation. Effective May 1, 2020, Board members will receive a
25% compensation reduction. The President & CEO will have his
annual base salary reduced by 25%, other executive team members
will take a 15% annual base salary reduction, Vice-Presidents and
their equivalents in technical positions will receive a 12% annual
base salary rollback and employees at other levels will experience
a graduated smaller salary impact.
“Our compensation philosophy is focused on alignment with
shareholders, which is why we have a mandatory share ownership
policy for senior leaders and an annual incentive program based on
the company achieving its goals,” said Pourbaix. “The salary
rollback, which will have the greatest impact on senior leaders, is
a way to demonstrate the entire company is committed to addressing
the challenges we face.”
Guidance updateCenovus has updated its
corporate guidance to reflect the revisions from today and March 9
to production volumes and capital and G&A expenditures. The new
guidance can be found on cenovus.com in the Investors section.
COVID-19 responseIn addition to these decisive
measures Cenovus is taking to maintain its financial resilience in
the current challenging commodity price environment, the company
has also been taking proactive steps to protect the health and
safety of its staff and the continuity of its business in response
to the COVID-19 pandemic. To deter COVID-19 from spreading in any
of its workplaces, Cenovus has implemented social distancing
measures, including directing the vast majority of its office staff
and certain non-essential field staff to work from home. Following
the guidance of health officials, mandatory self-quarantine
policies, travel restrictions, screening and enhanced cleaning and
sanitation measures have been put in place. Cenovus staff have been
committed to adhering to the new procedures and there have been no
positive tests of COVID-19 with any of its workforce. Cenovus also
has a comprehensive Business Continuity Plan to ensure continued
safe and reliable operations in the event of a COVID-19 outbreak at
any of its workplaces.
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.
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 “achieve”, “anticipate”, “commitment”, “committed”,
“confident”, “continue”, “enable”, “enhance”, “ensure”, “expect”,
“focus”, “forecast”, “guidance”, “maintain”, “plan”, “position”,
“proceed”, “protect”, “resilience”, “respond”, “sustain”,
“weather”, “will” or similar expressions and includes suggestions
of future outcomes, including statements about: reducing planned
2020 capital spending, operating costs and G&A costs; temporary
suspension of the quarterly dividend; ample liquidity and runway to
sustain operations through a prolonged market downturn; capital
expenditures being sufficient to ensure ongoing safe and reliable
operations and adherence to regulatory commitments and sufficient
to enable Cenovus to proceed with necessary maintenance; updated
production ranges announced March 9, 2020 can still be achieved
with the additional capital expenditure reductions; maintaining
forecast per barrel oil sands operating costs based on identified
additional oil sands operating cost efficiencies; per barrel
sustaining costs in the short and longer term; the impact of
compensation decisions and the focus on shareholder alignment;
proactive steps to protect the health and safety of staff and the
continuity of our business in response to the COVID-19 pandemic;
and all statements related to Cenovus’s revised Guidance dated
April 1, 2020.
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 assumptions on which our
forward-looking information is based include: low global oil price
environment for an unknown and potentially sustained period; ample
and continued liquidity and runway to sustain operations through a
prolonged market downturn; sufficient cash flow to fund the revised
capital program; the revised capital spend will be sufficient to
ensure ongoing safe and reliable operations, adhere to regulatory
commitments, and enable Cenovus to proceed with necessary
maintenance; our ability to maintain additional operating
efficiencies; our ability to reduce our 2020 oil sands production,
including without negative impacts to our assets; our forecast
production volumes are subject to potential further ramp down of
production based on business and market conditions; foreign
exchange rate, including with respect to our US$ debt and refining
capital and operating expenses; our ability to develop, access and
implement all technology necessary to achieve expected future
results; compensation decisions will align with shareholder
experience; and the impact of our response to the COVID-19 global
pandemic.
Revised 2020 guidance, dated April 1, 2020, assumes: Brent
prices of US$39.00/bbl, WTI prices of US$34.00/bbl; Western
Canadian Select (WCS) of US$18.50/bbl; Differential WTI-WCS of
US$15.50/bbl; AECO natural gas prices of $2.00/Mcf; Chicago 3-2-1
crack spread of US$8.30/bbl; and an exchange rate of $0.70
US$/C$.
The risks and uncertainties that could cause our actual results
to differ materially, include, but are not limited to: volatility
of commodity prices, currency valuations and interest rates; the
accuracy of cost estimates; product supply and demand; accuracy of
our share price and market capitalization assumptions; our ability
to reduce production to desired levels; our ability to finance
sustaining capital expenditures; our continued liquidity is
sufficient to sustain operations through a prolonged market
downturn; our ability to maintain desirable ratios of debt to
capitalization; changes in credit ratings applicable to us or any
of our securities; changes in general economic, market and business
conditions; the success of our response to the COVID-19 global
pandemic; the political and economic conditions in the countries in
which we operate or supply; and the occurrence of unexpected events
and the instability resulting therefrom.
Additional information about risks, assumptions, uncertainties
and other factors that could influence Cenovus’s actual results is
provided in Cenovus’s Management’s Discussion and Analysis
(MD&A) for the year ended December 31, 2019 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, 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 sustainably developing its assets in a safe,
innovative and cost-efficient manner, integrating environmental,
social and governance considerations into its business plans.
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
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