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Cenovus Energy (CVE)

From The Successful Investor

Cenovus Energy Inc. (CVE) gets 30% of its revenue from its Western Canadian oil sands properties and conventional oil and gas wells.

Its biggest properties are its 50%-owned Christina Lake and Foster Creek oil sands projects; ConocoPhilips (New York symbol COP) owns the remaining 50%. Refining supplies 70% of Cenovus’s revenue. The company ships its oil to its 50%-owned refineries in Illinois and Texas. Phillips 66 owns the other 50%.

Due to low oil prices, the company has cut 31% of its workforce since the end of 2014 and lowered its production costs per barrel by 14%. These moves should reduce Cenovus’s annual costs by $200 million. It also plans to spend $1.2 billion on exploration and maintenance in 2016. That’s down $300 million from its original forecast.

Partly due to asset sales, Cenovus’s oil production in the first quarter of 2016 fell 9.4%, to 197,551 barrels a day from 218,020 barrels a year earlier. The company lost $423 million, or $0.51 a share, in the quarter. That’s much higher than its year-earlier loss of $88 million, or $0.11. Cash flow per share dropped 95.3%, to $0.03 from $0.64; Revenue fell 28.5%, to $2.2 billion from $3.1 billion.

Cenovus’s long-term debt of $6.1 billion (as of March 31, 2016) is a manageable 39% of its market cap. It also holds cash of $3.9 billion, and has access to $4.0 billion in credit.

Cost savings could push up cash flow per share from a depressed $0.92 in 2016 to $2.12 in 2017. The stock trades at 9.0 times the 2017 estimate. The $0.20 dividend still looks safe. Cenovus is a buy.

Patrick McKeough, The Successful Investor, www.tsinetwork.ca, 888-292- 0296, May 2016

Patrick McKeough is one of Canada’s top safe-money advisors. A professional investment analyst for more than 25 years, he has developed a stock-selection technique that has proven reliable in both bull and bear markets. His proprietary ValuVesting System™ focuses on stocks that provide exceptional quality at relatively low prices. As early as 1980, Mr. McKeough was recognized as #1 in the world of published investment advice by the Washington, DC-based Newsletter Publishers Association. According to The Hulbert Financial Digest, Mr. McKeough’s Successful Investor newsletter outperformed all other Canadian newsletters over five years, and ranked fifth among all 140 newsletters that Hulbert tracks.