Cenovus Energy continued its strong and reliable operating performance in the third quarter of 2021. Total upstream production of almost 805,000 barrels of oil equivalent per day (BOE/d) drove solid financial results. The company generated third-quarter cash from operating activities of $2.1 billion and adjusted funds flow of $2.3 billion. Free funds flow of $1.7 billion and strategic refinancing transactions resulted in a reduction in net debt to about $11 billion at the end of the third quarter. The company expects to achieve its interim net debt target of below $10 billion imminently as a result of continued strong cash generation at current commodity prices and receipt of proceeds from announced asset sales. This will pave the way for Cenovus to increase investor returns by commencing a share buyback program of up to 146.5 million of the company’s common shares, representing approximately 10% of its public float, as defined by the Toronto Stock Exchange (TSX). To facilitate the buyback, Cenovus’s Board of Directors has approved filing an application with the TSX for a normal course issuer bid (NCIB). In addition, the Board has approved doubling Cenovus’s common share dividend effective in the fourth quarter of 2021.

“Our outstanding operating and financial results this quarter showcase the strength of our business and demonstrate that we deliver on our commitments,” said Alex Pourbaix, Cenovus President & Chief Executive Officer. “With our $10 billion net debt target largely achieved, we’re able to take these important steps to increase returns for our shareholders. Our free funds flow capacity will support swiftly advancing toward our longer-term net debt target of less than $8 billion, while balancing growth in shareholder returns.”

Consistent operating performancei

Cenovus achieved total production of 804,800 BOE/d, driven by record quarterly average daily oil sands production of more than 242,500 barrels per day (bbls/d) at Christina Lake and more than 187,000 bbls/d at Foster Creek. Total upstream operating margin was $2.4 billion, up from $1.9 billion in the second quarter. Cenovus continues to expect 2021 total upstream production volumes to range between 750,000 BOE/d and 790,000 BOE/d.

In the company’s downstream operations, the Lloydminster Upgrader and Lloydminster Refinery achieved an average third‐quarter crude oil utilization rate of 98%. The U.S. refineries, with a crude oil utilization rate of 89%, continued to ramp up throughput to 445,800 bbls/d, in line with modest increases in refined product demand and improving market crack spreads, partially offset by planned and unplanned outages. Total downstream operating margin was $268 million in the third quarter.  

Financial results

Total operating margin for the quarter was $2.7 billion, an increase of 24% compared with $2.2 billion in the second quarter of 2021 and 44% higher than $1.9 billion in the first quarter. The increase in third‐quarter operating margin, compared with the second quarter, was primarily driven by higher upstream production and sales volumes as well as increased benchmark commodity prices, partially offset by increased transportation blending costs due to higher condensate prices.

Cenovus had adjusted funds flow of $2.3 billion in the quarter. The company generated cash from operating activities of $2.1 billion, which includes an increase in non‐cash working capital of $166 million. Free funds flow of $1.7 billion included capital investment in the quarter of $647 million. The company continues to expect total capital expenditures for the year in the range of $2.3 billion to $2.7 billion.

Cenovus generated net earnings of $551 million in the third quarter, more than doubling second‐quarter net earnings of $224 million, with the improvement largely driven by higher operating margin.

Portfolio update

During the third quarter, Cenovus signed an agreement for the sale of its existing equity interest in Headwater Exploration Inc., which acquired the Marten Hills heavy oil asset from Cenovus in late 2020. The sale of Cenovus’s 50 million Headwater common shares closed in October and generated net proceeds of approximately $218 million. Cenovus continues to hold 15 million Headwater common share purchase warrants exercisable at $2.00 per common share, which expire in 2023.

In the third quarter and subsequent to September 30, the company closed previously announced asset sales within the Conventional segment located in the East Clearwater and Kaybob areas for combined gross proceeds of approximately $110 million. On a year‐to‐date basis, the company has achieved approximately $440 million in cumulative gross proceeds from divestitures. Cenovus continues to advance additional divestiture opportunities which will further enhance its deleveraging plan and shareholder return strategy.

Cenovus entered into agreements during the third quarter with its partners in the Atlantic region to restructure working interests in the Terra Nova and White Rose projects, providing improved economics for the company’s regional portfolio. These agreements increased Cenovus’s working interest in Terra Nova and, if a decision is taken to restart the West White Rose project, will reduce the company’s working interest in the White Rose fields. In the third quarter, Cenovus received $75 million net from the partners exiting Terra Nova. The Terra Nova asset life extension project is proceeding, extending the life of the field to 2033, with production expected to resume before the end of 2022.

KeyFacts Energy: Cenovus Canada East Coast country profile