Company increases dividend by 25%
CALGARY, Alberta, Oct. 02, 2019 (GLOBE NEWSWIRE) — Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) today announced its updated corporate strategy and five-year business plan. Building on the company’s excellent financial performance in the first half of 2019, Cenovus’s strategy through 2024 will focus on sustainably growing shareholder returns and further reducing net debt. The five-year business plan allows for disciplined production growth at Cenovus’s best-in-class oil sands assets, subject to improved market access, and provides potential for cumulative free funds flow of approximately $11 billion at mid-cycle West Texas Intermediate (WTI) prices averaging between US$57 and US$60 per barrel (bbl). In addition, Cenovus has reduced its 2019 capital budget guidance to between $1.1 billion and $1.2 billion, a $150 million reduction from the midpoint of the company’s April 23, 2019 guidance.
“Our updated business plan is focused on maximizing the value of every barrel we produce,” said Alex Pourbaix, Cenovus President & Chief Executive Officer. “With the tremendous improvements we’ve made to our cost structure and balance sheet over the past few years, I’m confident we are in a strong position to generate significant value for shareholders through 2024 and beyond.”
Key highlights of the five-year business plan
- Cumulative free funds flow of approximately $11 billion through 2024
- Disciplined compound production growth of 2% to 3% per year, increasing total volumes to approximately 550,000 barrels of oil equivalent per day (BOE/d) by the end of 2024
- 25% dividend increase for the fourth quarter of 2019
- After achieving the company’s $5 billion net debt target, potential for approximately $9 billion in remaining free funds flow to finance opportunistic share repurchases, further dividend growth, additional debt reduction and disciplined investments
Cenovus believes the strength of its balance sheet and significant capacity within its business plan for free funds flow generation will position the company to consider share repurchases while also sustainably growing its dividend. Share repurchases would be considered when Cenovus’s shares are trading below intrinsic value at mid-cycle commodity prices. Potential share repurchases could include the option to participate in a monetization of Cenovus shares currently owned by ConocoPhillips.
As an immediate measure to return value to shareholders, Cenovus is announcing a 25% dividend increase. For the fourth quarter of 2019, the Board of Directors has declared a dividend of $0.0625 per share, payable on December 31, 2019 to common shareholders of record as of December 13, 2019. The company believes it will have capacity for further dividend increases at a potential growth rate of 5% to 10% annually, even in a WTI price environment of US$45/bbl. Declaration of dividends is at the sole discretion of the Board and will continue to be evaluated on a quarterly basis.
“We’ve built significant financial resilience into our business over the past few years, and under our updated strategy we expect our financial flexibility to continue to grow,” said Pourbaix. “Over the next five years, we believe we will have the capacity to fund opportunistic share repurchases, sustainably grow our dividend, further reduce our debt and make disciplined investments in our business.”
Deleveraging remains a top priority for Cenovus. The company continues to progress toward its long-term net debt target of $5 billion, which Cenovus believes is achievable over the next 12 to 18 months at mid-cycle commodity prices.
Financial and capital framework
Cenovus’s business plan is focused on maintaining the company’s industry-leading cost structure and financial flexibility. The plan is designed to allow the company to fund its capital programs, invest in projects capable of generating returns at a WTI price of US$45/bbl and grow shareholder returns. The plan includes modest production growth of 2% to 3% per year, with total production expected to reach approximately 550,000 BOE/d by the end of 2024, subject to improved market access. Cenovus’s planned capital profile remains very modest, not exceeding $1.9 billion in any given year, even with the potential construction of expansion phases at the company’s Foster Creek and Christina Lake oil sands projects in northern Alberta. The company currently has regulatory approval for phase H expansions at each site. Cenovus will continue to progress development work on these projects for potential sanctioning in 2020, although the timing of final investment decisions will depend on gaining more certainty around takeaway capacity. Christina Lake phase H is planned to include the tieback of the company’s Narrows Lake oil sands asset to take advantage of the nearby Christina Lake central plant.
Integration and market access
Cenovus’s downstream portfolio is designed to maximize the company’s exposure to global oil prices and mitigate pipeline congestion through a range of options to reduce cash flow volatility and increase margins. The company continues to build a diversified transportation strategy to address takeaway capacity constraints and get its oil to the highest value markets, particularly the heavy oil refining complex on the U.S. Gulf Coast.
Pipelines remain the cornerstone of Cenovus’s transportation strategy. Over the course of 2019, the company has continued to expand its pipeline portfolio with the addition of 22,500 barrels of oil per day (bbls/d) of incremental takeaway capacity from Alberta. This brings Cenovus’s combined current firm pipeline capacity to the U.S. Gulf Coast, the U.S. Midwest and the Canadian West Coast to more than 133,000 bbls/d. As previously announced, Cenovus has committed capacity to ship another 275,000 bbls/d to the U.S. Gulf Coast and Canadian West Coast on expansion pipeline projects currently under development. The company continues to explore the potential for additional committed pipeline capacity to high-value markets.
In addition to pipelines, Cenovus views rail as an important component of its transportation strategy to bridge the gap until expansion pipelines are completed. The company remains on track to ramp up its crude-by-rail capacity to approximately 100,000 bbls/d by the end of 2019.
Cenovus is exploring the potential to build a diluent recovery unit (DRU) at its Bruderheim transloading terminal in Alberta, potentially allowing crude by rail to become a more permanent structural component of the company’s transportation strategy. The decision to proceed with a DRU will depend on whether currently planned expansion pipeline projects are delayed further and whether a DRU would be able to compete against other opportunities based on Cenovus’s capital allocation priorities.
Advancing sustainability leadership
Sustainability has always been engrained in Cenovus’s culture and development practices. Delivering strong environmental, social and governance (ESG) performance contributes to the company’s business achievements, helps it attract and retain staff and improves the company’s ability to gain support from its stakeholders, including local communities.
Cenovus recently identified four ESG focus areas that it plans to emphasize to add further value for the company. These are: climate and greenhouse gas emissions, Indigenous engagement, land and wildlife, and water stewardship. In addition to these environmental and social ESG focus areas, delivering strong safety and governance performance will remain foundational to Cenovus.
Potential opportunities and impacts related to the four focus areas are being embedded into project planning and capital allocation decisions at the company. Cenovus is also developing metrics and targets to track progress on maximizing value for the ESG focus areas. The company is committed to ensuring its consideration of ESG topics is integral to its business plan as it focuses on thriving through the ongoing energy transition.
Cenovus has updated its 2019 full-year guidance to reflect the company’s updated outlook for capital investment, production and operating costs for the remainder of the year. Updated guidance can be found at cenovus.com under “Investors”.
|Investor Day Webcast
8:30 a.m. Eastern Time (6:30 a.m. Mountain Time)
Cenovus will present its updated business strategy at its Investor Day in Toronto today. A live audio webcast of the Investor Day presentations will begin at 8:30 a.m. ET (6:30 a.m. MT) via cenovus.com or the following URL: https://live.webcastcanada.ca/go/cenovus2019. The webcast will be archived for approximately 90 days at cenovus.com.