Cenovus (NYSE:CVE) announces fourth-quarter and full-year 2023 results
CALGARY, Alberta, Feb. 15, 2024 (GLOBE NEWSWIRE) — Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) continued to deliver strong operational performance across the portfolio in the fourth quarter of 2023. The company’s upstream assets performed exceptionally well, achieving the second-highest quarterly production rates in Cenovus’s history. In its downstream business, the company continued to build operating momentum at its wholly-owned refineries. Upstream and downstream results were negatively impacted by a rapid decline in commodity prices and refinery crack spreads in the quarter. This was compounded by the cost of processing crude oil in the downstream that was purchased in prior periods at higher prices.
“As expected, upstream operating performance was excellent through the final months of the year. This period also marked the second full quarter that our full suite of operated refining assets were available to us and I am very pleased with our progress,” said Jon McKenzie, Cenovus President & Chief Executive Officer. “With the work done in 2023, we are well positioned to continue capturing more margin across our businesses.”
Fourth-quarter and year-end highlights
- Achieved a strong upstream exit rate in 2023, with fourth quarter average production of 809,000 barrels of oil equivalent per day (BOE/d)1.
- Returned a total of $731 million to shareholders in the fourth quarter, including the payment of the remaining warrant purchase liability. In 2023, returned $2.8 billion to shareholders, including $1.1 billion through share buybacks, $1.0 billion through common and preferred share dividends and $711 million on the purchase and cancellation of common share warrants.
- Reduced net debt by $916 million in the fourth quarter, to $5.1 billion. Long-term debt, including the current portion, was $7.1 billion at the end of the fourth quarter, a reduction of $1.6 billion compared with year-end 2022, and reflects the continued strengthening of our capital structure with the repurchase of US$1 billion of long-term debt in 2023.
| Financial, production & throughput summary | |||||
| For the period ended December 31 | 2023 Q4 | 2023 Q3 | 2022 Q4 | 2023 FY | 2022 FY |
| Financial ($ millions, except per share amounts) | |||||
| Cash from (used in) operating activities | 2,946 | 2,738 | 2,970 | 7,388 | 11,403 |
| Adjusted funds flow2 | 2,062 | 3,447 | 2,346 | 8,803 | 10,978 |
| Per share (diluted)2 | 1.09 | 1.81 | 1.19 | 4.57 | 5.47 |
| Capital investment | 1,170 | 1,025 | 1,274 | 4,298 | 3,708 |
| Free funds flow2 | 892 | 2,422 | 1,072 | 4,505 | 7,270 |
| Excess free funds flow2 | 471 | 1,989 | 786 | ||
| Net earnings (loss) | 743 | 1,864 | 784 | 4,109 | 6,450 |
| Per share (diluted) | 0.39 | 0.97 | 0.39 | 2.12 | 3.20 |
| Long-term debt, including current portion | 7,108 | 7,224 | 8,691 | 7,108 | 8,691 |
| Net debt | 5,060 | 5,976 | 4,282 | 5,060 | 4,282 |
| Production and throughput (before royalties, net to Cenovus) | |||||
| Oil and NGLs (bbls/d)1 | 662,600 | 652,400 | 664,900 | 640,000 | 641,900 |
| Conventional natural gas (MMcf/d) | 876.3 | 867.4 | 852.0 | 832.6 | 866.1 |
| Total upstream production (BOE/d)1 | 808,600 | 797,000 | 806,900 | 778,700 | 786,200 |
| Total downstream throughput (bbls/d) | 579,100 | 664,300 | 473,300 | 560,400 | 493,700 |
1 See Advisory for production by product type.
2 Non-GAAP financial measure or contains a non-GAAP financial measure. See Advisory.
Fourth-quarter results
Operating results1
Cenovus’s total revenues were approximately $13.1 billion in the fourth quarter of 2023, down from $14.6 billion in the third quarter. Upstream revenues were about $6.9 billion, a decrease from $7.6 billion in the previous quarter, while downstream revenues were approximately $8.4 billion, compared with $9.7 billion in the third quarter of 2023. Total operating margin3 was about $2.2 billion, compared with $4.4 billion in the third quarter. Upstream operating margin4 was approximately $2.5 billion, a decrease from $3.4 billion in the previous quarter, primarily driven by a wider light-heavy differential and lower Brent and West Texas Intermediate (WTI) crude oil prices. Cenovus had a downstream operating margin4 shortfall of $304 million, compared with an operating margin of $922 million in the third quarter. Operating margin in U.S. Refining was impacted by approximately $430 million comprising first-in, first-out (FIFO) losses and a non-cash write-down of refined product and crude oil inventory.
Total upstream production was 808,600 BOE/d in the fourth quarter, an increase of approximately 12,000 barrels per day (bbls/d) from the third quarter, as the company progressed the start-up of new oil sands well pads and the Terra Nova field returned to production in November. Foster Creek volumes increased to 198,800 bbls/d, from 189,300 bbls/d in the third quarter and Christina Lake production was 239,600 bbls/d, in line with the third quarter. Sunrise produced 50,100 bbls/d and continued to show strong results from its redevelopment program. At the Lloydminster thermal projects, production of 106,600 bbls/d was in line with the prior quarter. Overall, Oil Sands operating costs per barrel were $10.96, a reduction of 13% from the third quarter of 2023, reflecting higher sales volumes and lower natural gas prices.
Production in the Conventional segment was 123,800 BOE/d in the fourth quarter, a decrease from 127,200 BOE/d in the third quarter. Cenovus experienced higher production rates from certain wells in the third quarter following shut-ins that occurred in the second quarter of 2023 due to the Alberta wildfires.
In the Offshore segment, production was 70,200 BOE/d compared with 66,400 BOE/d in the third quarter. In Asia Pacific, sales volumes increased in the fourth quarter, reflecting production from the MAC field in Indonesia that began in the third quarter of 2023. In the Atlantic region, production was 9,700 bbls/d compared with 8,900 bbls/d in the prior quarter as the non-operated Terra Nova floating production, storage and offloading (FPSO) vessel resumed production offshore Newfoundland and Labrador.
Crude throughput in the Canadian Refining segment was 100,300 bbls/d in the fourth quarter, compared with crude throughput of 108,400 bbls/d in the third quarter. Throughput was reduced primarily due to an unplanned outage at the Lloydminster Upgrader in October, which returned to full rates in November.
In U.S. Refining, crude throughput was 478,800 bbls/d in the fourth quarter, compared with crude throughput of 555,900 bbls/d in the third quarter. Throughput was reduced primarily due to planned turnaround activity at the non-operated Borger Refinery and an unplanned outage delaying the start-up of the refinery post-turnaround. The Lima Refinery also underwent planned maintenance in the fourth quarter and a temporary unplanned outage. In response to the exceptionally weak refined products pricing environment in December, the company took the opportunity to economically optimize throughput across its refining network.
3 Non-GAAP financial measure. Total operating margin is the total of Upstream operating margin plus Downstream operating margin. See Advisory.
4 Specified financial measure. See Advisory.
Financial results
Fourth-quarter cash from operating activities, which includes changes in non-cash working capital, was about $2.9 billion, compared with $2.7 billion in the third quarter of 2023. Adjusted funds flow was approximately $2.1 billion, compared with $3.4 billion in the prior period and free funds flow was $892 million, a decrease from $2.4 billion in the third quarter. Fourth-quarter financial results were impacted by lower refined product pricing in the U.S. and lower price realizations in the Oil Sands segment, driven by wider light-heavy crude oil differentials. The December 2023 average Chicago 3-2-1 crack was US$7.65 per barrel, the lowest monthly average since 2020.
Net earnings in the fourth quarter were $743 million, compared with $1.9 billion in the previous quarter. The decrease in net earnings was primarily due to lower operating margin, which includes a non-cash write-down of $89 million in refined product inventory and crude oil inventory as a result of lower market pricing anticipated in the first quarter of 2024. These factors were partially offset by lower income taxes, lower general and administrative expenses due to lower long-term incentive costs and an unrealized foreign exchange gain compared with an unrealized loss in the third quarter.
Long-term debt, including the current portion, was reduced to $7.1 billion at December 31, 2023 compared with $7.2 billion at September 30, 2023 and $8.7 billion at December 31, 2022, mainly as a result of the company’s purchase of US$1.0 billion of outstanding notes in the third quarter of 2023. Net debt was approximately $5.1 billion at December 31, 2023, a decrease from $6.0 billion at September 30, 2023, primarily due to a draw in non-cash working capital in the quarter as a result of decreasing commodity prices and a volumetric draw of product in inventory as well as free funds flow of $892 million offset by shareholder returns of $731 million. Cenovus continues to make progress towards its net debt target of $4.0 billion.
Capital investment of $1.2 billion in the fourth quarter was primarily directed towards sustaining production in the Oil Sands segment, tie-ins and infrastructure projects in the Conventional business and sustaining activities in the Downstream segments. In addition, the company continues to progress its growth and optimization projects, including the West White Rose project, the tie-back of Narrows Lake to Christina Lake and Sunrise and Foster Creek optimizations.
Full-year results
In 2023, Cenovus’s total upstream production averaged 778,700 BOE/d, compared with 786,200 BOE/d in 2022, which reflects the impact of wildfire activity in Alberta in the second quarter of 2023 as well as the timing of sustaining well pads in the Oil Sands segment. Oil Sands crude oil production was 593,400 bbls/d, including 186,300 bbls/d at Foster Creek and 237,400 bbls/d at Christina Lake. Full-year production from the Lloydminster thermal projects was 104,100 bbls/d compared with 99,900 bbls/d in 2022, reflecting a full year of production from the company’s Spruce Lake North facility. Production from Sunrise was 48,900 bbls/d compared with 31,300 bbls/d in 2022, with the increase largely driven by the acquisition of the remaining 50% working interest in Sunrise, which closed in August 2022. Conventional production was 119,900 BOE/d compared with 127,200 BOE/d in 2022, with the decrease mainly related to the wildfire activity in Alberta in 2023. Offshore total production was 63,400 BOE/d, compared with 70,300 BOE/d in the prior year, reflecting lower production from the Atlantic region primarily due to turnaround work in 2023 and the unplanned outage in China in the second quarter of 2023.
U.S. Refining crude oil throughput increased to 459,700 bbls/d in 2023 compared with 400,800 bbls/d in 2022, reflecting the acquisition of the remaining 50% working interest in the Toledo Refinery and the restart of the Superior Refinery in 2023. In addition, 2022 throughput was impacted by higher levels of planned and unplanned maintenance.
Total revenues were about $52.2 billion in 2023 and total operating margin was $11.0 billion compared with revenues of $66.9 billion and total operating margin of $14.3 billion in 2022. Year-over-year decreases in both total revenues and total operating margin were largely related to lower commodity prices.
Cash from operating activities was $7.4 billion for 2023 compared with $11.4 billion in 2022. Adjusted funds flow was $8.8 billion and free funds flow was $4.5 billion. Total capital investment for 2023 was $4.3 billion, primarily concentrated on sustaining production at the company’s upstream assets, the construction of the West White Rose project and refining reliability initiatives. Full-year net earnings for 2023 were about $4.1 billion compared with $6.5 billion in 2022, primarily due to lower commodity prices.
Reserves
Cenovus’s proved and probable reserves are evaluated each year by independent qualified reserves evaluators. At the end of 2023, Cenovus’s total proved and total proved plus probable reserves were approximately 5.9 billion BOE and 8.7 billion BOE respectively, relatively unchanged compared to the prior year. Total proved and total proved plus probable bitumen reserves were approximately 5.4 billion barrels and approximately 7.9 billion barrels respectively, both relatively unchanged compared to the prior year. At year-end 2023, Cenovus had a proved reserves life index of approximately 21 years and a proved plus probable reserves life index of approximately 31 years.
More details about Cenovus’s reserves and other oil and gas information are available in the Advisory and the Management’s Discussion & Analysis (MD&A), Annual Information Form (AIF) and Annual Report on Form 40-F for the year ended December 31, 2023, available on SEDAR+ at sedarplus.ca, EDGAR at sec.gov and Cenovus’s website at cenovus.com.
Cenovus year-end disclosure documents
Today, Cenovus is filing its audited Consolidated Financial Statements, MD&A and AIF with Canadian securities regulatory authorities. The company is also filing its Annual Report on Form 40-F for the year ended December 31, 2023 with the U.S. Securities and Exchange Commission. Copies of these documents will be available on SEDAR+ at sedarplus.ca, EDGAR at sec.gov and the company’s website at cenovus.com under Investors. They can also be requested free of charge by emailing [email protected].
Dividend declarations and share purchases
The Board of Directors has declared a quarterly base dividend of $0.14 per common share, payable on March 28, 2024, to shareholders of record as of March 15, 2024. In addition, the Board has declared a quarterly dividend on each of the Cumulative Redeemable First Preferred Shares – Series 1, Series 2, Series 3, Series 5 and Series 7 – payable on April 1, 2024, to shareholders of record as of March 15, 2024 as follows:
| Preferred shares dividend summary | ||
| Share series | Rate (%) | Amount ($/share) |
| Series 1 | 2.577 | 0.16106 |
| Series 2 | 6.772 | 0.42094 |
| Series 3 | 4.689 | 0.29306 |
| Series 5 | 4.591 | 0.28694 |
| Series 7 | 3.935 | 0.24594 |
All dividends paid on Cenovus’s common and preferred shares will be designated as “eligible dividends” for Canadian federal income tax purposes. Declaration of dividends is at the sole discretion of the Board and will continue to be evaluated on a quarterly basis.
Cenovus’s shareholder returns framework has a target of returning 50% of excess free funds flow to shareholders for quarters where the ending net debt is between $9.0 billion and $4.0 billion. In the fourth quarter, the company returned $731 million to shareholders, composed of $111 million for the remaining payment of the common share warrants obligation, $350 million through its normal course issuer bid (NCIB) and $270 million through common and preferred share dividends. In 2023, the company returned $2.8 billion to shareholders through its NCIB, common and preferred share dividends and the purchase and cancellation of common share warrants.
2024 planned maintenance
The following table provides details on planned maintenance activities at Cenovus assets through 2024 and anticipated production or throughput impacts.
| 2024 planned maintenance | |||||
| Potential quarterly production/throughput impact (Mbbls/d) | |||||
| Q1 | Q2 | Q3 | Q4 | Annualized impact | |
| Upstream | |||||
| Oil Sands | — | 2 – 3 | 50 – 60 | — | 13 – 16 |
| Atlantic | 8 – 10 | 8 – 10 | 8 – 10 | — | 5 – 7 |
| Conventional | — | 3 – 5 | 4 – 6 | — | 2 – 4 |
| Downstream | |||||
| Canadian Refining | — | 42 – 46 | — | — | 10 – 12 |
| U.S. Refining | 20 – 24 | 12 – 16 | 30 – 34 | 56 – 60 | 30 – 35 |
Sustainability
In 2023, Cenovus made progress in several of its environmental, social and governance focus areas. The company announced a new milestone to reduce absolute methane emissions in its upstream operations by 80 percent by year-end 2028, from a 2019 baseline. In addition, Cenovus has reached its target of spending at least $1.2 billion with Indigenous businesses between 2019 and year-end 2025 and has achieved its aspiration to have at least 40% representation from designated groups among non-management members of the Board of Directors, including at least 30% women, by year-end 2025.
Cenovus continues to work with its peers in the Pathways Alliance to advance company-specific projects in order to achieve its overall emissions reduction target. Additional certainty about shared funding commitments from governments is required for Cenovus and the Pathways Alliance to move forward with the large-scale capital investments necessary to meet their emissions reduction goals.
Chief Sustainability Officer update
Cenovus Chief Sustainability Officer & Executive Vice-President, Stakeholder Engagement, Rhona DelFrari, will be taking a one-year sabbatical starting May 2, 2024. Jeff Lawson, Cenovus Senior Vice-President, Corporate Development, will take on Rhona’s responsibilities and join the executive team during her absence.