A "larger, stronger and more resilient" Cenovus on the hunt for new CEO
At today's Investor Day meeting in Toronto, Cenovus CEO Brian Ferguson is sticking by his decision to pay $17.7 billion for its partner's oil sands assets, insisting it was the right decision for the long-term growth of the company.
Ferguson told the investment community his company remains focused on:
cutting $1 billion out of their budget over the next 3 years ($500 million from capital, $125 million from operating and $375 million from overhead costs)
growing production 6% annually
growing free cash flow 14% annually, and
lowering breakeven costs to US$40 a barrel.
The company has already managed to reduce sustaining capital costs by 50% since 2014, while operating and overhead costs have declined 30% in the past 3 years. Ferguson has not completely closed the door to more job cuts and further "optimizing" its workforce.
A big part of the capital and operating cost reductions will come from improving efficiencies at the well pads and growing production. Cenovus says it hopes to chop about $2 billion in capital and operating costs over the next 5 years and is hoping to unlock a number of technological breakthroughs in the areas of:
well pad design and longer reach horizontal wells
flow control devices
using solvents to improve bitumen recovery and reduce steam loads
partial upgrading technology.
The company has big expansion plans in its immediate future, including sanctioning Foster Creek phase F sometime next year, sanctioning the yet-undeveloped Narrows Lake phase A in 2019 and achieving first oil from Christina Lake phase G.
Those three expansions have an estimated price tag of $3.2 to 3.7 billion, adding another 155,000 bbl/day of bitumen to the balance sheet. Cenovus already has regulatory approvals in place for 735,000 bbl/day of growth at its three oil sands properties.
The company reiterated plans to raise as much as $5 billion by selling its conventional assets, using the funds to repay short term bridge loans. Those assets include Pelican Lake, Suffield, Weyburn and Palliser. Cenovus hopes to seal-the-deal on those properties by the end of this year, bringing their debt-to-earnings (EBITDA) ratio from the current 4.1 to less than 2. Should they need to raise more capital, CFO Ivor Ruste says various Deep Basin assets and undeveloped oil sands leases could also go up for sale.
The company has assumed a WTI average price of US$50/bbl this year, rising to US$55 in 2018. So far in 2017, WTI has averaged about US$50.40/bbl, but that number appears to be headed lower, at least in the short term.
Hedging will become a more important part of Cenovus' financing strategy. For the remainder of this year, about 143,000 bbl/day of crude has been hedged at an average floor price of about US$51.50/bbl. Another 50,000 bbl/day of crude oil is hedged at US$49.70/bbl for the first half of 2018.
After sitting at the CEO's desk since the company's inception in 2009, Ferguson announced he will be retiring at the end of October. The company has now launched a global search for a replacement.
Several analysts have suggested Cenovus overpaid ConocoPhillips for the acquisition, sending the company stock (TSX:CVE) almost 50% lower since the deal was announced at the end of March, now sitting below its IPO price. In contrast, ConocoPhillips stock (NYSE:COP) is up about 7% since late March, despite a 10% decline in oil prices.
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