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CALGARY – Cenovus Energy Inc. CEO Alex Pourbaix says his company will hit its debt target “imminently” thanks to either higher revenues from elevated oil and gas prices or expected proceeds from asset divestitures.
“I’m loathe to pick a day,” Pourbaix said when asked when the Calgary-based oil sands producer would hit its $10-billion net-debt target. The company’s net debt sat at $11 billion at the end of September but Cenovus expects to hit its $10 billion net-debt target “imminently,” and also now expects to hit a longer-term $8-billion net debt target next year.
Pourbaix said that a combination of $700 million to $800 million per month in free cash flow and expected asset divestitures would allow the company to reach its target “very, very quickly.”
Cenovus, Canada’s third largest oil and gas producer, did not announce any asset sales on a Wednesday earnings call but Pourbaix said in an interview that the company is “very advanced on a number of those initiatives.”
The Calgary-based oilsands player had previously paused a number of planned asset sales when oil and gas prices fell last year but as commodity prices have strengthened, the company has again been working to sell off a number of non-core natural gas assets it purchased along with Houston-based ConcoPhillips Co.’s oilsands assets in 2017 and assets it purchased in its $9-billion blockbuster deal for Husky Energy Inc. last year, including Husky’s retail network of fill-up stations.
M&A activity in the oilpatch was relatively subdued in the past two years, but picked up this year and has exceeded $19.3 billion in value across 95 transactions year-to-date — its best performance in two years, FP Data shows.
Cenovus also announced Wednesday it would double its dividend payout and unveiled a plan to buy up to 10 per cent of its outstanding shares, making it the most aggressive share buyback program in the oilsands, ahead of Suncor Energy Inc.’s plan to buy up 7 per cent of its own float.
The share buyback plan means Cenovus could buy up to 146.5 million of its own shares, which is notable because ConocoPhillips has been selling off its stake in Cenovus and has another 128.9 million shares to liquidate.
The Cenovus plan “is sufficiently sized to take up the remaining 128.9 million shares held by ConocoPhillips,” Raymond James analyst George Huang wrote in a Wednesday research note.
Pourbaix said the company would buy up its own shares with an eye to value.
“The ability to buy back our shares at this value is somewhat of a gift but as our share price escalates, there is a point at which we would not view it as adding value for our shareholders,” Pourbaix said, declining to provide a number when the company would stop buying the stock.
The boost to shareholder returns comes after the company reported $551 million in net earnings for the third quarter, which reverses a $194 million net loss posted during the same quarter a year earlier.
Cenovus also announced it had pumped 655,100 barrels of oil equivalent per day in the third quarter, up 59 per cent from the roughly 412,000 boed the company produced a year earlier. The greater production is partly as a result of its /integration of Husky Energy Inc., which it bought for $9 billion at the end of 2020. The company plans to announce a budget at its investor day on Dec. 8.
“We continue to rank Cenovus as our top integrated pick, driven by expectations of continued operational execution and synergy realizations, and a significant (free cash flow) wedge that should backstop incremental shareholder value creation,” National Bank analyst Travis Wood wrote in a Wednesday research note.
Wood has a $22 per share price target on the company, whose shares traded up 1 per cent, or 18 cents each, to $15.03 per share on Wednesday.
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