Cenovus triples dividend after earnings surge sevenfold on high oil prices

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Cenovus Energy Inc. said it would triple its dividend after high crude prices helped the oil major boost its quarterly profits sevenfold.

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The Calgary-based company reported net income of $1.6 billion for the first quarter, compared to a profit of $220 million in the same period last year.

The company announced plans to increase its base dividend to $0.42 per share from $0.14 per share per year, beginning in the second quarter. Shares of the integrated oil company jumped on the April 27 news, climbing more than 10% to close at $23.27.

On a conference call with analysts, Cenovus CEO Alex Pourbaix also answered questions about the federal government new 50% investment tax credit for Carbon Capture, Utilization and Storage (CCUS) technology.

Pourbaix said the tax credit alone will not be enough to move the projects forward. He said similar projects around the world have required 60 to 70 per cent support from governments and that additional help from the province may be needed to get projects started in Alberta.

“As an industry, we’re going to need some additional steady-state support to probably move forward with these really meaningful large-scale CCUS projects,” Pourbaix said. “And I guess there will ultimately be input from both levels of government into that.”

Pourbaix also championed the notion of public investment in reducing emissions at a time when the industry is recording such strong profits.

“These are multi-billion dollar projects and we need to be confident that they are investable and that we can manage those investments through the full commodity price cycle,” Pourbaix said. “Although oil prices are currently attractive. We know, probably before this project comes on stream, we will probably test the bottom of these prices again, so we really have to look at this in the long term.

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Commodity prices have surged since Russia’s invasion of Ukraine in February exacerbated already tight oil supplies, pushing benchmark West Texas Intermediate crude above US$100 a barrel.

In addition to the dividend increase, Cenvous announced its goal of returning 50% of quarterly excess free cash flow to shareholders when net debt falls below $9 billion through its share buyback plan. And once net debt drops below $4 billion, the company said 100% of excess free cash flow from the previous quarter would go to buybacks, a scenario some analysts believe could happen this year. next.

“We’ve built this business with a focus on generating free cash flow and we’ve made rapid progress on the balance sheet,” Pourbaix said on the conference call.

Cenovus has become the nation’s third-largest oil and gas producer since its acquisition of Husky Energy in 2021.

Upstream production rose to 798,600 barrels of oil equivalent per day (boepd) in the first quarter from 769,254 boepd a year earlier.

Long-term debt was $11.7 billion at the end of the first quarter of 2022, down $640 million from the end of 2021. Net debt was $8.4 billion. The company said it has adopted an ultimate net debt goal of $4 billion.

Cenovus also raised its 2022 capital expenditure guidance from $300 million to a range of $2.9 billion to $3.3 billion, reflecting increased costs associated with rebuilding its Superior refinery in Wisconsin.

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In a research note, National Bank analyst Travis Wood said inflationary pressures and supply chain headwinds were responsible for the change in forecast and are not a surprise. “We expect to see similar announcements across the industry throughout the reporting season,” Wood wrote.

Cenovus announced earlier this month that it was suspending its oil price hedging practice and estimated the cost of exiting its hedges at $1.38 billion in the first two quarters of 2022.

Hedging allows companies to lock in future prices for a portion of production, protecting them from downturns, but Cenovus’ risk management program has also prevented the company from taking full advantage of rising energy prices. .

With additional reports from Reuters

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Felix J. Dixon