Cenovus hits debt reduction target, but pledges no change in strategy

Cenovus Energy logos are on display at the Global Energy Show in Calgary, Alta., Tuesday, June 7, 2022. THE CANADIAN PRESS/Jeff McIntosh

The CEO of Cenovus Energy Inc. said the company's recent debt repayment milestone will not mean changes to its near-term strategy.

Jon McKenzie said on a conference call Thursday that market-watchers should not expect the Calgary-based oil company to embark on a mergers and acquisitions spree or change its strategy in any other major way, even as it enjoys significantly higher free cash flow starting in the third quarter.

In July, after several years of prioritizing debt repayment, Cenovus reached its debt reduction target — bringing its total net debt to $4.0 billion. The milestone means Cenovus will no longer be regularly directing a portion of its cash flow towards its balance sheet, a development that frees up funds for other purposes.

But McKenzie said the excess cash will be 100 per cent returned to shareholders, most likely in the form of share buybacks, and won't be used to embark on any new growth strategies or M&A opportunities.

"It's going to be good to run this business model at 100 per cent shareholder returns going forward, and that's really what we're focused on today — just sticking to our knitting and executing on what's in front of us, versus trying to take on new challenges or modifying strategies," McKenzie told analysts and reporters.

Cenovus reported second quarter earnings of $1 billion Thursday, up from $866 million in the same quarter last year.

Earnings worked out to 53 cents per diluted share, up from 44 cents from last year.

The company said its excess free funds flow in the quarter ending June 30 was $735 million, up from $505 million in the same quarter a year earlier.

The company reported revenues of $14.9 billion for the second quarter, up from $12.2 billion for the same quarter last year.

In the second quarter, Cenovus loaded its first vessels at the Westridge Marine Terminal in Vancouver following the successful startup of the Trans Mountain pipeline expansion, on which it is a major contracted shipper.

In light of strong year-to-date results, Cenovus revised its 2024 production forecast Thursday. The company now expects total upstream production of between 785,000 and 810,000 barrels of oil equivalent per day, up from a prior forecast of 770,000 to 810,000 boe/d.

McKenzie said Cenovus is now nearly 90 per cent finished construction the Narrows Lake tie-back at its Christina Lake oilsands site. The tie-back project is a 17-km pipeline that connects the Narrows Lake reservoir to the Christina Lake main processing facility, and will result in up to 30,000 barrels per day of additional production from the site starting in late 2025. 

The company also continues to work to improve performance at its U.S. refinery operations, which in recent years have been affected by unplanned outages and maintenance issues.

In a departure from recent quarters, McKenzie did not provide an update on Thursday's call on the progress of the Pathways Alliance group of oilsands companies and its proposed carbon capture project. Cenovus is one of the oilsands companies that removed all content related to Pathways and emissions reduction from its website in June, after the federal government passed legislation containing a new anti-greenwashing provision.

Cenovus' acting chief sustainability officer Jeff Lawson said Thursday the company is eagerly awaiting promised clarification from the federal Competition Bureau about what the new rules mean for the oil and gas sector. 

The legislation contains a truth-in-advertising amendment that would require corporations to provide evidence to support their environmental claims, but the oil and gas sector has said its wording is so vague that it compromises their ability to remain transparent about environmental efforts.

"What's frustrating is that I would say people in this industry, and specifically our company, want to speak to all the good things we're doing. We do want to let people know what we're doing," Lawson said.

"But you get these curveballs thrown at you, and the best thing you can do is try to work through it and not get too frustrated."

This report by The Canadian Press was first published Aug. 1, 2024.