Cenovus plans to boost production, raise shareholder returns in 2023

Fundamentals of global oil demand remain strong, CEO Pourbaix says

Cenovus Energy Inc. said it will boost production next year by more than three per cent while plowing more of its profits into shareholder returns.

The oilsands major, which released its 2023 budget on Tuesday, expects to reach its net debt target by the end of this year, a milestone that will trigger an escalation in shareholder returns to 100 per cent of excess free funds flow from 50 per cent.

Cenovus will also increase its capital spending by about 21 per cent from last year to $4 billion to $4.5 billion. Between $1.2 billion and $1.7 billion will go to optimization and growth, including the restart of the West White Rose oilfield in offshore Newfoundland and Labrador and production-boosting investments in the oilsands — investments the company said could add more than 125,000 barrels of oil per day (mbbl/d) in incremental upstream production, and 18 mbbl/d of downstream throughput over the next five years.

The Calgary-based company expects total production of between 800,000 to 840,000 barrels of oil equivalent per day ( boe/d) in 2023, an increase of more than three per cent.

Cenovus's production boost comes amid softening crude prices, despite continued energy supply concerns exacerbated by Russia's invasion of Ukraine.

But the company said Tuesday operating costs at its oilsands and U.S. refineries were flat or decreasing and maintained that it has capacity to grow its base dividend even if prices were to drop as low as US$45 per barrel for benchmark West Texas Intermediate (WTI). Cenovus' 2023 budget is based on a forecast average price for WTI of US$77 per barrel.

Total offshore oil production is expected to be in a range of 65,000 to 78,000 barrels of oil equivalent per day. Cenovus also said it expects to close its acquisition of BP Plc's Toledo refinery and for the fire-damaged Ohio plant to resume operations by the end of the first quarter of 2023.

The company is forecasting total downstream crude throughput of 610,000 to 660,000 barrels per day, an increase of 28 per cent compared to last year.

Cenovus chief executive Alex Pourbaix said in an interview with The Canadian Press on Tuesday he believes the fundamentals of global oil demand will remain strong in 2023.

“There's been a huge deficit in investment in upstream oil and gas over the past several years, and it's going to take a period of time to replace that,” said Pourbaix.

“I think all things being equal, unless we have a really significant surprise in terms of recession or the return of the pandemic, that price that we've put out there (US$77) is kind of probably right down the fairway.”

Pourbaix said the company is well on its way to reaching its target net debt floor of $4 billion by year end, which will trigger a hike in the company's returns to shareholders to the tune of 100 per cent of excess free cash flow. A number of Canadian producers, including Cenovus, could meet or surpass their debt reduction targets thanks to crude oil prices averaging above US$90 per barrel in 2022 for WTI.

While Canadian producers continue to ramp up dividends and share buybacks, the sector is increasingly facing pressure from governments and regulators to decarbonize.

Cenovus said it will increase general and administrative spending next year, partly to cover the company's share of expenses related to the Pathways Alliance, a consortium of oilsands firms co-operating to advance a proposed carbon capture storage hub and network in northern Alberta.

The company also said it will spend approximately $30 million in 2023 on reducing methane emissions and on carbon capture and storage in its conventional assets. Cenovus has said it plans to spend $1 billion over the next five years on initiatives to reach its goal of reducing absolute scope 1 and 2 emissions by 35 per cent by the end of 2035 compared to 2019 levels.

Pourbaix said the projects the Pathways group are proposing — in particular, a massive, proposed carbon capture and storage network that would sequester carbon from the oilsands and transport it to a central storage hub — are major pieces of infrastructure that take time to develop.

“We certainly don't have our permits yet that we're going to require from the provincial and potentially the federal governments. These larger scale projects just take a bit of time to get everything in place,” he told The Canadian Press.