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Cenovus Energy Unveils Leaner Capex Amid Leverage Concerns

Zacks Equity Research
Updated

In a bid to delever balance sheet and slash costs, Cenovus Energy Inc. CVE recently unveiled a leaner capex budget for 2018. The capital discipline is targeted to support the acquisition of oil sands assets worth C$16.8 billion from ConocoPhillips COP earlier this year. In 2018, Cenovus intends to remain focused on reducing huge debt burden, strengthening balance sheet and optimizing asset portfolio.

The company announced a $1.5-$1.7 billion capital program for 2018 with majority of capital allocated toward oil sands operation. Cenovus Energy expects to invest between $1.04 billion and $1.16 billion in the Deep Basin in 2018. Oil sands operating cost and sustaining capital costs have been reduced by 8% and 12%, respectively, compared with the prior guidance. Further, it has allocated $270 million for the construction of the phase G expansion at Christina Lake given the lower costs of operations. The go-forward capital efficiencies for the company’s Christina Lake operations have improved by 21%, compared with the previously provided range.

Owing to spending on the Deep Basin acquisition, Cenovus Energy has increased leverage metrics significantly. Given the current gas market and stretched balance sheet, the company has reduced Deep Basin spending plans in 2018. It expects to invest between $175 million and $195 million in the Deep Basin in 2018.

The company plans to decrease workforce by 15%, laying off around 500-700 employees.  As a part of the cost containment efforts adopted during the industry downturn, Cenovus Energy has already retrenched around 1,500 and 400 jobs in 2015 and 2016, respectively.

Several executive-level management changes were announced with the budget. The company’s CFO Ivor Ruste will retire on Apr 30, 2018. Notably, Kieron McFadyen —executive vice president and president of upstream operations — will step down from his position on Jan 15, 2018 and Drew Zieglgansberger will take over McFadyen’s responsibilities. Further, Keith Chiasson will become president of the downstream operations, replacing Bob Pease who will step down on Jan 15, 2018.

Spun off from Encana Corporation ECA in 2009, Cenovus is an integrated oil company headquartered in Alberta, Canada. The company is focused on growing oil projects along with establishing natural gas and crude oil production in Alberta and Saskatchewan. Cenovus Energy continues to work on advancing technologies to reduce the amount of water, steam, natural gas and electricity used in operations as well as decrease surface land disturbance. The company delivered a positive earnings surprise of 125% in the third quarter of 2017.

While the disciplined budget and measures to rein in the cost structure bode well amid stretched financials of the company, the weak share price movement of the company is a concern. Cenovus Energy has lost 43.7% year to date, wider than 12.9% decline of its industry.

Cenovus Energy carries a Zacks Rank #3 (Hold).

A better-ranked player in the energy space is Northern Oil and Gas, Inc. NOG which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Northern Oil and Gas delivered an average beat of 175% in the last four quarters.

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Encana Corporation (ECA) : Free Stock Analysis Report
 
Cenovus Energy Inc (CVE) : Free Stock Analysis Report
 
Northern Oil and Gas, Inc. (NOG) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
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