(Idea) Cenovus Energy Q4 Analysis
Note: Dollar references are to Canadian dollars unless specified otherwise.
After underperforming for months and falling to multi-year lows, Cenovus Energy (CVE) shares sprang to life yesterday, rallying 7.5% in response to good—but not great—fourth-quarter results. The response shows that sentiment toward the shares had grown too negative, providing an attractive buying opportunity for the contrarians in the crowd.
Q4 Highlights
Fourth-quarter results were decent overall, while guidance was broadly in line with expectations. The stock’s fierce rally in response to the news makes us wonder just how bad sentiment had become toward the company.
The biggest positive during the quarter was CVE's adjusted funds flow from operations of $1.997 billion, or $1.06 per share. The result was 5% above analyst consensus expectations. The cash flow beat was driven by lower G&A and cash income taxes relative to expectations.
The upstream segment performed well. Total production averaged 808,600 boe/d, in line with consensus expectations. The production rate was the second highest in the company's history. Conventional/offshore was CVE's standout performer, also helping to drive the quarter's cash flow beat. Oil sands production hit its highest quarterly total in two years. Total upstream production closed out 2023 at 809,000 boe/d, which bodes well for first-quarter results.
CVE’s strong upstream performance was offset by a weak downstream segment performance. Refinery throughput remained a sore spot, as had been the case earlier in 2023. Canadian refinery and upgrader throughput decreased by 8% from the prior quarter, while U.S. refinery throughput fell by 14%. Total refinery utilization fell to 78%, below consensus expectations of 83%.
Several downstream assets underperformed. The non-operated Borger Refinery faced upstart delays, while CVE’s Lima Refinery and Lloydminster Upgrader experienced unexpected outages after planned maintenance. Its Superior Refinery also ran into issues after its initial throughput ramp over the summer.
Adding to the downstream headwinds during the quarter was the 50% plunge in refining margins. As if lower throughput and margins weren’t enough, downstream segment EBITDA took an additional hit from FIFO losses and inventory write-downs. All these factors drove segment EBITDA to negative $304 million during the quarter.