cenovus energy

CENOVUS ENERGY INC. $18 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 833.2 million; Market cap: $15.0 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.1%; TSINetwork Rating: Average; www.cenovus.com) owns oil sands projects and conventional wells in Western Canada. It ships its oil to its 50%-owned refineries in Illinois and Texas. Due to low oil prices, Cenovus has shrunk its workforce by 31% since the start of 2015. These cuts should save it $200 million this year; it lost $403 million, or $0.49 a share, in 2015. The cuts should also help Cenovus quickly expand profits when oil prices recover. Cenovus is still a buy.

FORTIS INC., $36.20, Toronto symbol FTS, has agreed to buy ITC Holdings Corp. (New York symbol ITC), which owns 25,100 kilometres of high-voltage power lines in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma. The company is paying $6.9 billion U.S. in cash and shares for ITC. Following the acquisition, ITC shareholders will own 27% of the combined company. Fortis will also list its shares on the New York Stock Exchange; its shares will continue to trade in Toronto. If you include ITC’s $4.4-billion U.S. debt, the total purchase price is $11.3 billion U.S. (or $15.7 billion Canadian). That’s roughly 1.5 times Fortis’s current market cap (the value of all outstanding shares) of $10.3 billion....

CENOVUS ENERGY INC. $14 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 833.2 million; Market cap: $11.7 billion; Price-to-sales ratio: 0.9; Dividend yield: 1.4%; TSINetwork Rating: Average; www.cenovus.com) gets 35% of its revenue from its Western Canadian oil sands properties and conventional oil and gas wells. Chief among these assets are its 50%-owned Christina Lake and Foster Creek oil sands projects; ConocoPhilips (New York symbol COP) owns the remaining 50%. 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%. Low crude prices have prompted Cenovus to cut its capital spending by 26.5%, to about $1.25 billion in 2016 from $1.7 billion in 2015....

Integrated oil producers, like the three we analyze below, are the best way for conservative investors to get oil exposure while shielding themselves from slumping crude prices. That’s because cheaper oil makes these companies’ refineries more profitable. We continue to see all three as buys for long-term gains. SUNCOR ENERGY INC. $30 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.4 billion; Market cap: $42.0 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.9%; TSINetwork Rating: Average; www. suncor.com) is Canada’s largest oil producer. It also operates four refineries and 1,500 Petro-Canada gas stations, which supply 63% of its revenue. The company produced an average of 577,800 barrels of oil equivalent a day in 2015, up 8.0% from 534,900 barrels in 2014. Suncor’s oil sands projects accounted for 80% of its output....

CENOVUS ENERGY $17.33 (Toronto symbol CVE; Shares outstanding: 833.2 million; Market cap: $14.5 billion; TSINetwork Rating: Average; Dividend yield: 3.7%; www.cenovus.com) plans to spend $1.4 billion to $1.6 billion on upgrades to its oil and gas properties in 2016. That’s down about 19% from $1.8 billion to $1.9 billion in 2015. The company will spend 80% of the funds budgeted for 2016 on maintaining existing wells and refineries. It will use the remaining 20% to expand its oil sands projects. Meantime, Cenovus is doing a good job of cutting costs in response to lower oil prices. For 2016, it expects per-barrel operating costs at its Foster Creek and Christina lake oil sands projects to be 15% lower than 2014....

CANADIAN PACIFIC RAILWAY LTD., $169.77, Toronto symbol CP, has revised its takeover offer for U.S.-based railway Norfolk Southern Corp. (New York symbol NSC). The combined firm would be North America’s largest railway, with more than 56,000 kilometres of track. Buying Norfolk would also give CP greater access to ports on the U.S. Gulf Coast and Atlantic Ocean. Under the new deal, Norfolk shareholders would receive more stock and less cash: $32.86 U.S. a share in cash plus 0.451 of a CP share for each Norfolk share held. That would give them 47% of the combined company, compared to 41% under the original offer....

CENOVUS ENERGY $21.19 (Toronto symbol CVE; Shares outstanding: 833.3 million; Market cap: $17.7 billion; TSINetwork Rating: Average; Dividend yield: 3.0%; www.cenovus.com) gets 35% of its revenue from its Western Canadian oil sands properties and conventional oil and gas wells. Chief among these assets are its 50%-owned Christina Lake and Foster Creek oil sands projects.

Refining—which gains from lower oil prices— supplies the remaining 65% of Cenovus’s revenue. The company ships its oil to its 50%-owned refineries in Illinois and Texas. (Phillips 66 owns the other 50%.)

In the three months ended September 30, 2015, the company’s production rose 5.7%, to 210,422 barrels a day from 199,089 a year earlier. However, lower oil prices cut its cash flow per share by 59.2%, to $0.53 from $1.30.

...

Cenovus Energy’s oil sands projects and integrated operations make it one energy stock we feel will bounce back stronger when oil recovers

CENOVUS ENERGY INC. $20 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 833.3 million; Market cap: $16.7 billion; Price-to-sales ratio: 1.2; Dividend yield: 3.2%; TSINetwork Rating: Average; www.cenovus.com) has cut jobs in response to sharply lower oil and natural gas prices. It has also lowered its 2015 capital spending by 40%, to between $1.8 billion and $1.9 billion. These moves, along with more efficient drilling, will save it $400 million in 2015, up from its earlier forecast of $280 million. Cenovus now plans more job cuts, which should save it a further $100 million a year starting in 2016. Meanwhile, Cenovus’s oil production rose 5.7% in the three months ended September 30, 2015, to 210,422 barrels a day from 199,089 a year earlier. That’s due to the start up of new phases at its 50%-owned Foster Creek and Christina Lake oil sands projects in northern Alberta; U.S.-based ConocoPhillips (New York symbol COP) owns the other 50%....

IMPERIAL OIL $44.63 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $37.8 billion; TSINetwork Rating: Average; Dividend yield: 1.3%; www.imperialoil.ca) is a major integrated oil company with oil sands projects in Alberta and conventional oil and gas operations across Western Canada. It also operates three refineries and 1,700 Esso gas stations. Imperial recently finished the second phase of its 71%-owned Kearl oil sands project in northern Alberta. In the three months ended September 30, 2015, Imperial’s share of Kearl’s output was 192,000 barrels a day. That helped push its overall production up 25.7%, to 386,000 barrels of oil equivalent a day from 307,000 a year earlier. However, lower oil prices cut its revenue by 25.9%, to $7.2 billion from $9.7 billion. Cash flow per share fell 32.9%, to $1.10 from $1.64. Imperial plans to keep expanding Kearl and Cold Lake, its two main oil sands properties. These projects will prosper when oil prices recover, and they should last for decades. Meanwhile, the company’s refineries cut its exposure to falling oil prices, as cheaper crude cuts the refineries’ input costs and increases their profit margins....