CALGARY, Alberta – Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) today released its 2022 budget, updated corporate strategy, five-year business plan and environmental, social and governance (ESG) targets, built on the company’s demonstrated operating strength, capital discipline and ESG leadership. The 2022 guidance includes capital spending of $2.6 billion to $3.0 billion and total production of approximately 800,000 barrels of oil equivalent per day (BOE/d), factoring in major planned turnarounds and production impacts from assets sold in 2021. The company anticipates 2022 downstream throughput of about 555,000 barrels per day (bbls/d). Cenovus has reaffirmed its commitment to growing shareholder returns, with planned allocation of about 50% of excess free funds flow in 2022 to shareholder returns, including the planned repurchase of up to 146.5 million common shares pursuant to the company’s previously announced normal course issuer bid. As of December 7, there have been 9,719,100 shares repurchased by the company, at an average price of $15.82 per share. Remaining excess free funds flow will continue to be allocated to the reduction of net debt to below $8 billion.
Cenovus also released its latest ESG report today, which outlines ambitious new targets for the company’s ESG focus areas, including plans for a 35% reduction in absolute greenhouse gas (GHG) emissions by the end of 2035 and the continuation of its ambition to achieve net zero emissions from operations by 2050.
“Our operational proficiency, disciplined spending and ESG leadership sets us apart,” said Alex Pourbaix, Cenovus President & Chief Executive Officer. “Building on our upstream production strength in 2021 and the continued optimization of our business, I am confident in our ability to grow free funds flow and deliver sustainable, increased returns to our shareholders.”
|Capital Investment by asset ($ millions)|
|2022 guidance||2021 guidance|
|Oil Sands (includes thermal & cold/EOR)||1,350 – 1,550||950 – 1,050|
|Conventional||150 – 200||170 – 210|
|Offshore||200 – 250||200 – 250|
|Total upstream||1,700 – 2,000||1,320 – 1,510|
|Superior Refinery rebuild||200 – 250||520 – 570|
|Total downstream||850 – 950||900 – 1,100|
|Corporate||50 – 70||75 – 100|
|Total||2,600 – 3,000||2,300 – 2,700|
Note: Totals may not add due to rounding.
|Average production and throughput forecast|
|2022 guidance||2021 guidance||% change|
|Oil Sands (includes thermal & cold/EOR)||570 – 630||540 – 596||6|
|Conventional||118 – 134||131 – 140||(7)|
|Offshore||64 – 76||66 – 74||0|
|Total upstream||780 – 820||750 – 790||4|
|Total downstream||530 – 580||500 – 550||6|
Note: Production ranges for assets are not intended to equal total upstream.
Cenovus’s full 2022 guidance can be found on cenovus.com.
Cenovus’s plan is guided by five key strategic objectives: top-tier safety and ESG performance, cost leadership, financial discipline, returns-focused capital allocation and free funds flow growth. Applying the strategic objectives to Cenovus’s business is expected to drive enhanced shareholder returns, driven by growth in earnings and free funds flow. This funds flow will position the company well to continue to return significant cash to shareholders through a growing dividend and opportunistic share buybacks.
The company remains focused on top-tier safety performance and asset integrity. Leveraging the strength of its assets and its considerable operational expertise, Cenovus expects to deliver sustained production and growth in throughput over the next five years while reducing absolute scope 1 and 2 GHG emissions.
Demonstrating both cost leadership and financial discipline, the company anticipates a reduction of 7% in overall unit operating costs in both the upstream and downstream segments, while general and administrative expenses and average annual sustaining capital requirements will remain flat.
The company’s capital programs and current base dividend are sustainable at US$45 West Texas Intermediate (WTI) per barrel, with the opportunity to grow shareholder returns over the life of the plan as net debt is further reduced. Over the longer term, Cenovus will aim for 1.0-1.5 times net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and is committed to achieving a mid-BBB investment grade credit rating. In the fourth quarter of 2021, Cenovus doubled its common share dividend and once the company achieves net debt below $8 billion it expects to have further expanded capacity for increasing shareholder returns.
Cenovus’s ambitious targets for its five ESG focus areas are embedded in the company’s five-year business plan.
|Climate change & GHG emissions||• Reduce absolute GHG emissions by 35% by year-end 2035
• Reach long-term ambition for net zero emissions by 2050
|Water stewardship||• Reduce fresh water intensity by 20% in oil sands and in thermal operations by year-end 2030|
|Biodiversity||• Reclaim 3,000 decommissioned well sites by year-end 2025
• Restore more habitat than Cenovus uses in the Cold Lake caribou range by year-end 2030
|Indigenous reconciliation||• Achieve a minimum of $1.2 billion of spending with Indigenous businesses between 2019 and year-end 2025
• Attain Progressive Aboriginal Relations gold certification from the Canadian Council for Aboriginal Business by year-end 2025
|Inclusion & diversity||• Increase women in leadership roles to 30% by year-end 2030
• Conduct a self-identification survey by year-end 2022; add diversity target beyond gender in 2023
• Aspire to have at least 40% representation from designated groups among non-management directors, including at least 30% women, by year-end 2025
Note: Targets include start year 2019 for emissions, water intensity, well reclamation and Indigenous business spend, and 2016 for caribou habitat restoration.
Emissions reductions are in reference to scope 1 and 2, on a net equity basis.
2022 guidance highlights
In 2022, Cenovus anticipates total upstream production of between 780,000 BOE/d and 820,000 BOE/d, which includes the impact of major planned turnarounds and approximately 15,300 BOE/d of production divested in 2021. Canadian and U.S. Manufacturing throughput is expected to be between 530,000 bbls/d and 580,000 bbls/d, an increase of about 6% over 2021, as demand for refined products rebounds.
Guidance for total capital expenditures is between $2.6 billion and $3.0 billion. This includes growth capital of $200 million to $250 million for the completion of the Superior Refinery rebuild, which the company expects will be largely offset by insurance proceeds, as well as capital in the range of $100 million to $150 million to complete the Terra Nova project and Spruce Lake North thermal project, both of which are expected to start up in the fourth quarter of 2022.
Cenovus anticipates integration costs related to its combination with Husky Energy of $100 million to $150 million in 2022, which is the remainder of the expected $500 million to $550 million in total integration costs for the transaction. The targeted annual run-rate of $1.2 billion in synergies has been achieved.
In the Oil Sands segment, production is expected to be in the range of 570,000 BOE/d to 630,000 BOE/d in 2022, which includes major planned turnarounds at Foster Creek and Christina Lake. The production range also reflects continued strong performance at Foster Creek and Christina Lake, and at the Lloydminster thermal projects where the application of Cenovus’s operating model is generating cost savings and increased production. For example, the operating model in 2021 drove a production increase of about 10% at the Lloydminster thermal projects without adding steam. At the Spruce Lake North project, which is expected to start up in the fourth quarter of 2022, Cenovus has reduced the number of wells and surface pads needed by approximately 50%, while doubling the average well length, resulting in substantial cost savings.
Cenovus plans to spend between $1.4 billion and $1.6 billion in the segment, with the increase from 2021 mainly related to additional sustaining capital investment directed towards assets where investment was lower in recent years. Operating costs for 2022 are expected to range between $10.50 per BOE and $12.00 per BOE, which are largely flat year-over-year.
Planned spending in 2022 of between $150 million and $200 million includes sustaining drilling programs in the segment and represents a 7% reduction compared to 2021 guidance given dispositions this year. Total production in the Conventional segment is expected to be between 118,000 BOE/d and 134,000 BOE/d, and takes into account a reduction of about 15,300 BOE/d from divestitures in 2021. Conventional operating costs are expected to be between $10.00 per BOE and $11.50 per BOE, which are largely flat year-over-year.
Offshore production in 2022 is expected to be in the range of 64,000 BOE/d to 76,000 BOE/d. This includes the expected startup of the MDA and MBH fields offshore Indonesia and expected gas sales from the Liwan field offshore China. It also includes the anticipated startup of the Terra Nova floating production, storage and offloading vessel before the end of 2022 following asset life extension (ALE) work and reflects Cenovus’s increased working interest of 34%.
Capital spending of between $200 million and $250 million will be primarily directed towards the Terra Nova ALE project and preservation capital for the West White Rose Project. Cenovus and its partners continue to evaluate their options on the West White Rose Project, with a decision on any further investment to be made by mid-2022.
Offshore operating costs in 2022 are expected to be between $14 per BOE and $16 per BOE.
With recovering demand for refined products, Cenovus expects to see crude oil throughput at its Canadian and U.S. Manufacturing assets increase to between 530,000 bbls/d and 580,000 bbls/d, including planned turnarounds. Capital expenditures ranging from $850 million to $950 million reflect a debottlenecking project at the Lloydminster Refinery to increase throughput capacity by about 8%, as well as additional spending to support downstream operations and reliability. The range also includes capital for the Superior Refinery rebuild project, which the company expects will largely be offset by insurance proceeds. The rebuild remains on schedule and is expected to be completed and ready for startup in the first quarter of 2023.
The turnarounds at the Lloydminster Upgrader, Lloydminster Refinery and non-operated refineries, as well as facility renewal projects to maintain safe and reliable operations, will contribute to operating expenses in 2022 of between $10 per barrel and $12 per barrel, which are expected to trend lower across the five-year plan.
Sarah Walters, Cenovus’s Executive Vice-President, Corporate Services, has decided to return to the United Kingdom to be closer to family and will be leaving the company at the end of February. As a result, effective March 1, 2022, Susan Anderson, currently Vice-President, Supply Chain Management, will take on the role of Senior Vice-President, People Services, reporting directly to Alex Pourbaix.
“Sarah has been an invaluable member of my team, helping build our culture at Cenovus over her eight years with the company,” said Pourbaix. “She will be greatly missed.”
For further details on Cenovus’s 2022 budget, updated strategy and five-year business plan, see the company’s Investor Day presentation and 2022 guidance available under Investors at cenovus.com. For more details on Cenovus’s ESG targets, including plans to achieve them, read the full report.
|Investor Day webcast today
8 a.m. Mountain Time (10 a.m. Eastern Time)
Cenovus will host a webcast today, Dec. 8, 2021, starting at 8 a.m. MT (10 a.m. ET).