Cenovus resists calls to spend $3.7B war chest

Company taking conservative approach with savings made during oil collapse

CALGARY Oilsands producer Cenovus Energy Inc. learned tough lessons through the oil price collapse and is now resisting investor pressure to spend the cash it worked hard to save during the downturn.

Cenovus president and CEO Brian Ferguson told analysts during an earnings call Thursday the company would consider a dividend hike or a share buyback program later in the year but cautioned, “when we look to increase the dividend, we want to make sure that it is something that is very sustainable even at the bottom of the price cycle.”

Cenovus had to slash its dividend, lay off staff, pause growth projects and cut costs during the oil price collapse in an attempt to save money.

The company is now sitting on $3.7 billion in cash, but is resisting pressures to immediately allocate that money in dividend hikes or share buybacks.

“We took some very decisive actions to strengthen our balance sheet,” Ferguson said in an interview.

He added, “I want to make sure that if we see volatility over the next three years, we’re not in any way jeopardizing our financial strength and we can continue to be counter-cyclical.”

“I think they have learned,” Edward Jones’ senior analyst Lanny Pendill said, adding that he was “happy to see the conservatism.”

“Nine times out of 10, when management teams start doing what Wall Street wants them to do, they typically end up in trouble,” Pendill said.

“I am not a fan of taking this great liquidity that they worked very hard for and just spending it all through share buybacks or higher dividends.”

Ferguson said the company would attempt to be “prudent” during what he called “a choppy recovery.”

He said the company would have enough cash on hand to complete expansion projects at its two oilsands facilities, which were paused during the downturn to conserve cash.

“I don’t want to be in the position where you would have to suspend it for a second time, that would be very, very inefficient,” Ferguson said.

Cenovus reported Thursday that it had reversed earlier losses and pulled in $91 million in the fourth quarter, compared with a $641 million net loss in the same quarter a year earlier.

The company also announced it had grown its oilsands production, continued to cut its costs and locked in relatively low rates from oilfield service providers for the next three years, which should help Cenovus resist inflationary pressures if oil prices continue to climb.

Green shoots of recovery were also evident in Encana Corp.’s results. Doug Suttles, the North American oil and gas producer’s president and CEO, said the company expected “to hold year-overyear drilling and completion costs flat despite cost inflation for some services.”

Encana reported a US$281 million net loss for the fourth quarter Thursday, which is smaller than the US$612 million net loss it recorded at the same time a year earlier.

Citi Research analyst Robert Morris said in a note that Encana had beat analysts’ financial expectations for the quarter because the company had been able to lower its costs and realized higher prices for its oil and liquids production.