Cenovus Energy, Inc. (CVE) Q4 2022 Earnings Call Transcript

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Cenovus Energy, Inc. (NYSE:CVE) Q4 2022 Earnings Conference Call February 16, 2023 11:00 AM ET

Company Participants

Sherry Wendt - Director, IR

Jonathan McKenzie - EVP & COO

Alexander Pourbaix - CEO, President & Director

Norrie Ramsay - EVP, Upstream, Thermal, Major Projects & Offshore

Joseph Zieglgansberger - EVP, Natural Gas & Technical Services

Keith Chiasson - EVP, Downstream

Conference Call Participants

Greg Pardy - RBC Capital Markets

Dennis Fong - CIBC Capital Markets

Neil Mehta - Goldman Sachs

Menno Hulshof - TD Securities

Ashok Dutta - S&P Global Platts

John Royall - JPMorgan Chase & Co.

Chris Varcoe - Calgary Herald


Good day, ladies and gentlemen, and convey you for opinionated by. Welcome to Cenovus Energy's Fourth Quarter and Year-end 2020 Results. As a reminder, today's telephone is being recorded. [Operator Instructions]. Please beryllium advised that this convention telephone whitethorn not beryllium recorded aliases rebroadcast without nan expressed consent of Cenovus Energy.

I would now for illustration to move nan convention telephone complete to Ms. Sherry Wendt, Vice President, Investor Relations. Please spell ahead, Ms. Wendt.

Sherry Wendt

Thank you, operator, and welcome, everyone, to Cenovus' 2022 Year-end and Fourth Quarter Results Conference Call. Please mention to nan advisories located astatine nan extremity of today's news release. These picture nan forward-looking information, non-GAAP measures and lipid and state position referred to today. They besides outline nan consequence factors and assumptions applicable to this discussion. Additional accusation is disposable successful Cenovus yearly MD&A and our astir caller AIF and Form 40-F. All figures are presented successful Canadian dollars and earlier royalties unless different stated. Alex Pourbaix, our President and Chief Executive Officer, will supply little comments, and past we'll return your questions. We inquire that you please clasp disconnected connected immoderate elaborate modeling questions and travel up connected those straight pinch our Investor Relations squad aft nan call.

And please besides support to 1 question, pinch a maximum of 1 follow-up. You tin rejoin nan queue for immoderate different questions. Alex, please spell ahead.

Alexander Pourbaix

Thanks, Sherry, and bully morning, everybody. Before we talk astir our 4th fourth and yearly results, I thought I'd return conscionable a infinitesimal to talk our different news that we announced this morning. After our AGM astatine nan extremity of April, I will beryllium shifting to nan domiciled of Executive Chair. John will go our adjacent President and CEO. This is thing that I've been moving pinch nan Board connected for rather immoderate time, ensuring a robust scheme for executive succession, including processing beardown soul candidates has been a cardinal attraction of excavation and nan remainder of nan Cenovus' Board. And I americium very proud to say, successful my full career, I person ne'er worked pinch this tin a activity squad arsenic I americium fortunate to person present astatine Cenovus today.

When I joined Cenovus, nan feedback we received from shareholders was that nan institution had a -- historically, lacked a beardown succession plan. One of my very early acts arsenic President and CEO was to bring connected John arsenic CFO to thief execute 3 cardinal priorities we've group for Cenovus. Optimize our costs structure, grow our marketplace entree and fortify our equilibrium sheet. And arsenic galore of you know, erstwhile and -- erstwhile John joined nan company, he and I weren't strangers -- successful fact, we've known each different for nan amended portion of our careers. And I knew that John's towering strengths of discipline, accountability, activity ethic and heavy knowledge of nan power business would beryllium of immense thief to maine arsenic we embarked connected delivering connected those priorities. The full activity squad and each nan group successful this institution came together to present connected those priorities, culminating pinch nan Husky transaction and John's move to COO.

I won't opportunity it's each been a locomotion successful nan park. The reality is that we've worked done immoderate unthinkable challenges on nan way. But I tin opportunity pinch complete honesty that John and I person ne'er been misaligned connected what we judge is champion for nan company. I deliberation it's adjacent to opportunity we travel astatine problems from different perspectives. And I deliberation this diverseness has really made america a really successful team. Since nan Husky acquisition, we've achieved galore milestones together. I'll return a infinitesimal to revisit conscionable a few.

We delivered supra and beyond our targeted synergies from nan Husky deal. We continued to aggressively trim debt, and we implemented and are executing connected our shareholder returns framework. We've besides evolved nan plus portfolio pinch opportunistic A&D transactions, this to amended position nan institution to maximize nan dense lipid worth chain, which will support further maturation successful rate travel and shareholder returns. But I think, astir importantly, we've been capable to create a low-cost, resilient, integrated power institution that is profitable astatine each parts of nan commodity cycle. John has been instrumental successful these efforts and our imagination for Cenovus. With his breadth of experience, strategical reasoning and unthinkable commercialized acumen, location is nary amended personification to beryllium nan adjacent President and CEO of this company.

While I could person stayed connected successful nan domiciled for different twelvemonth aliases 2, Cenovus is successful really awesome shape, and I deliberation John has earned nan correct to lead Cenovus. And I don't deliberation location could beryllium a amended clip for this activity transition. Thanks, John.

Jonathan McKenzie

Well, thanks, Alex, and possibly I'll chime in, and convey you for those benignant words. And you're right, this institution has accomplished a awesome woody complete nan past 5 years nether your leadership. You've really built a overmuch much resilient Cenovus and thing that I'm really proud of is we person a estimation for delivering our commitments nether your stewardship. In my view, you've near nan CEO chair and nan institution successful a overmuch amended information than you recovered it, which is really a awesome measurement of success. So I'm very overmuch looking guardant to nan adjacent shape of Cenovus and continuing connected nan way that you've group america on.

As you said earlier, you and I person known each different for nan amended portion of our careers, including moving intimately together connected different projects anterior to america getting together astatine Cenovus. And done that time, we've been bully friends. So I'm thrilled that you're staying connected arsenic Executive Chair and continuing your ongoing support and defense for Cenovus, and much broadly, nan Canadian power industry. And I'm grateful to proceed moving intimately pinch you complete nan coming years. So convey you very much.

Alexander Pourbaix

Well, thanks, John. As galore of you are aware, an expanding -- progressively important proportionality of my clip is being spent connected outer efforts, including actively partnering pinch governments to thief support Canada successful achieving its ambiance goals, while besides remaining a competitory system successful which Canadians tin thrive. And adjacent to safety, location is thing much important to Cenovus successful our manufacture than reaching a durable solution betwixt authorities and manufacture to execute our emanation aspirations. Once I move to nan executive chair position, I intend to dedicate moreover much clip to this pivotal outer rumor for some Cenovus and our industry. Besides my Board governance responsibilities, I will besides proceed to activity intimately pinch John to advancement nan strategical guidance we've established for Cenovus.

I really can't show you guys really happy I americium for John successful his caller domiciled and really excited I americium astir my continuing domiciled pinch this awesome institution and our people. So pinch that, possibly I'll move to nan year-end and quarterly results. And arsenic I do each quarter, I'm going to commencement pinch our apical priority, wellness and safety. I would for illustration to admit our good transportation group, which reduced its recordable wounded wave from 0.91 successful Q1 2022, down to 0.53 complete nan afloat year.

This capacity betterment comes pinch attraction and dedication and I americium really proud of what this group has been capable to execute arsenic we proceed to ramp up our drilling activity. Similarly, our recordable wounded wave astatine our Lima refinery fell to 0.1 from 0.5 successful 2021. This is an perfectly outstanding result, and we are each proud of our squad successful Lima for this achievement. That being said, immoderate of nan caller incidents astatine our nonoperated refineries are an important reminder to america that we must ne'er go complacent aliases return our information capacity for granted.

We will beryllium unrelenting successful our efforts to guarantee that Cenovus' beardown information civilization is embedded astatine each tract wherever we operate. This includes Toledo, wherever we expect to adjacent nan acquisition of nan refinery astatine nan extremity of this month, and astatine Superior arsenic we commence start-up.

Turning to our operating results, I'll statesman pinch nan upstream. Looking backmost connected nan year, location was a batch of A&D activity that helped america streamline our upstream business. By acquiring nan remaining 50% of Sunrise, we now person afloat power to deploy Cenovus' operating exemplary and return that plus from astir 45,000 barrels per time today, backmost up to its nameplate accumulation of 60,000 barrels a time and beyond. This is an fantabulous opportunity for Cenovus to show our SAGD expertise and nan benefits of our operating model. We besides sold nan Tucker lipid sands plus successful nan Wembley accepted plus this twelvemonth for full proceeds of $950 cardinal combined. These income helped accelerate our deleveraging efforts done nan year. It besides allows america to attraction our superior walk connected higher return projects.

Looking astatine nan Q4 operating results, full accumulation averaged complete 806,000 BOE per day, up astir 30,000 BOE per time from nan 3rd quarter. This is simply a important accomplishment of our operating teams who did an exceptional occupation of managing done utmost wintertime upwind successful December. The accepted business contributed astir $250 cardinal of operating separator successful nan 4th fourth while keeping accumulation rates comparatively flat. This winter, nan squad was focused connected adding caller wells, immoderate pre-purchasing of materials that were slated for 2023, and advancing immoderate infrastructure projects to support multiyear improvement successful this segment. The Asia-Pac region besides contributed to nan quarter-over-quarter accumulation increase. In China, we saw our partners tie state supra regular statement rates and further accumulation came online successful Indonesia from caller wells precocious completed.

In nan Atlantic segment, accumulation remained comparatively flat. However, pinch nan Terra Nova FPSO plus life hold now complete, we are expecting nan Terra Nova section backmost online successful nan 2nd 4th of 2023.

Turning to nan Downstream. I will commencement by highlighting immoderate of nan successes we achieved astatine our operated assets complete nan year. The Lima refinery continues to tally reliably and achieved grounds throughput successful 2022. It generated astir $1.1 cardinal successful operating separator this twelvemonth and besides delivered its champion ever information performance. These results reenforce our accuracy that beardown information capacity drives beardown reliability, which, successful turn, drives beardown financial results. The Lloydminster upgrader and refinery continued to show beardown utilization done nan twelvemonth moreover pinch turnarounds astatine each asset. The upgrader was capable to return advantage of a wide synthetic to dense lipid diff, while nan refinery continued to seizure beardown asphalt margins. Together, these 2 assets delivered almost $700 cardinal successful operating separator successful nan year.

We besides made important advancement connected nan Superior rebuild pinch start-up underway. The refinery began circulating hydrocarbons successful mid-February, pinch throughput expected to commencement mid-March. The refinery remains connected schedule to ramp up to afloat operations successful nan 2nd 4th of 2023. And, astatine Toledo, nan acquisition of nan remaining 50% of nan refinery remains connected way to adjacent by nan extremity of February. The repair estimate stemming from nan September occurrence is not significant, and nan refinery is expected to get up to afloat rates by astir mid Q2 this year.

Turning backmost to our Q4 results. As we announced successful early January, our downstream operations were affected by immoderate highly acold weather, unplanned operational events and a third-party pipeline outage backmost successful December. This morning, we provided a elaborate update successful our news release, highlighting that almost each of our downstream assets were backmost up and moving astatine normal rates. The objection is nan Wood River refinery, wherever an incident successful December reduced throughput modestly. The refinery's utilization has steadily accrued since nan 1st week of January, and is presently moving astatine a very important proportionality of its normal throughput rates. We expect nan refinery to return to normal rates during nan 2nd quarter.

Turning to our Q4 operating margins. Oil prices were little successful Q4, which impacted lipid sands pricing and margins. Sales volumes were little than accumulation arsenic we look to debar wider differentials successful December, driven by nan third-party pipeline outage. This besides impacted lipid sands operating separator successful nan quarter. However, those inventory volumes should service arsenic a early tailwind erstwhile sold.

In U.S. manufacturing, nan autumn successful commodity prices done nan 4th resulted successful a antagonistic FIFO effect of astir $180 cardinal successful Q4. The U.S. manufacturing operating separator includes operating costs of astir $40 cardinal to $50 cardinal a period for Toledo and Superior. And this is really important for everyone to support successful mind fixed that those operating costs person been coming without immoderate throughput to offset them. As these 2 refineries travel backmost online and commencement generating revenues, nan per tube metrics of nan U.S. Manufacturing conception will importantly improve.

Turning to our yearly financial results. I want to item immoderate of nan achievements we deed successful 2022. I'll commencement pinch earnings, which accrued tenfold from 2021. Annual adjusted costs travel was $11 billion, which we put to bully use, reducing indebtedness by much than half and investing astir $3.7 cardinal successful nan business. That superior finance supports different businesses and straight generates jobs and economical benefits successful nan areas wherever we operate. The financial subject and continued focusing connected deleveraging besides led to ratings upgrades by 2 of nan in installments standing agencies successful nan 4th quarter. We besides tripled our guidelines dividend successful Q1 2022, and rolled retired our shareholder returns framework.

Overall, we delivered much than $3.4 cardinal to our shareholders this twelvemonth done a operation of stock buybacks and dividends. At nan aforesaid time, we will lend complete $6 cardinal successful taxes and royalties to Canada and $100 cardinal of taxes successful nan U.S.

Moving now to our 4th fourth financial results. Adjusted costs travel was astir $2.4 cardinal and free costs travel was $1.1 billion. Net indebtedness came down different $1 cardinal complete nan 4th and landed astatine conscionable complete $4.3 cardinal arsenic of year-end. Under our shareholder returns framework, we've allocated half of Q4 excess free costs travel to shareholder returns, which has been delivered successful nan shape of stock buybacks during nan quarter. Looking ahead, there's a mates of factors that will summation nett indebtedness successful nan first quarter. The first is simply a rate taxation liability costs successful Q1 of astir $1.2 cardinal for taxes that were accrued complete 2022. Secondly, we expect to adjacent nan Toledo refinery acquisition for different USD 300 million, positive closing adjustments, including moving superior astatine nan extremity of this month.

Now that we are rate taxable successful each jurisdictions, taxes will beryllium paid connected a quarterly ground going forward. We person go progressively assured we mightiness get nether our nett indebtedness level of $4 cardinal astir nan extremity of nan 4th quarter. However, nan utmost wintertime weather, third-party pipeline outages, and operational challenges successful December were unanticipated and yet prevented america from getting each nan measurement there.

Net indebtedness has been forecast to summation successful Q1 2023 supra nan nett indebtedness level based connected nan 2022 rate taxation costs alone. The issues we knowledgeable successful December delayed our forecast timing of reestablishing nan nett indebtedness level successful 2023 by astir 2 months. Given wherever nett indebtedness sits today, and assuming commodity prices stay astir existent levels, we now expect nett indebtedness to beryllium supra nan $4 cardinal level until astir nan extremity of nan 3rd quarter. While immoderate impacts from upwind and unplanned outages continued into early 2023, we stay assured successful our cardinal operating targets.

Our 2023 firm guidance remains unchanged. Turning to our plans to trim emissions. Cenovus and its peers astatine Pathways Alliance, reached an important milestone successful Q4. We've entered into an statement pinch nan authorities of Alberta that allows america to commencement a elaborate information of nan projected retention hub for our c seizure project. This activity is basal to get america to nan adjacent shape successful nan regulatory process. A important magnitude of activity is underway pinch nan Pathways Alliance arsenic we advancement feasibility studies, biology assessments and early engineering activity for nan c seizure and retention task and besides beforehand different technologies. Conversations pinch nan provincial and national governments astir their domiciled successful partnering pinch america to beforehand these decarbonization efforts besides proceed to spell well. Within Cenovus, we proceed to beforehand our ain emissions simplification strategy, including advancement connected c seizure and retention task plans for respective facilities.

Cenovus is besides focused connected helping support economical self-sufficiency successful indigenous communities. Last year, we spent nan balanced of astir $1 cardinal a time connected equipment and services from Indigenous owned businesses, and we are already halfway to our target of spending astatine slightest $1.2 cardinal pinch these businesses betwixt 2019 and nan extremity of 2025.

Now I'll do a speedy recap of nan twelvemonth earlier we move to Q&A. 2022 was a really successful twelvemonth for Cenovus. We improved our information capacity crossed nan business year-over-year. We generated adjusted costs travel 53% higher than nan twelvemonth before. Meanwhile, we reduced nett indebtedness by much than half, while besides reducing rate -- expanding rate returns to shareholders to 6.5x nan anterior year. That's almost $3 cardinal successful incremental shareholder returns year-over-year. Our equilibrium expanse is successful awesome style entering 2023, and we look guardant to delivering moreover greater returns arsenic we turn rate travel and prosecute our nett indebtedness floor.

So pinch that, we're happy to return questions.

Question-and-Answer Session


[Operator Instructions]. We'll spell to Greg Pardy pinch RBC Capital Markets.

Greg Pardy

And I deliberation first is, Alex and John, congratulations to you both. Fantastic occupation and awesome to see, Alex, that you're going to proceed to beryllium progressive connected a go-forward basis. So possibly what I'll do is I'll airs a mobility that I'm getting, which has been a small surprising, but that is chiefly related to conscionable acquisitions arsenic it relates to Cenovus. And past specifically successful nan upstream, and to get moreover much granular, it's been suggested that you whitethorn beryllium looking successful nan heavy basin. But arsenic opposed to conscionable benignant of addressing nan acquisition question, I'm willing successful really -- what aspects of nan business do you want to reshape?

I'm assuming nan downstream is astir apt predominant successful that equation, but conscionable immoderate colour would beryllium awesome connected that front.

Alexander Pourbaix

Sure, Greg. Happy to talk astir that. I mean for illustration -- possibly I tin benignant of simplify this for people. And I'll really talk astir what do I position arsenic nan cardinal priorities for nan institution successful 2023. And correct disconnected nan bat, and I'll opportunity this til I'm agelong gone, but information is #1 for this company. And you heard maine talk astir nan activity that we've done and what we've been capable to accomplish, and it is everybody's attraction connected getting nan caller assets successful nan institution to nan aforesaid level of information that we've enjoyed successful this institution for each these years.

So connected apical of that, I would say, I person 2 existent focuses. The first is getting to $4 cardinal arsenic soon arsenic we perchance can. And I deliberation John made this remark successful his remarks, but people, erstwhile we really pridefulness ourselves, erstwhile we opportunity something, we really mean it, and we intend to present connected it. And that $4 cardinal target, that is sacrosanct to us. And we're not going to sacrifice thing to get to that target.

The adjacent privilege for maine beyond that is really getting this caller portfolio we person successful nan Downstream, getting it operating, erstwhile again, astatine nan aforesaid level of operational benignant of ratio and information and value arsenic we acquisition successful our upstream business. We're bringing -- arsenic you heard maine talk about, we're bringing Superior back. We're already starting to bring it back. The Toledo woody is going to adjacent very shortly. And everybody successful this company, and peculiarly John and Keith, are conscionable laser-focused connected bringing those assets successful and showing and demonstrating to our investors that this downstream business tin execute arsenic good arsenic we cognize it can.

So those are nan priorities. We're not going to sacrifice thing for those priorities. And we ever look astatine M&A transactions. I've ever said we're opportunistic astir that. But we will not -- we would not ever do thing from that perspective. that would materially move america from that target, that $4 cardinal target I've said, that is our focus.


We'll return our adjacent mobility from Dennis Fong pinch CIBC World Markets.

Dennis Fong

I'd besides for illustration to reiterate what Greg said and conscionable congratulate nan 2 of you connected benignant of nan adjacent half of your career. My first mobility present is conscionable related to your -- nan operation of some nan equilibrium of integration, but besides much specifically nan refining operations. Just fixed what you've seen much precocious pinch respect to immoderate of nan downtime connected pipelines arsenic good arsenic outages by various refineries, really are you guys reasoning astir nan elasticity of your trading assets going guardant arsenic good arsenic were location immoderate albeit near-term learnings from immoderate of nan downtime knowledgeable pinch Q4 that you'd for illustration to instrumentality connected nan various assets going forward?

Keith Chiasson

Dennis, it's Keith. Thanks for nan question. It was a beautiful absorbing clip successful December, obviously, pinch nan upwind impacts, but that besides coupled pinch our third-party pipeline going down. I really deliberation nan teams responded beautiful aggressively and beautiful well. We were really capable to ramp up our obstruction programme successful nan matter of a mates of weeks and commencement shipping crude by obstruction to alleviate immoderate of nan concerns that we're starting to spot successful Alberta. We were capable to shop immoderate barrels, that's why you saw immoderate of nan inventory maturation successful nan 4th fourth and resell those later connected astatine a higher market. So I deliberation from a trading and commercialized capacity standpoint, really happy pinch what nan squad was capable to do.

When I deliberation astir nan future, and deliberation astir Superior and deliberation astir Toledo coming online, they're served by nan mainline system, which is going to beryllium really absorbing for america to get our crude retired of Alberta and into an integrated refinery group of assets that devour nan molecules that we produce. So we spot that integration arsenic being beneficial for a dense lipid producer. And we're besides beautiful excited astir what we're seeing moreover astatine our Lloyd refinery and Lloyd Upgrader and being capable to merge our lipid sands accumulation into those 2 assets. So that integrated worth concatenation is beautiful valuable for us, and we'll utilize some nan conversion assets, but besides our trading activities to maximize that value.

Jonathan McKenzie

Dennis, this is John. I'll conscionable adhd a mates of things to what Keith said. And I wholly work together pinch Keith that those downstream assets really springiness america nan elasticity and optionality to execute otherwise successful times for illustration we saw successful December erstwhile nan Keystone pipeline went down and much broadly pinch nan wider differentials. Those assets, peculiarly our operated assets, and performed really well. I deliberation 1 of nan reinforcing thoughts that we would person going done December, and we've talked astir this before, is that we still person a beardown desire to ain and run those assets that we're participating in. So we spot nan U.S. downstream is perfectly halfway to our strategy. And we really look guardant to putting Superior and Toledo into our unchangeable of refineries and bringing those up complete nan adjacent fewer weeks.

Alexander Pourbaix

Dennis, it's Alex. And now I'm going to sound for illustration I'm really gilding nan Lily present by being nan 3rd personification to remark connected your question. But nan 1 different study I would make is, I deliberation nan expertise that Keith talked astir to mitigate nan impacts of those challenges, if we had not done nan Husky transaction, we would not beryllium remotely successful nan position to negociate these benignant of circumstances. Cenovus conscionable did not person each of those retention resources, nan different pipeline takeaway opportunities. So I -- nan full -- erstwhile we did that deal, arsenic I said, nan extremity was creating a overmuch much resilient company. And I deliberation nan consequence to nan institution during what was really a beautiful important incident was really good.

Dennis Fong

Great. Great. I admit that colour and discourse from each 3 of you. My 2nd question, possibly you followed on nan lines a small spot of what Greg was asking arsenic well. I deliberation I benignant of cognize nan reply to this successful position of your existent portfolio. But conscionable given, arsenic we look forward, location is, complete nan adjacent fewer years, a ramp-up of perchance volumes retired of nan assortment of your lipid sands asset, really from benignant of debased costs optimization, narrows for illustration tieback and debottlenecking. How should we deliberation about, aliases really are you guys reasoning astir nan equilibrium of upstream vulnerability versus downstream vulnerability connected an ongoing basis, particularly fixed nan aggregate shifting macro situation passim North America?

Jonathan McKenzie

Dennis, I don't deliberation thing has really changed. As Alex mentioned, we're benignant of successful a world correct now wherever we look astatine our downstream vulnerability arsenic good arsenic our takeaway capacity from Alberta arsenic support -- putting america successful a comparatively beneficial spot. So I don't deliberation that we would beryllium of nan position that we request to materially summation our takeaway capacity aliases materially summation our refining capacity. We're rather happy pinch nan balances that we've got. I think, I conscionable benignant of reiterate thing that Alex was talking astir is and I cognize group are reasoning astir growth. But what we are really focused, connected complete nan coming months and peculiarly Q1 and Q2, is getting our nett indebtedness backmost to $4 cardinal and getting these 2 refineries online and producing affirmative free rate flow.

So I deliberation nan maturation portion of nan schedule that seems to beryllium coming up arsenic a taxable is thing that we tin astir apt talk astir successful early quarters. But correct now, we are focused connected getting our indebtedness down and getting our 100% shareholder returns intact together pinch getting our downstream operating well.


We'll return our adjacent mobility from Neil Mehta pinch Goldman Sachs.

Neil Mehta

Yes. Congrats Alex and John. It's awesome to person you successful nan role. I conscionable wanted to commencement disconnected connected superior returns. Alex, you've been beautiful clear that you want to return a countercyclical attack to buying backmost banal and didn't want to bargain backmost stocks astatine nan section highs. Stock shares person pulled backmost present a small bit. So conscionable your position connected nan preferred return of superior system versus buying backmost versus a much adaptable constituent arsenic nan business inflects person to that sub-$4 cardinal mark?

Alexander Pourbaix

Yes. I mean, look, we've said this galore times. Our preferred method of returning rate to shareholders is done stock buybacks. And I think, astatine nan benignant of valuations that we're seeing correct now, we're evidently successful that scope wherever I deliberation there's compelling worth to bargain backmost shares. But astatine nan extremity of nan day, we're committed to get those returns backmost to shareholders. And if we are trading astatine importantly supra our NAV, we will ever beryllium thoughtful astir whether we're creating worth by those stock buybacks. And if we're of nan position that we're not, past we're still going to return that money done adaptable dividends. But nan privilege has been and remains stock buybacks.

Neil Mehta

That's helpful. And nan follow-up is conscionable connected nan macro. We've seen a batch of volatility successful nan WCS differential. I admit that you guys are overmuch much protected than you were erstwhile you first came in, Alex, into that spread, but funny connected really you spot that playing retired and nan moving pieces? And possibly you tin besides remark connected TMX because that's going to move nan needle perchance a twelvemonth out?

Alexander Pourbaix

Well, why don't I walk it complete to Keith because he tin conscionable repetition to you what he says to maine each greeting erstwhile I locomotion successful his office.

Keith Chiasson

Neil, thanks. Obviously, we saw nan differential widen retired location for a play of clip and tighten backmost up much recently. We benignant of look astatine it arsenic 2 parts. We look astatine it arsenic nan proscription aliases location dispersed betwixt Alberta and nan Gulf Coast, and past we look astatine nan ray dense differential successful nan Gulf Coast. And nan bully news is, obviously, pinch nan third-party pipelines backmost up and running, america heading into nan summertime turnaround seasons and heading into a little condensate requirement, egress retired of Canada is looking beautiful bully correct now. So we're seeing that constituent of nan differential tighten.

Down successful nan Gulf Coast, we're besides seeing nan differential tighten pinch Chinese request coming back, immoderate of nan SPR releases slowing down. And past I conjecture nan different 1 would beryllium conscionable earthy state prices coming off, which enables much processing successful analyzable refineries and amended worth from processing dense barrels. So each those things are constructive to an improving differential, and we're starting to spot that and expect that to proceed done 2023.

TMX coming on, connected nan backmost extremity of 2023 is evidently going to beryllium different thief for narrowing that differential. We're really encouraged pinch seeing that pipeline travel up. We're a ample shipper connected nan pipeline. So really looking guardant to getting barrels into a caller marketplace and really being capable to entree nan world pinch those barrels. So beautiful breathtaking times.


We'll spell adjacent to Menno Hulshof pinch TD Securities.

Menno Hulshof

I'll travel up pinch a mobility to Dennis is connected nan 5-year scheme for thermal maturation and Sunrise optimization and nan Narrows Lake tieback successful particular. I'm conscionable looking astatine nan descent deck. It looks for illustration they will adhd 35,000 to 50,000 barrels per time complete nan next, telephone it, 2, 2.5 years. But what cardinal deliverables should we beryllium looking for complete nan adjacent year? And what would you request to spot to get to nan apical extremity of that scope astatine 50,000 barrels a day?

Norrie Ramsay

It's Norrie Ramsay here. I mean, we've laid retired our scheme to turn notionally 3%, 5% per year. We person -- we're seeing awesome occurrence actually, arsenic we move our pipeline astatine Christina Lake up to nan Narrows Lake area. And our scheme is successful spot to really commencement drilling up successful nan Narrows Lake area wrong nan adjacent 12 months. In optimization astatine Sunrise, we've seen really awesome occurrence successful applying our humanities Cenovus methodologies astatine nan site. We're pleased really to person 100% of nan equity, which allows america a batch much flexibility.

We person 4 pads, for example, drilling conscionable now. So this is mounting america up to capable nan process works complete nan adjacent 18 months aliases so. And on pinch that, arsenic we use our Cenovus subsurface methodologies, examples are things for illustration we've conscionable drilled 2 wells that are 1,600 meters successful nan reservoir alternatively than, historically, they've only been capable to maximize 800. So that really cuts nan costs to springiness america bigger wells and much flexibility.

So it's a very dependable build plan. We person a batch of elasticity arsenic we benignant of spell forward. And arsenic you say, Christina Lake is going to grow. We're besides going to turn astatine Foster Creek conscionable done our accrued number of pads that we have, and Sunrise is there. Just completed Lloyd Thermal, again, we've been applying our subsurface methodologies, looking to necktie backmost greater distances than primitively they had planned. So again, dependable maturation crossed nan full portfolio.

Alexander Pourbaix

Menno, it's Alex. And conscionable from benignant of nan measurement -- benignant of wherever you went pinch nan question, I conscionable possibly wanted to make 1 point clear, for illustration that hold into Narrows Lake, cipher should deliberation of that arsenic benignant of a precocious risk, precocious superior benignant of shape description of nan lipid sands. This is Norrie's guys, they've already built -- nan roadworthy has been built successful there. They're building nan pipelines. The pad activity is thing we've done, obviously, dozens, if not hundreds of times. So I -- we conscionable spot this arsenic a comparatively low-risk benignant of earthy hold of Christina Lake. So conscionable want to benignant of make judge group aren't reasoning of this arsenic immoderate caller aliases comparatively high-risk superior task that we've embarked on.

Menno Hulshof

Alex. And possibly I'll conscionable move connected to Asia-Pac. Could we get an update connected location pricing dynamics fixed nan location -- sorry, nan caller volatility? And connected nan contracting broadside of things, and pinch nan knowing that your mostly fixed value crossed your Asia-Pac portfolio, is location thing that we should beryllium alert of successful position of ongoing contracting activity aliases value resets? I deliberation nan reply is thing material, but possibly you tin corroborate that.

Joseph Zieglgansberger

Sure, Menno, it's Drew. So you're correct. Like connected nan contracting broadside astir price, it's reasonably group from a scope bound standpoint. That will still play retired for a number of years. Interesting load, you're benignant of getting to nan constituent that I deliberation we are seeing that conscionable earlier Christmas, moreover successful December, actually, we started to spot buyers and nan request really commencement to increase. And truthful we've really been complete benignant of trading moreover connected our statement volumes since December. And that's carried done present into nan first quarter.

And it is really astir what you're alluding to present is we're seeing request really prime up complete there. So we're successful a really bully condition astatine nan infinitesimal actually, that we are successful conversations astir perchance immoderate much supplemental agreements for illustration we've had successful nan past. So those conversations are happening virtually arsenic we speak.

But successful a existent day-to-day, week-to-week reality, we've been really producing and trading supra statement volume. But from nan pricing perspective, it is value bound arsenic per nan longer-term contracts.

Jonathan McKenzie

Menno, it's John. We really gave you a reasonably bully snapshot of nan netbacks that we get from our Asia Pacific business and immoderate of nan supplementary accusation that we nonstop out. So to Drew's point, nan state successful Asia and Indonesia is comparatively fixed, but we do float connected nan NGL side. So you will spot immoderate variance from quarter-to-quarter depending connected really overmuch of nan NGLs we waste and what value we get for them, but they're usually benignant of a Brent positive ground for nan liquids.

Joseph Zieglgansberger

Yes. And conscionable to decorativeness pinch that, Menno, nan netbacks are northbound of $70 per BOE equivalent.


[Operator Instructions]. We will return our adjacent mobility from John Royall pinch JPMorgan.

John Royall

Congratulations to John and connected nan caller roles. So conscionable if you could possibly speak to nan wide effect of nan Keystone outage connected upstream. I cognize it sounds for illustration you've built immoderate inventories. Is it necessary? Or is location a scheme to tie those inventories backmost down from here? And I deliberation reports we've seen that only spot volumes are presently impacted connected Keystone. So possibly you could conscionable corroborate if you're backmost shipping connected that tube to nan levels you were anterior to nan spill?

Keith Chiasson

John, it's Keith. Yes, obviously, nan effect of Keystone done nan period of December impacted some our upstream and our downstream assets. We did take to -- if location was an apportionment connected nan mainline driven by immoderate of that arsenic well. So we had a fewer decisions to return successful nan December period. And a mates of those were to ramp up our obstruction program. So we're capable to vessel connected 9 portion trains done nan December, January clip period. And now we're ramping that programme backmost down. Keystone's backmost flowing. So egress retired of Canada, we're seeing nan differential travel backmost successful because of capable egress retired of Canada. So I would say, each of our downstream assets are being fed and nan inventory that we built, we will waste disconnected into nan marketplace astatine higher values than if we had to effort to waste it successful a distressed marketplace successful December.

Jonathan McKenzie

Yes. And conscionable to put a finer constituent connected it, John. And sorry, it's John McKenzie speaking. The assets worked arsenic designed successful position of what we've built successful our midstream and downstream business, arsenic we talked astir earlier. So because of nan outage that we had connected Keystone, we inventoried astir 18,000 barrels a time of dense oil. We expect to relieve our inventory of that successful Q1. And past nan different effect that we would person seen pinch Keystone is they did person to trim complaint connected nan WRB refineries, which are fed disconnected nan Keystone pipeline, which would benignant of beryllium a secondary effect from that outage arsenic well.

John Royall

Great. And past conscionable reasoning astir nan downstream broadside and small spot much benignant of adjacent word connected nan throughput guide, and I understand you guys -- you springiness only yearly guidance, but conscionable hoping possibly immoderate high-level color, and it sounds for illustration you're getting superior pinch partially astatine immoderate point, mid-quarter and possibly a small later for Toledo. You besides person little rates, you mentioned successful Wood River, and I deliberation immoderate maintenance. So I recognize you don't get quarterly guidance, is location immoderate benignant of high-level measurement of helping america deliberation done wherever you mightiness beryllium connected throughput aliases utilization for 1Q possibly comparative to 4Q, aliases immoderate different measurement we tin deliberation astir it?

Keith Chiasson

Yes, John, it's Keith. I deliberation nan measurement I would beryllium reasoning astir it is, we had immoderate challenges, some owed to nan Keystone outage arsenic good arsenic nan upwind impacts, but each of our operated assets came backmost up by mid-January and person been moving good since then. On our nonoperated assets, Borger was backmost up and moving astatine bully rates by mid-January. And past pinch regards to Wood River, nan complaint trim owed to nan incident successful early December, you should deliberation of that arsenic ramping up done nan first 4th substantially getting backmost to normal throughput. Then you person to retrieve that location are immoderate turnaround activities happening crossed our assets successful nan 2nd quarter.

With regards to Superior, we're happy pinch nan progress. Obviously, this plus has been down since 2018. We've been doing nan rebuild since nan Husky merger, and we're now astatine a constituent wherever we're introduced hydrocarbons and we're moving to bring successful crude successful nan mid portion of March. That will return a small clip to statement out, and we will activity connected ramping up nan refinery benignant of done nan 2nd quarter.

Toledo, we're fresh to return nan shot connected March 1, and we don't deliberation we'll suffer immoderate advancement connected nan repair and rebuild of that asset. And those repairs are looking for illustration that will hap by nan extremity of April, and past we will commencement moving connected restarting that plus done nan May, June clip frame. So each of it's coming together, a batch of it astatine nan aforesaid time, but that's benignant of really it's looking complete nan adjacent respective months.


[Operator Instructions]. We'll spell first to Chris Varcoe pinch Calgary Herald.

Chris Varcoe

This is simply a mobility for Alex. Alex, why did you make nan determination now to measurement down arsenic CEO and moving to nan executive chair domiciled arsenic you said, you could person stayed connected for possibly different twelvemonth aliases longer, but why now?

Alexander Pourbaix

Well, Chris, that's a bully question. I would show you -- I benignant of said it astatine nan start, but I deliberation that a thoughtful and measured succession scheme is simply a hallmark of a well-managed company. And I cognize my committee thinks of that. When I joined nan institution I retrieve telling nan Board that they could count connected maine for 5 to 7 years. And I'm benignant of astir apt a small much than halfway done that. I'm heading towards 6 years successful nan company. But I would opportunity -- I deliberation each companies use by a thoughtful succession plan. And successful this case, John has been specified an instrumental portion of nan strategy and nan execution of nan things you heard maine talk astir coming successful my comments.

I deliberation he has amply earned nan correct to person a changeable astatine starring this company. And it's not mislaid connected me. John and I are not excessively acold isolated successful age. And if I were to determine to instrumentality astir for different 2 aliases 3 years, I could really put John successful a business wherever he mightiness clip retired and not beryllium capable to person a bully tally astatine starring nan company. And I don't deliberation that would beryllium adjacent to John. I don't deliberation it would beryllium adjacent to nan shareholders because I deliberation they're each going to beryllium awesome beneficiaries of his activity complete nan coming years.

So astatine nan extremity of nan day, I deliberation what's champion for nan institution and what's champion for nan shareholders needs to return a small spot of precedence complete what mightiness beryllium champion for me.

Chris Varcoe

Just to travel up connected that, I want to inquire you astir your caller role. You talked astir nan truth that you're going to attraction connected advancing nan manufacture and policy. I conjecture what do you spot arsenic those cardinal issues that you're expecting to tackle successful that domiciled arsenic Chairman? And why do you consciousness it's basal to speak retired aliases advocator astatine this time?

Alexander Pourbaix

Well, Chris, it -- those priorities are those things you and I talk astir truthful regularly. But it -- arsenic I deliberation a batch of group appreciate, complete nan past 2 aliases 3 years, an expanding magnitude of my clip has really been spent connected moving connected pathways connected a larger standard for nan industry, but peculiarly focused connected Cenovus' GHG simplification plan. And I americium a very meaningful portion of pathways discussions pinch nan various levels of authorities successful this state astir that. And I've really been very, very fortunate to person a activity squad for illustration I person that they've been capable to prime up nan slack while I walk an expanding magnitude of clip connected that issue.

I deliberation it is perfectly captious that industry, nan national government, nan provincial authorities travel to immoderate type of durable statement arsenic to what our emanation simplification ambitions are, and that we put successful spot a building to make judge that manufacture tin do that while maintaining this incredibly important manufacture for nan country, for Canada, for Alberta.

I fishy this manufacture is astir apt going to correspond location astir 10% of nan country's GDP this year. And I deliberation it's conscionable incredibly important for Canadians that we find a measurement for this manufacture to beryllium capable to proceed to thrive. And nan measurement we're going to do that is by perpetually improving our biology leadership.

Chris Varcoe

Finally, I conscionable had a mobility for John. John, what will beryllium nan cardinal issues for you going forward? And I guess, I'm peculiarly funny successful what important changes aliases differences successful attraction will we see, if any, nether your leadership, whether it's successful position of production, downstream description aliases thing else?

Jonathan McKenzie

Yes. So arsenic Alex mentioned successful his opening notes, he and I person worked very intimately together complete nan past 5 years. And what I've really focused connected is moving nan day-to-day of nan company, wherever Alex has been much overly focused, peculiarly complete nan past play of time, pinch this engagement successful pathways. So I would show you, Chris, that some Alex and I person our fingerprints each complete nan firm strategy, and that we create this successful a business together pinch nan remainder of our activity team. So I don't deliberation you're going to spot overmuch of a change. I deliberation it's -- is going to beryllium very akin to what you've seen earlier arsenic we benignant of proceed connected nan trajectory that we've been connected for nan past 5 years.


We'll return our adjacent mobility from Ashok Dutta pinch S&P Global Platts.

Ashok Dutta

I had a mobility for Keith, if I may, please. Keith, do you want to return a conjecture aliases stock what would beryllium Cenovus' views connected WCS and TI differentials mean for 2023?

Unidentified Company Representative

Tell maine too, Keith.

Keith Chiasson

I deliberation if I could conjecture that, I whitethorn not beryllium sitting here, but I deliberation it was benignant of successful my erstwhile reply to nan differential question. The building of nan differential is improving, some from egress retired of Canada. We caput into nan summertime months, upstream accumulation comes offline for turnaround activity. The tube gets a small lighter pinch little condensate truthful there's really little barrels that move retired of nan province. So that differential is narrowing. And past I deliberation conscionable from a U.S. Gulf Coast fundamentals, if earthy state prices coming disconnected and nan SPR releases slowing down and Chinese request coming back, we're seeing a patient bid connected WCS retired of nan Gulf Coast. So those 2 things coupled together, I deliberation we're much apt to spot nan differential constrictive past widen done 2023.

Ashok Dutta

Okay. Understandable. A speedy follow-up. So you talked astir 9 portion trains, really easy aliases difficult was it aliases was it a situation to get obstruction cars backmost connected track?

Keith Chiasson

Yes. It's an absorbing question. We built a batch of elasticity into our obstruction programme erstwhile we laid it up backmost successful nan 2020 clip period. And it's a testament to nan trading commercialized folks connected quickly being capable to group up agreements and restart nan obstruction program. So erstwhile Keystone went down, and we started seeing inventories build successful Alberta, we quickly turned connected our obstruction program, and we're capable to load 9 portion trains and offload them down successful nan Gulf Coast. So -- and past we're quickly capable to move that programme backmost off. So it's conscionable a testament to nan elasticity that nan institution has built complete nan past fewer years.

Ashok Dutta

And 1 past question. When was nan past clip crude connected rail?

Keith Chiasson

We're continuously moving immoderate crude by rail. There are immoderate refiners that are not pipeline connected. So it's an ongoing program, but nan ramp-up was a small spot different.


That will reason our question-and-answer session. At this time, I'd for illustration to move nan telephone backmost complete to Mr. Pourbaix for immoderate further aliases closing remarks.

Alexander Pourbaix

Well, acknowledgment very much, operator. And I person to opportunity pinch each of nan excitement astir John and I, a number of our shareholders and different followers mightiness person missed a very important point that besides -- we besides did this quarter, and that was we promoted Rhona DelFrari to Executive VP arsenic she was already Chief Sustainability Officer. And I -- from my ain perspective, she virtually demonstrates nan apical decile professionals successful this field, and we are very happy to do that and happy to springiness her that promotion. So pinch that, I will -- I'll walk it backmost to you, operator, and convey everybody for your clip and listening to america today.


Thank you. That will reason today's call. We admit your participation.

Editor: Naga

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