Another year of belt-tightening ahead for Cenovus Energy

Another year of belt-tightening ahead for Cenovus Energy

Cenovus Energy released its 2018 budget and production forecast this week, setting an objective to "reduce costs and deleverage" its balance sheet while "maintaining capital discipline."

Total 2018 capital spend is expected to be in the range of $1.5 to $1.7 billion, on par with $1.6 billion spent this year. Capital expenditures in the oil sands was boosted from about $1 billion to a range of $1.04 to $1.16 billion, including $780 million earmarked for sustaining capital and $270 million to continue construction of the phase G expansion of Christina Lake. First oil from phase G is expected sometime in the first half of 2019.

Total production from the oil sands is forecasted to average 373,000 bbl/day next year, 26% higher than 2017, reflecting additional volumes acquired from ConocoPhillips this past spring.

CHART COURTESY CENOVUS ENERGY

CHART COURTESY CENOVUS ENERGY

Higher output from the oil sands will offset production losses from the divestiture of its conventional assets, keeping full year production roughly unchanged at about 500,000 bbl/day.

Newly minted CEO Alex Pourbaix also says his company remains committed to driving costs lower and returning to profitability next year. Oil sands operating costs are forecasted to decline 8% next year to less than $8/bbl (including energy) while sustaining capital costs are projected to be 12% lower. Breakeven costs across its entire portfolio have been reduced to the low-US$40s, including sustaining capital spending and dividend payouts.

 

CHART COURTESY CENOVUS ENERGY

CHART COURTESY CENOVUS ENERGY

 

Cenovus divested $3.7 billion in conventional assets this year, with proceeds being used to retire a short-term bridge loan acquired to fund its acquisition of Western Canadian assets from ConocoPhillips.

The company also announced plans to destaff 15% of its workforce, or roughly 500 employees. About 1,600 employees were laid-off between 2014 and 2016, representing about one-third of its workforce at the time. Management did not provided details on timing of this latest workforce reduction or where they would be focused. 

As the company shrinks its footprint in Calgary, Cenovus also plans to reduce real-estate costs by sub-leasing its premium office space, which includes the iconic Bow Tower. In 2013, Cenovus signed an agreement to move into the newly completed Brookfield Place, but later changed its mind after oil prices collapsed. The company now says it plans to relocate its employees into Brookfield Place sometime in 2019.

Cenovus also announced a reshuffling of its management team this week and is currently on the hunt for a new CFO.

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