Cenovus (CVE) mulls redevelopment of Atlantic assets, $10 billion net debt
Cenovus Energy Inc. CVE recently agreed to restructure its interests in the Atlantic region with respective partners in the region. The agreement includes its working interests in the Terra Nova and White Rose projects. This move should improve the economics of the business in the region.
The deal will increase its stake in Terra Nova to 34% from 13%. In addition, it will receive $78 million from outgoing partners for future asset retirement obligations. The asset life expansion project at Terra Nova will likely continue, extending the life of the field to 2033. Production from the site will likely resume before the end of 2022. Production from the field is expected to reach 29 000 barrels per day by 2023.
The company has also agreed to reduce its stake in the White Rose project, while its partner Suncor Energy Inc. SU will receive increased direct participation. Cenovus’ stake in the field will be reduced from 72.5% to 60%, while the same in satellite extensions will be reduced to 56.375% from 68.875%. Under the deal, Suncor’s stake in the offshore field will likely increase from 27.5% to 40%. The decision to restart the West White Rose project is expected to be made by the middle of next year.
Cenovus’ restructuring should make its upstream portfolio more profitable and free up capital that can be allocated more efficiently to asset production. These measures are likely to increase shareholder value. Additionally, Terra Nova’s asset life expansion project and the restart of the West White Rose project may enable it to achieve its goal of achieving compound annual production growth of 2-3% of 2020 to 2024.
Additionally, the company announced that it is striving to meet the goal of $10 billion in net debt this year. At the end of the second quarter, the company had net debt of $12.4 billion. With free funds increasing in recent quarters, Cenovus is expected to meet its target on schedule. In the first half of 2021, it generated $1,877 million in free fund inflows, reflecting a massive improvement from the free fund outflow of $1,074 million a year ago. Once the goal is achieved, he intends to allocate a portion of the free funds to increasing shareholder returns.
The stock has gained 38.9% since the start of the year, against a rise of 6.6% in the industry to which it belongs.
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Zacks Ranking and Stocks to Consider
The company currently has a Zacks rank of #3 (Hold). Some higher ranked stocks in the energy sector include Suburban Propane Partners, LP HPS and Comstock Resources, Inc. CRK, each with Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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