Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) continued its strong and
reliable operating performance in the third quarter of 2021. Total
upstream production of almost 805,000 barrels of oil equivalent per
day (BOE/d)i drove solid financial results. The company generated
third-quarter cash from operating activities of $2.1 billion and
adjusted funds flow of $2.3 billion. Free funds flow of $1.7
billion and strategic refinancing transactions resulted in a
reduction in net debt to about $11 billion at the end of the third
quarter. The company expects to achieve its interim net debt target
of below $10 billion imminently as a result of continued
strong cash generation at current commodity prices and receipt of
proceeds from announced asset sales. This will pave the way for
Cenovus to increase investor returns by commencing a share buyback
program of up to 146.5 million of the company’s common shares,
representing approximately 10% of its public float, as defined by
the Toronto Stock Exchange (TSX). To facilitate the buyback,
Cenovus’s Board of Directors has approved filing an application
with the TSX for a normal course issuer bid (NCIB). In addition,
the Board has approved doubling Cenovus’s common share dividend
effective in the fourth quarter of 2021.
“Our outstanding operating and financial results this quarter
showcase the strength of our business and demonstrate that we
deliver on our commitments,” said Alex Pourbaix, Cenovus President
& Chief Executive Officer. “With our $10 billion net debt
target largely achieved, we’re able to take these important steps
to increase returns for our shareholders. Our free funds flow
capacity will support swiftly advancing toward our longer-term net
debt target of less than $8 billion, while balancing growth in
shareholder returns.”
Financial, production & throughput
summary |
(For the period ended September 30) |
2021 Q3 |
2020 Q31 |
% change1 |
Financial ($ millions, except per share
amounts) |
Cash from operating activities |
2,138 |
732 |
192 |
Adjusted funds flow2,3 |
2,342 |
407 |
475 |
Per share (basic) |
1.16 |
0.33 |
|
Capital investment |
647 |
148 |
337 |
Free funds flow2,3 |
1,695 |
259 |
554 |
Net earnings (loss) |
551 |
(194) |
|
Per share (basic) |
0.27 |
(0.16) |
|
Net debt2 |
11,024 |
7,530 |
46 |
Production and throughput (before royalties, net to
Cenovus) |
Oil and NGLs (bbls/d)4 |
655,100 |
411,788 |
59 |
Conventional natural gas (MMcf/d) |
898 |
360 |
149 |
Total upstream production (BOE/d)4 |
804,800 |
471,799 |
71 |
Total downstream throughput (bbls/d) |
554,100 |
191,100 |
190 |
1 Comparative figures include Cenovus results prior to the
January 1, 2021 closing of the Husky transaction and do not reflect
historical data from Husky.2 Adjusted funds flow, free funds flow
and net debt are non-GAAP measures. See Advisory.3 Prior period has
been restated to conform with the current definition of adjusted
funds flow.4 See Advisory for production by product type.
Overview of Q3 resultsConsistent
operating performanceiCenovus achieved
total production of 804,800 BOE/d, driven by record quarterly
average daily oil sands production of more than 242,500 barrels per
day (bbls/d) at Christina Lake and more than 187,000 bbls/d at
Foster Creek. Total upstream operating margin was $2.4 billion, up
from $1.9 billion in the second quarter. Cenovus continues to
expect 2021 total upstream production volumes to range between
750,000 BOE/d and 790,000 BOE/d.
In the company’s downstream operations, the Lloydminster
Upgrader and Lloydminster Refinery achieved an average
third-quarter crude oil utilization rate of 98%. The U.S.
refineries, with a crude oil utilization rate of 89%, continued to
ramp up throughput to 445,800 bbls/d, in line with modest increases
in refined product demand and improving market crack spreads,
partially offset by planned and unplanned outages. Total downstream
operating margin was $268 million in the third quarter.
Financial resultsTotal operating margin for the
quarter was $2.7 billion, an increase of 24% compared with $2.2
billion in the second quarter of 2021 and 44% higher than $1.9
billion in the first quarter. The increase in third-quarter
operating margin, compared with the second quarter, was primarily
driven by higher upstream production and sales volumes as well as
increased benchmark commodity prices, partially offset by increased
transportation blending costs due to higher condensate prices.
Cenovus had adjusted funds flow of $2.3 billion in the quarter.
The company generated cash from operating activities of $2.1
billion, which includes an increase in non-cash working capital of
$166 million. Free funds flow of $1.7 billion included capital
investment in the quarter of $647 million. The company continues to
expect total capital expenditures for the year in the range of $2.3
billion to $2.7 billion.
Cenovus generated net earnings of $551 million in the third
quarter, more than doubling second-quarter net earnings of $224
million, with the improvement largely driven by higher operating
margin.
Portfolio updateDuring the third quarter,
Cenovus signed an agreement for the sale of its existing equity
interest in Headwater Exploration Inc., which acquired the Marten
Hills heavy oil asset from Cenovus in late 2020. The sale of
Cenovus’s 50 million Headwater common shares closed in October and
generated net proceeds of approximately $218 million. Cenovus
continues to hold 15 million Headwater common share purchase
warrants exercisable at $2.00 per common share, which expire in
2023.
In the third quarter and subsequent to September 30, the company
closed previously announced asset sales within the Conventional
segment located in the East Clearwater and Kaybob areas for
combined gross proceeds of approximately $110 million. On a
year-to-date basis, the company has achieved approximately $440
million in cumulative gross proceeds from divestitures. Cenovus
continues to advance additional divestiture opportunities which
will further enhance its deleveraging plan and shareholder
return strategy.
Cenovus entered into agreements during the third quarter with
its partners in the Atlantic region to restructure working
interests in the Terra Nova and White Rose projects, providing
improved economics for the company’s regional portfolio. These
agreements increased Cenovus’s working interest in Terra Nova and,
if a decision is taken to restart the West White Rose project, will
reduce the company’s working interest in the White Rose fields. In
the third quarter, Cenovus received $75 million net from the
partners exiting Terra Nova. The Terra Nova asset life extension
project is proceeding, extending the life of the field to 2033,
with production expected to resume before the end of 2022.
Deleveraging updateIn the first nine months of
2021, Cenovus reduced net debt by more than $2 billion to about $11
billion, from $13.1 billion as at January 1. This includes a $1.4
billion decrease in the third quarter, which was primarily due to
free funds flow of $1.7 billion and proceeds from asset
divestitures that closed in the quarter, partially offset by an
increase in non-cash working capital of $166 million and a foreign
exchange loss on U.S. denominated debt. The increase in non-cash
working capital was related to an increase in inventories, which
was primarily due to higher crude oil and refined product prices,
higher volumes held in inventory in the Atlantic region due to the
timing of liftings and higher volumes held in inventory at the Wood
River and Borger refineries.
In September, Cenovus issued US$1.25 billion of 10-year and
30-year notes and used the proceeds and cash on hand to repurchase
approximately US$1.7 billion of its outstanding notes. The company
redeemed an additional US$425 million of outstanding notes in
October. This reduced total debt by approximately US$900 million,
which will result in interest expense savings and extend the
maturity profile of the company’s existing debt.
The company expects to achieve its interim net debt target of
below $10 billion very soon, which will support commencement of the
share buyback program. Instituting a more balanced free cash flow
allocation between deleveraging and shareholder returns, at current
commodity prices, Cenovus would expect to execute the planned share
buyback in 2022, while achieving net debt under $8 billion by
mid-year. This also reflects the company’s commitment to achieving
mid-BBB investment grade ratings over time.
Progress on integration and synergiesThe
company remains on track to realize at least $1 billion in
synergies in 2021 and reach its go-forward annual run-rate of $1.2
billion in synergies by the end of this year. In the third quarter,
integration expenditures of $60 million included costs associated
with workforce reductions and IT systems. Integration expenditures
for the first nine months of 2021 were $351 million, including $49
million in capitalized costs, and are expected to be approximately
$400 million for the full year. Cenovus continues to expect total
integration costs in the range of $500 million to $550 million,
with the balance to be spent in 2022.
Cenovus continues to identify additional synergies, including
further opportunities to apply the company’s operating expertise
across its expanded asset base, as well as through further
optimization of its expanded heavy oil value chain.
Shareholder returnsGiven the strengthening of
the company’s balance sheet, the Board has declared a dividend of
$0.035 per share, payable on December 31, 2021 to common
shareholders of record as of December 15, 2021 and has approved
filing an NCIB application with the TSX for a share buyback program
up to approximately 146.5 million of its common shares. The Board
also declared a fourth-quarter dividend on each of the Cumulative
Redeemable First Preferred Shares – Series 1, Series 2, Series 3,
Series 5 and Series 7 – payable on December 31, 2021 to
shareholders of record as of December 15, 2021 as follows:
Preferred shares dividend summary |
|
Rate (%) |
Amount ($/share) |
Share series |
Series 1 |
2.577 |
0.16106 |
Series 2 |
1.917 |
0.12080 |
Series 3 |
4.689 |
0.29306 |
Series 5 |
4.591 |
0.28694 |
Series 7 |
3.935 |
0.24594 |
All dividends paid on Cenovus’s common and preferred shares will
be designated as "eligible dividends" for Canadian federal income
tax purposes. Declaration of dividends is at the sole discretion of
the Board and will continue to be evaluated on a quarterly
basis.
Health and safety Cenovus continues to
prioritize the health and safety of its staff and neighbouring
communities. During the third quarter, the Alberta Government
implemented new public health measures in response to the spread of
COVID-19 in the province. As a result, the company extended the
work-from-home mandate for its office locations in Western Canada.
Cenovus will continue to monitor the evolving public health
situation and determine next steps around office return decisions
in alignment with direction from governments, public health
officials and the company’s internal health and safety experts.
Staff in other operating regions previously returned to the office
in accordance with local public health and government guidance. The
company continues to strongly encourage all staff to get
vaccinated.
To help ensure the health and safety of our staff and in
compliance with applicable government guidelines, Cenovus now
requires proof of full vaccination for travel on all company
flights. Cenovus is also reviewing the U.S. Government’s Path Out
of the Pandemic: COVID-19 Action Plan to analyze potential actions
the company may need to take. The company has added COVID-19
testing protocols for staff accessing its high occupancy sites and
camps. These steps, combined with other protocols, have allowed the
company to maintain safe operations during the pandemic.
Cenovus achieved strong occupational and process safety
performance while completing maintenance work at several of its
assets and demonstrated solid safety results company-wide in the
third quarter. Teams continue to prepare for the planned
implementation of the Cenovus Operations Integrity Management
System (COIMS), which was announced earlier this year. The COIMS
framework defines what Cenovus will do to manage health, safety,
operations integrity and environmental risk.
Operating highlightsOil
SandsiTotal crude oil production was
597,000 bbls/d for the Oil Sands segment in the quarter, up from
549,400 bbls/d in the second quarter, driven by record production
at both Christina Lake and Foster Creek. The segment generated
operating margin of $1.9 billion, compared with $1.4 billion in the
second quarter. The increase was primarily due to the increased
volumes at Foster Creek and Christina Lake as well as higher
average pricing, partially offset by an increase in operating
expense due to natural gas prices, higher royalties and higher
blending costs. Oil sands average netbacks were $36.98/BOE in the
quarter, compared with $32.53/BOE in the second quarter.
Christina Lake production averaged more than 242,500 bbls/d in
the quarter, an increase of about 12,000 bbls/d from the second
quarter as re-drilled wells came online. Production at Foster Creek
was 187,100 bbls/d, an increase of approximately 30,300 bbls/d
compared with the second quarter, primarily due to the addition of
production from two sustaining well pads and the resolution of
operational outages. The Lloydminster thermal projects continue to
benefit from the application of Cenovus in situ operating
techniques, with production of 98,000 bbls/d in the third
quarter.
Oil sands transportation costs were flat at $7.09 per barrel in
the quarter compared with the second quarter. Foster Creek
per-barrel transportation costs decreased to $10.14 in the third
quarter from $12.25 in the second quarter, driven primarily by
higher production and sales volumes. The per-barrel transportation
costs for Christina Lake production declined to $5.74 from $6.10 in
the second quarter, with lower crude volumes sold to the U.S. Gulf
Coast market. Blending costs in the quarter were driven by higher
condensate prices.
Per-barrel operating costs for the segment were $10.86 compared
with $12.00 in the second quarter, largely due to turnarounds at
Foster Creek and Sunrise in the second quarter which contributed to
increased production in the third quarter. Cenovus continues to
focus on applying its operating techniques to Husky assets to
enhance performance, including further expected reductions in
per-unit operating costs.
ConventionaliThe Conventional
assets generated operating margin of $191 million in the quarter
compared with $142 million in the second quarter, due to higher
average realized sales prices on total production of 131,400 BOE/d,
down from 141,300 BOE/d in the second quarter. Total production was
lower compared with the first two quarters of 2021 primarily due to
asset sales and an unplanned outage at a third-party processing
plant.
Operating costs were flat at $10.41/BOE, compared with the
second quarter. The segment had netbacks of $15.91/BOE in the
quarter, compared with $10.00/BOE in the previous quarter.
OffshoreiThe Offshore segment
had total production of 73,700 BOE/d, generating operating margin
of $328 million, with a netback of $59.20/BOE.
In the Asia Pacific region, Cenovus had production of 59,800
BOE/d with total realized sales pricing of $71.99/BOE in the
quarter, based on long-term contracted pricing for natural gas and
annual contracted pricing for NGLs. The operating netback for Asia
Pacific production averaged $59.71/BOE.
Atlantic region production was 13,900 bbls/d with Brent-like
realized pricing of $94.26/bbl in the third quarter, and an average
netback of $55.23/bbl.
Downstream Cenovus’s Downstream segment, with
total crude throughput of 554,100 bbls/d, generated total operating
margin of $268 million in the third quarter compared with $291
million in the second quarter.
Canadian ManufacturingWith strong average utilization of 98%,
the Lloydminster Upgrader and Lloydminster Asphalt Refinery
contributed to total Canadian Manufacturing operating margin of
$130 million. The facilities continue to operate safely, reliably
and at near capacity, with throughput in the third quarter of
108,300 bbls/d. The Canadian Manufacturing segment had operating
expense of $9.83/bbl in the quarter compared with $9.89/bbl in the
second quarter.
U.S. ManufacturingIncreasing demand for refined products
contributed to an increase in U.S. Manufacturing throughput of
445,800 bbls/d, compared with 435,500 bbls/d in the previous
quarter, despite temporary unplanned outages at the Wood River and
Borger refineries.
Utilization in the third quarter averaged 89%. The segment
generated operating margin of $122 million compared with $96
million in the second quarter. Renewable Identification Numbers
were priced at US$7.32/bbl in the third quarter compared with
US$8.12/bbl in the second quarter.
Operating expense in the quarter was $10.03/bbl, consistent with
the previous quarter due to higher throughput as product demand
recovers.
Investor DayThe company plans to hold a virtual
Investor Day on Wednesday, December 8 to outline its 2022 budget
and update its long-term business plan.
SustainabilityCenovus continues to progress
work on updated targets for the combined company for its
environmental, social & governance (ESG) focus areas. The focus
areas, announced earlier this year, are climate & greenhouse
gas (GHG) emissions, water stewardship, biodiversity, Indigenous
reconciliation and inclusion & diversity. The targets align
with Cenovus’s five-year business plan and will be released, along
with the company’s full 2020 ESG report, in conjunction with its
Investor Day on December 8.
The Oil Sands Pathways to Net Zero initiative, which Cenovus
co-founded, is advancing its foundational carbon capture,
utilization and storage project. The project includes a pipeline
with phased expansion capability to gather carbon dioxide from more
than 20 oil sands facilities. Discussions are ongoing with the
federal and provincial governments to ensure the necessary policy
and financial support is in place for Pathways to achieve its
ambitious vision and help Canada achieve its climate and economic
recovery commitments. Work is also progressing to assess the
feasibility of other GHG reducing technologies.
Conference call today9 a.m. Mountain Time (11 a.m. Eastern
Time)Cenovus will host a conference call today, November
3, 2021, starting at 9 a.m. MT (11 a.m. ET). To participate, please
dial 888-254-3590 (toll-free in North America) or 647-484-0478
approximately 10 minutes prior to the conference call. A live audio
webcast of the conference call will also be available. The webcast
will be archived for approximately 90 days. |
AdvisoryBasis of
PresentationCenovus 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 EquivalentNatural 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.
Product types
Product type by operating segment |
(Production for the period ended September
30) |
Volumes |
Oil Sands |
Bitumen (Mbbls/d) |
576.5 |
Heavy crude oil (Mbbls/d) |
19.3 |
Medium crude oil (Mbbls/d) |
1.2 |
Conventional natural gas (MMcf/d) |
11.9 |
Total Oil Sands segment production (BOE/d) |
599.1 |
Conventional |
Light crude oil (Mbbls/d) |
8.7 |
Natural gas liquids (Mbbls/d) |
22.8 |
Conventional natural gas (MMcf/d) |
603.2 |
Total Conventional segment production (BOE/d) |
132.0 |
Offshore |
Light crude oil (Mbbls/d) |
13.9 |
Natural gas liquids (Mbbls/d) |
12.7 |
Conventional natural gas (MMcf/d) |
282.8 |
Total Offshore segment production (BOE/d) |
73.7 |
Total upstream production (BOE/d) |
804.8 |
Non-GAAP Measures and Additional SubtotalThis
news release contains references to adjusted funds flow, 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 and Analysis (MD&A) for the period ended June 30,
2021 (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 U.S. Private Securities Litigation
Reform Act of 1995, about Cenovus’s current expectations, estimates
and projections about the future of the combined company, based on
certain assumptions made in light of experiences and perceptions 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.
Forward-looking information in this document is identified by
words such as “achieve”, “commitment”, “continue”, “deliver”,
“expect”, “focus”, “on track”, “remain”, “target”, “vision” and
“will” or similar expressions and includes suggestions of future
outcomes, including, but not limited to statements about: general
and 2021 priorities; delivering at least $1 billion in synergies in
2021 and reaching $1.2 billion in annual run-rate synergies by the
end of 2021; achieving $10 billion net debt in 2021 and net debt
target of $8 billion by mid-year 2022; executing the planned share
buyback through the NCIB in 2022; achieving mid-triple ‘B’
investment grade ratings over time; leveraging and capturing
additional synergies from the acquisition of Husky; interest
expense savings; 2021 and 2022 integration expenditures; health and
safety; cash generation; doubling the common share dividend
effective the fourth quarter of 2021; current and future asset
sales and the use of proceeds; balancing free funds flow between
deleveraging and increasing shareholder returns; applying Cenovus
operating techniques to legacy Husky assets to enhance performance,
including future reductions of per-barrel operating costs in the
Oil Sands segment; reducing the company’s working interest in the
White Rose fields; our expected results for the remainder of 2021;
timing of workforce return to the workplace; implementation of the
Cenovus Operations Integrity Management System at all sites and
facilities; plans to set and release new ESG targets and a 2020 ESG
report; Cenovus’s expectations for its participation in the Oil
Sands Pathways to Net Zero initiative; quarterly evaluation of
declaring dividends; 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 the forward-looking information in this news release are
based include, but are not limited to: Cenovus’s ability to realize
the anticipated benefits of the Husky transaction; the allocation
of free finds flow to Cenovus’s balance sheet; commodity prices;
future narrowing of crude oil differentials; Cenovus’s ability to
produce on an unconstrained basis; Cenovus’s ability to access
sufficient insurance coverage to pursue development plans;
Cenovus’s ability to deliver safe and reliable operations and
demonstrate strong governance; and the assumptions inherent in
Cenovus’s updated 2021 Guidance available on cenovus.com.
The risk factors and uncertainties that could cause actual
results to differ materially from the forward-looking information
in this news release include, but are not limited to: Cenovus’s
ability to realize the anticipated benefits of the Husky
transaction; the effectiveness of Cenovus’s risk management
program; the accuracy of estimates regarding commodity prices,
operating and capital costs and currency and interest rates; risks
inherent in the operation of Cenovus’s business; ability to
successfully complete development plans and improve asset
performance; and risks associated with climate change and Cenovus’s
assumptions relating thereto.
Except as required by applicable securities laws, Cenovus
disclaims any intention or obligation to publicly update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise. Readers are cautioned that
the foregoing lists are not exhaustive and are made as at the date
hereof. Events or circumstances could cause actual results to
differ materially from those estimated or projected and expressed
in, or implied by, the forward-looking information. For additional
information regarding Cenovus’s material risk factors, the
assumptions made, and risks and uncertainties which could cause
actual results to differ from the anticipated results, refer to
“Risk Management and Risk Factors” and “Advisory” in Cenovus’s
MD&A for the period ended June 30, 2021 and to the risk
factors, assumptions and uncertainties described in other documents
Cenovus files from time to time with securities regulatory
authorities in Canada (available on SEDAR at sedar.com, on EDGAR at
sec.gov and Cenovus’s website at cenovus.com).
Additional information concerning Husky’s business and assets as
of December 31, 2020 may be found in Husky’s MD&A and Annual
Information Form, each of which is filed and available on SEDAR
under Husky’s profile at sedar.com.
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 common shares and warrants are listed on
the Toronto and New York stock exchanges, and the company’s
preferred shares are listed on the Toronto Stock Exchange. For more
information, visit cenovus.com.
Find Cenovus on Facebook, Twitter, LinkedIn, YouTube and
Instagram.
Cenovus contacts:
Investors |
Media |
Investor Relations general
line |
Media Relations general line |
403-766-7711 |
403-766-7751 |
A photo accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/a41836cb-cc6a-4ed8-8600-d202004fb27b
i See Advisory for production by product type.
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