Cenovus’ new CEO axing up to 700 jobs

Focuses 2018 budget on cutting debt

CALGARY • Saddled with large debts,

announced Thursday a cost-cutting budget that will eliminate 500 to 700 jobs as well as a reshuffling of its management team as the company tries to deleverage.

“Our priorities for 2018 are to reduce costs and deleverage our balance sheet while maintaining capital discipline,” Cenovus president and CEO Alex Pourbaix said in a release, as the company announced plans to spend between $1.5 billion and $1.7 billion next year – roughly the same amount of money it is on pace to spend in 2017.

The budget is Pourbaix’s first as the top executive at Cenovus since replacing Brian Ferguson in November, who came under investor pressure after clinching a mammoth $12.7 billion deal to acquire a package of oilsands and Deep Basin natural gas assets from ConocoPhillips earlier this year.

The company’s stock has fallen by more than a third since that deal was announced, as investors fretted about the company’s rising debt levels. Cenovus fell more than five per cent on Thursday to close at $11.24 on the Toronto Stock Exchange.

Pourbaix’s 2018 budget highlighted various areas where the company is trying to reduce costs, including oilsands operating costs and reducing Cenovus’ 4,200-person workforce by 15 per cent.

However, the cuts may not drive down the company’s overall general and administrative expenses as the company has signed long-term leases on expensive new office buildings when oil prices were higher.

The company’s rent and office expenses will actually rise 39 per cent from $118 million to $164 million in 2018 as a result of the leases it has signed.

Cenovus’ budget states that it’s consolidating staff from a handful of buildings throughout downtown to cut costs and letting existing leases expire.

But the lease at its current headquarters at the Bow, Calgary’s iconic crescent-shaped skyscraper, expires in 2038.

Spokesperson Brett Harris said Cenovus is currently working to sublease the space it no longer needs and, with the exception of its space at the Bow and the recently built Brookfield Place, its other leases are short-term.

The company also announced the departure of three executives Thursday: upstream president Kieron McFadyen, downstream president Bob Pease and chief financial officer Ivor Ruste.

“People in Calgary are feeling the effects of poor management but I think there’s some responsibility at the top (board-level) and I sure hope other shareholders have expressed that view to the company,” Len Racioppo, managing director of Coerente Capital Management, said of the staffing and management changes at Cenovus.

Racioppo, whose firm owns roughly 600,000 shares of Cenovus, said he’d also like to see changes at the board director level, which approved the ConocoPhillips deal he has repeatedly criticized since it diluted existing shares and forced the company to take on new debt.

Cenovus’ third-quarter earnings report listed its long-term debt at $12 billion.

Racioppo thinks the new plan, outlined by Pourbaix, will work to reduce the company’s debt but added, “There’s still a long way to go.”

Cenovus has set a target of reducing its debt to a level that is twice its earnings by 2019, which Victor Vallance, senior vice-president at DBRS, said was attainable, if the company succeeds in selling assets.

“It’s not an easy market out there,” Vallance said, adding that companies looking to sell land packages have done so in a period of depressed oil and gas prices. Still, Cenovus has so far sold assets for decent prices and “they’ve done it in the time frame they said they were going to do it.”

The company has been selling off assets to pay down a $3.6-billion bridge loan it needed to finance the ConocoPhillips deal. The company has announced the sale of four of its properties outside the oilsands for $3.7 billion and is now marketing a handful of properties it acquired from Conoco to continue paying down debt.

THEY’VE DONE IT IN THE TIME FRAME THEY SAID.