CENOVUS ENERGY INC. $30 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 755.7 million; Market cap: $22.7 billion; Price-to-sales ratio: 1.3; Dividend yield: 3.2%; TSINetwork Rating: Average; www.cenovus.com) gets 60% of its production from its three heavy oil projects in Alberta and one in Saskatchewan. Conventional oil and natural gas wells supply the remaining 40%. In all, Cenovus’s proved reserves should last at least 23 years.
U.S.-based ConocoPhillips (New York symbol COP) owns 50% of Cenovus’s main Foster Creek and Christina Lake oil sands projects in Alberta. These operations produce heavy bitumen, which Cenovus ships to its 50%-owned refineries in Illinois and Texas. Phillips 66 (New York symbol PSX) owns the other 50% of these refineries.
In the three months ended September 30, 2013, Cenovus produced 264,100 barrels of oil equivalent a day (67% oil and 33% gas), down 1.3% from 267,500 barrels a year earlier.
The decline is mainly due to planned maintenance at Foster Creek, which cut its output by 22.2%. As well, Cenovus’s natural gas production fell 9.4% as the company continued to shift its focus toward its more profitable oil sands operations. However, a new phase at Christina Lake pushed up that project’s output by 65.6%.
Increased maintenance costs at Foster Creek cut Cenovus’s earnings by 27.5%, to $313 million, or $0.41 a share. A year earlier, it earned $432 million, or $0.57 a share. Cash flow per share declined 16.3%, to $1.23 from $1.47. However, revenue increased by 16.9%, to $5.1 billion from $4.3 billion.
Cenovus will probably earn $1.68 a share in 2013, and the stock trades at 17.9 times that estimate.
That’s a higher p/e ratio than Suncor and Imperial Oil, but still reasonable in light of Cenovus’s high-quality reserves and strong longterm potential. Moreover, the stock trades at just 6.4 times Cenovus’s projected 2013 cash flow of $4.68 a share. The $0.97 dividend yields 3.2%.
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