CALGARY, Alberta, April 29, 2020 (GLOBE NEWSWIRE) — Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) continued to deliver safe and reliable operations in the first quarter of 2020 while demonstrating its ability to take swift and decisive steps to enhance its financial resilience and protect its balance sheet in the face of the global macro-economic challenges caused by the COVID-19 pandemic. The company’s first-quarter financial results were impacted by the significant decline in global demand and pricing for crude oil and refined products caused by COVID-19 and exacerbated by a dispute between Saudi Arabia and Russia that resulted in increased oil supply.
“The strength of our balance sheet, the quality of our long-life oil sands reserves and the flexibility of our business to respond quickly to the changing external environment have positioned us well to withstand an extended period of low oil prices,” said Alex Pourbaix, Cenovus President & Chief Executive Officer. “When global economic conditions improve, we’ll be ready to contribute to Canada’s economic recovery in a meaningful way.”¹ Adjusted funds flow, free funds flow and operating earnings/loss are non-GAAP measures. See Advisory.
² The prior period has been reclassified to conform with the current period treatment of non-cash inventory write-downs.
³ Includes oil and natural gas liquids (NGLs).
⁴ Cenovus’s Deep Basin segment has been renamed the Conventional segment and now includes the company’s Marten Hills asset. For a description of Cenovus’s operations, refer to the Reportable Segments section of Management’s Discussion and Analysis.Response to COVID-19
In response to the COVID-19 pandemic, Cenovus took swift action to protect the health and safety of its staff and ensure the continuity of its business. Following the guidance of public health officials, the company directed all staff who are able to do so to work from home, established mandatory self-isolation protocols and restricted travel policies as well as implemented active health screening, physical distancing and advanced cleaning and sanitation measures at its field operations.Business flexibility and balance sheet strength
Over the past two years, Cenovus has worked diligently to reduce its sustaining capital and operating costs, maintain capital discipline and strengthen its balance sheet. In the first quarter of 2020 and in early April, the company implemented significant additional measures to enhance its financial resilience in response to the recent decline in commodity prices and the overall weak business environment. Cenovus announced the temporary suspension of its crude-by-rail program and, as a result, updated its production guidance for the year. The company reduced its 2020 capital spending guidance by $600 million at the midpoint of the range and lowered its forecast operating costs for the year by approximately $100 million compared with its original 2020 budget. Cenovus also announced a $50 million reduction in its general and administrative (G&A) spending guidance for 2020, a temporary suspension of its dividend and the deferral of investment decisions on major growth projects.Cenovus is actively managing its production levels as market conditions change to optimize the value it receives for its products. Currently, Cenovus’s oil sands production has been ramped down by approximately 60,000 barrels per day (bbls/d), and the company has flexibility to quickly ramp up production when market conditions improve. Based on analysis conducted during past production ramp-downs, the company is confident in its ability to safely reduce production even further without impacting the integrity of its reservoirs. Through its experience operating under voluntary and mandatory production curtailments, Cenovus has demonstrated ability to manage volume reductions of nearly 100,000 bbls/d.Cenovus believes its revised capital spending and business plans will ensure ongoing safe and reliable operations and adherence to regulatory commitments as well as enable it to proceed with necessary maintenance at its operations.“We’ve built a solid financial framework and flexible business plan that provide us with multiple options to continue to manage our balance sheet prudently,” said Pourbaix. “We’ve adjusted our 2020 business plan to navigate this period of volatile commodity prices and remain focused on preserving the strength of our balance sheet.”Liquidity
Cenovus has a $4.5 billion committed credit facility, with no maturities until late 2022 and late 2023. In April, to further strengthen its liquidity position, the company secured commitments from several of its existing Canadian lenders for an additional $1.1 billion committed credit facility.“Our ability to secure a significant new credit facility in this challenging market gives us even more financial flexibility to withstand a prolonged period of low oil prices,” said Pourbaix. “And it is a testament to the confidence our lenders have in our company.”In addition to its committed credit facilities, Cenovus has a further $1.6 billion of uncommitted bilateral credit lines and no bond maturities until late 2022. As of March 31, 2020, Cenovus had drawn approximately $550 million from its committed credit facilities and its uncommitted bilateral credit lines. The company’s jointly-owned non-operated refining business has further uncommitted bilateral credit lines, of which Cenovus’s share is approximately US$138 million. Cenovus’s share of short-term borrowings against these lines was approximately US$103 million as of March 31, 2020. This portfolio of facilities and longer-term maturities provides ample liquidity and runway to sustain the company’s operations through the current market downturn.Cenovus’s net debt was approximately $7.4 billion at the end of the first quarter, compared with net debt of about $6.5 billion at the end of 2019. The increase in net debt was primarily due to unrealized foreign exchange losses associated with U.S. dollar denominated debt, the draws against the company’s credit lines and Cenovus’s proportional share of borrowing by its refining partnership during the quarter. Cenovus remains committed to its long-term net debt target of $5 billion; however, the timeline for reaching this target depends on the duration of the current commodity price environment.First-quarter financial results
In the first quarter of 2020, the average price of West Texas Intermediate (WTI) declined 16% compared with the same period a year earlier. High crude oil inventory levels and takeaway constraints caused the average differential between WTI and Western Canadian Select (WCS) prices to widen 66% in the first quarter compared with the same period in 2019. This contributed to a 54% decline in realized pricing for Cenovus’s crude oil in the first quarter from a year earlier, to $22.74 per barrel (bbl).First-quarter cash from operating activities was $125 million compared with $436 million the previous year, while adjusted funds flow declined to a shortfall of $146 million compared with adjusted funds flow of more than $1 billion in the same period of 2019. The company had a free funds flow shortfall of approximately $450 million in the quarter compared with free funds flow of $688 million a year earlier.Cenovus had a first-quarter operating margin shortfall of $589 million compared with operating margin of more than $1.2 billion in the same period in 2019. The decrease was primarily due to lower average realized oil prices, a refining and marketing operating margin shortfall that included $253 million in non-cash inventory write-downs, non-cash inventory write-downs of $335 million related to the company’s upstream business, increased transportation and blending costs, and upstream realized risk management losses compared with gains in 2019. First-quarter results were negatively impacted by the timing of condensate and refinery inventory use in a falling commodity price environment. Condensate blended to produce heavy oil and refinery feedstock used in the first quarter were purchased when prices were higher.The company had a first-quarter operating loss of approximately $1.2 billion compared with operating earnings of $69 million in the same quarter in 2019, primarily due to the operating margin shortfall and higher depreciation, depletion, and amortization (DD&A) in its conventional segment that included a non-cash impairment charge of $315 million related to the decline in forward crude oil and natural gas prices. Cenovus had a net loss of approximately $1.8 billion compared with net earnings of $110 million a year earlier. The net loss was primarily due to the operating loss and non-operating foreign exchange losses of $589 million compared with gains of $209 million in the first quarter of 2019. The net loss was partially offset by a deferred income tax recovery of $348 million compared with an expense of $41 million in the first quarter of 2019 and lower unrealized risk management losses in the first quarter compared with a year earlier.Operating highlights
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