CENOVUS ENERGY INC. $22 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 824.5 million; Market cap: $18.1 billion; Price-to-sales ratio: 1.1; Dividend yield: 4.8%; TSINetwork Rating: Average) gets 35% of its revenue from its oil sands projects and conventional oil and gas wells in Western Canada.
Refining supplies the remaining 65% of Cenovus’s revenue. The company ships its oil to its 50%-owned refineries in Illinois and Texas. Phillips 66 (New York symbol PSX) owns the other 50% of these operations. These refineries help cut Cenovus’s exposure to falling oil prices, as cheaper crude cuts their operating costs.
Cenovus continues to expand its 50%-owned Christina Lake and Foster Creek oil sands operations; ConocoPhilips (New York symbol COP) owns the remaining 50%.
As a result, Cenovus’s average daily production rose 6.5%, to 284,826 barrels (71% oil, 29% natural gas) in 2014 from 267,442 barrels in 2013. The higher production offset lower prices, which is why the company’s revenue rose 5.3% in 2014, to $19.6 billion from $18.7 billion. The drop in crude prices also prompted Cenovus to write down the value of its Pelican Lake oil sands property by $497 million. That cut its 2014 earnings by 45.9%, to $633 million, or $0.84 a share. In 2013, it earned $1.2 billion, or $1.55 a share. Cash flow per share fell 3.6%, to $4.59 from $4.76.
Cenovus recently sold 67.5 million common shares for $22.25 each. The company plans to use the $1.5 billion of proceeds to fund its plan to invest $1.8 billion to $2.0 billion in its oil sands projects and other operations this year.
If oil prices keep falling, Cenovus feels it can reduce its capital spending by an additional $500 million. That would let it keep paying its $1.065- a-share annual dividend, which yields 4.8%. The company’s dividend payments totalled $805 million in 2014.
The stock trades at a reasonable 11.5 times its projected 2015 cash flow of $1.92 a share.
Cenovus is still a buy.
