Many investotrs don't realize the improvements that Cenovus has made since taking over Husky Energy about 2 years ago.For example,downstream production was about 100,000 boe/day in Q2 2021 but in Q2 2023 (as written in Econothon dated October 10,2023) downstream production was 650,000 boe/day.However downstream production in Q3 was 664,000 boe/day in comparison to Imperial Oil downstream production of 350,000 boe/dayThis is a tremenduous increase in downstream and total production.Econothon dated October10,2023 also stated that upstream production was 797,000 boe/day which was near the top end of guidance.Counting upstream and downstream production Cenovus is now one of the top 3 producers in the Canadian oil patch.
It cannot be overstated that Cenovus changed dramatically after it bought Husky Energy.Most analysts(including this blog thought that CVE would sell off one or both of the two refineries that it acquired in the deal.However in 2021 ans 2022 it refurbished the Superior and the Toledo,Ohio refineries.Consequently there was an additional 660,000 boe/day of downstream production in 2023.However in order to improve both refineries CVE had to takea substantial risk and add a lot of new debt.For example,in 2021 CVE had total debt of about $14 billion.But in 2022 and 2023 Cenovus reduced their debt.So that in Q3 2023 debt was reduced by another $1 billion to remain at $6 billion.And more debt will be eliminated in Q4.
Financial Highlights of Q3 Cenovus showed total operating funds of $2.7 billion and adjusted funds flow of $3.4 billion.While free cash flow was a whopping $2.4 billion.These funds were used to reduce debt by $1 billion to $6 billion in net debt.Net income and net income per share at $1.82 per share were up from Q3 in 2022 at $1.53 per share.
The Next Step
Before acquiring Husky, Cenovus was focused on the Lloydminster oil pool and the Lloydminster upgrader and asphalt plant.In 2021 the capacity of Lloydminstrer was 150,000 barrels per day;output was used solely for producing asphalt.But in guidance, CVE has told shareholders that it intends to spend $920 million in order to create a substantial diesel plant.The Lloydminster oil pool is sizeable and close to the American market.So this blog thinks that down the road an upgrader or a refinery will be added to produce gasoline as well as diesel in Lloydminster.
A new Cenovus
Back in 2020 Cenovus was a quite different company than today. At that time CVE owned substantial upstream assets and the Lloydminster upgrader and asphalt plant.Then it acquired Husky Energy and in 2022 spent a lot of money improving the new,bigger company.And in 2024 (September) the new diersel plant is expected to come onstream.But this blog sees CVE making a bigger opportunity out of Lloydminster with it's sizeable heavy oil pool.Down the road Cenovus could be adding another oil upgrader or refinery to handle gasoline.And it doesn't hurt that Lloydminster is closer to the American market than the refineries in Edmonton.
The future Price of CVE
With the W.T.I oil price so volatile the price of all oil shares moves with the W.T.I.But CVE will have greater production than Q3 2022 and the average price(over the quarter) will be lower than Q3 2022.Consequently net earnings per share in Q3 shoiuld be in a range of $1.70-$1.90 per share and around $7.00-$7.50 per share on an annual basis.And this will keep CVE shares in the area around $24-$28 per share.But in 2024 the price may edge upwards as the diesel plant gets closer to being finished in September.
Dale Mcintyre https://www.marketbeat.com/ M.S.Sc.(econ) is a freelance writer that wrires for several brokers.