Cenovus eyes more sales of its natural gas assets
But analysts say energy giant will have to do more to correct ‘leverage problem’
Cenovus Energy Inc. said it will sell off more of its recently purchased natural gas assets, but it was reluctant to provide a divestiture target amid a depressing asset price environment.
The oilsands company has more land in Alberta’s Deep Basin natural gas formation than the company could develop, its new president and CEO Alex Pourbaix told investors Thursday during its fourthquarter earnings call.
Cenovus bought three million acres of land in the Deep Basin from ConocoPhillips Canada as part of a larger $17.7-billion deal last year.
“It is just not possible over any reasonable time frame for us to fully take advantage of that entire acreage,” according to Pourbaix, who joined the company in November.
“No one should be surprised to see us continue to focus on value,” he said, adding that the company is evaluating properties to keep based on profitability and the availability of pipelines and other infrastructure.
In an interview, Pourbaix stressed that the company is not under pressure to sell those assets and would not sell land packages at a discount, even though a lack of natural gas pipeline capacity has hurt producers in that part of the province over the past year.
“We had the same concerns when we announced the sale of those four land packages last year,” Pourbaix said, referring to a series of heavy and light oil properties sold in four separate transactions for a total of almost $4 billion.
He said the success of those asset sales, bringing the company’s net debt down from $13 billion to $8.9 billion, should ease the concerns some analysts have about the company’s divestiture program.
However, Pourbaix declined to give a target on how much money it wanted to generate from the sale of its assets in the Deep Basin.
“I think it’s telling that they’re moving away from an asset sales target number,” Edward Jones senior analyst Jennifer Rowland said, adding that the lack of a target could imply deteriorating valuation for the assets.
Pourbaix said the company wants to further reduce its debt of roughly 2.8-times its adjusted earnings to under two times its earnings by boosting earnings and reducing debt.
But analysts believe the company will need to dig deeper to rein in costs.
“I don’t see them hitting those leverage targets,” Rowland said. “They’re certainly not going to get there organically.”
Raymond James analyst Chris Cox said in a research note that he welcomed Pourbaix’s focus on cutting costs but added, “that alone will not fix the company’s leverage problem.”
Cox said Cenovus had “a very poorly executed hedging program from prior to Mr. Pourbaix’s appointment” which would make it difficult for the company to pay down debt.
The company’s earnings and cash flow improved in the fourth quarter, the company announced Thursday. Cash flow from operating activities jumped to $900 million in the quarter, up 449 per cent from $164 million during the same period a year earlier.
Its net earnings also rose sharply, reaching $620 million in the fourth quarter — a 581 per cent increase from the year before.