Cenovus Energy (TSX:CVE) released first-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.
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Summary
Cenovus Energy Incorporation reported strong first-quarter results with upstream production exceeding 972,000 boe/day, driven by record oil sands volumes post MEG acquisition.
The company celebrated a safety milestone at the Toledo refinery, achieving 12 months without a recordable injury and completing a major turnaround ahead of schedule.
Future guidance remains robust with plans to ramp up production at Narrows Lake to 80,000 barrels/day and continued integration work at Christina Lake North, expected to exceed $150 million synergy target in 2026.
Financially, the company generated $4.4 billion in operating margin and $3.4 billion in adjusted funds flow, with a 10% increase in the annual base dividend approved.
Management emphasized the importance of energy security and competitive national policies, advocating for growth in the Canadian oil sands amidst global energy market volatility.
Full Transcript
OPERATOR
Good morning everyone. Thank you for standing by and welcome to Cenovus Energy Incorporation’s first quarter 2026 results conference call. At this time all participants are in a listen only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your touchtone telephone. As a reminder, this call is being recorded. I would now like to turn the meeting over to Mr. Patrick Reed, Vice President Investor Relations and Internal Audit. Please go ahead, Mr. Reed.
Patrick Reed (Vice President Investor Relations and Internal Audit)
Thank you, operator. Good morning everyone and welcome to Cenovus Energy Incorporation 2026 First Quarter Results Conference call. On the call this morning, our CEO John McKenzie and CFO Cam Sandar will take you through our results. Then we’ll open the line for John Cam and other members of the Cenovus management team to take your questions. Before getting started, I’ll refer you to our advisories located at the end of today’s news release. These describe the forward looking information, non GAAP measures and oil and gas terms referred to today. They also outline the risk factors and assumptions relevant to this discussion. Additional information is available in Cenovus Energy Incorporation annual MDA and our most recent AIF and Form 40F. And as a reminder, all figures we reference on the call today will be in Canadian dollars unless otherwise indicated. For the question and answer portion of the call, please keep to one question with a maximum of one follow up. You’re welcome to rejoin the queue for any other follow up questions you may have. We also ask that you hold off on any detailed modeling questions. You can follow up on those directly with our investor relations team after the call. I will now turn the call over to John. John, please go ahead.
John McKenzie (Chief Executive Officer)
Great. Thank you Patrick and good morning everyone. As always, I’m going to start with our top priority which is safety. At our Toledo refinery, we recently celebrated 12 consecutive months and over 3.3 million man-hours without a recordable injury. This milestone was delivered during a period which included a major turnaround on the east side of the plant. Work that carries additional risk given the elevated activity and non routine work. And the business delivered consistent execution bringing that asset back online safely and 11 days ahead of schedule. The performance reflects the commitment and dedication of the Toledo team supported by the strength of our safety systems which focus on leadership, engagement, a stop work culture and recognizing strong safety behaviors. So congratulations to the Toledo refineries. They continue to reinforce a belief core to Cenovus. Strong operational performance starts with doing the work safely every day. So now turning to our results, our priorities this quarter remain unchanged. We’ve stayed focused on executing our business plan, delivering exceptional operating performance and advancing our growth projects. The focus on execution Translated into strong first quarter results, with upstream production exceeding 972,000 boe per day, supported by record oil sands volumes in our first full quarter following the MEG acquisition. While geopolitical events late in the quarter resulted in increased price volatility and heightened uncertainty, our approach to operating our business remains the same. Our results reflect the strength of our business model. We are a reliable supplier of crude oil, natural gas and refined products to both North American and global markets. Starting with oil sands at Christina lake, production averaged 359,000 barrels per day in the first quarter, supported by strong well performance at Narrows Lake. Narrows Lake is Now producing over 65,000 barrels a day from the first four well pads and with a steam well ratio below 2, individual well performance has been exceptionally strong and exceeds our internal expectations. Our best wells at Narrows Lake are now producing over 5,000 barrels per day. Bringing on a project of this complexity and scale to 65,000 barrels a day in just over nine months is a testament to the quality of the asset and the capability of our technical project and operating people. Production from Narrows Lake will continue to ramp up as we bring on additional well pads and we expect to reach 80,000 barrels a day later this summer. Now, integration work at Christina Lake north is also progressing well. We’ve completed a delineation and seismic program in the quarter and initiated the redevelopment program ahead of schedule. The first of the 42 redevelopment wells was spud in March and began producing in April. Initial production results are exceeding our internal forecasts and as we execute our redevelopment program, we will see increased production from Christina Lake north throughout the remainder of 2026. At the same time, installation of the first new steam generators progressing ahead of schedule. With startup expected before the end of the year and with the acceleration of the redevelopment well program, we will exceed the $150 million synergy target we set for ourselves in 2026. Not to be outdone, at Foster Creek, we set another quarterly production record of 223,000 barrels per day, with peak rates exceeding 230,000 barrels a day in March. These production rates were driven by the optimization project, which was delivered ahead of schedule, and strong operating performance from our new well pads. We plan to start up an additional four well pads in 2026. The turnaround to Foster Creek Phase G began in April and has progressed well to date with limited production impact. We continue to optimize our turnaround activity across our oil Sands portfolio which will result in more efficient and lower impact turnarounds at Sunrise. Production in the first quarter was just over 59,000 barrels per day. During the quarter we successfully started up the first of the four new well pads on the east side development area of Sunrise. These pads are some of the largest synovuses ever drilled, targeting high quality rich pay of up to 50 meters thick. Now early indications from the first pad have met and exceeded expectations with we’ve seen recent daily rates reach as high as 68,000 barrels per day and with another three pads to come on in this area, we expect to continue to grow production from Sunrise all the way through to 2028. The Lloydminster thermals delivered another strong quarter averaging 102,000 barrels per day, supported by the continued outperformance of the redevelopment well program. Recent redevelopment wells have surpassed our expectations and and some of our longer laterals nearly doubling our initial forecast. Of note. Now this performance excludes any contribution from Vaughan which we sold in December and with limited initial volumes coming from Marush Lake which continues to ramp up following the 2025 outage. At our Asia Pacific assets, production was over 57,000 boe per day in the quarter and production from the region continues to impress, delivering consistent and robust free cash flow to Cenovus in the Atlantic. Production was over 18,000 barrels a day in the quarter with strong performance from Terra Nova and the base Whiterose field. Of note, we continue to benefit from the high netbacks and Brent plus pricing in that region. At West Whiterose we have now completed all the elements of construction and commissioning and have commenced drilling from the offshore platform, marking another important milestone for the project. I just couldn’t be more proud of what this team has been able to deliver through an extremely challenging winter and challenging weather conditions which really extended into the early spring. With drilling operations underway, we now expect first oil from the project later in Q3 in the downstream first quarter results are once again very strong. The Canadian refining business delivered throughput of 115,000 barrels a day in the quarter or a utilization rate of about 107%. During the quarter we entered into agreements to sell our Canadian commercial fuels business, which includes card lock and travel center locations for expected cash proceeds of 275 million. Now this transaction is expected to close in the second half of 2026 pending approval from the Competition Bureau and other customary closing conditions. In U.S. refining business, crude throughput averaged 343,000 barrels a day or approximately 94% utilization. Our PADD 2 refineries continue to deliver strong operational availability, allowing us to optimize margins as the opportunities arise. Adjusted market capture was 114% in the quarter, reflecting a market environment that continued to favor our configuration, including our ability to process heavy crude and our low gasoline to distillate yield ratio. So now I’ll turn it over to CAM to walk through some of our financial results.
Cam Sandar (Chief Financial Officer)
Thanks John and good morning everyone. In the first quarter we generated approximately 4.4 billion of operating margin and 3.4 billion of adjusted funds flow. Operating margin in the upstream was over $3.7 billion, exceeding the prior quarter due to the higher production in oil sands, rising benchmark oil prices in late February and March. Our first quarter results included over $1.5 billion of taxes and royalties, which rose alongside commodity prices. Oil sands non fuel operating costs were $8.92 a barrel in the first quarter, about $0.50 per barrel higher than the prior quarter due to planned maintenance workover activities as well as higher GHG compliance costs. Downstream operating margin was 734 million, which included 504 million of inventory holding gains, with results in the quarter benefiting from competitive and reliable operations and improved product pricing in U.S. refining operating costs were $11.74 a barrel or 20 cents per barrel lower than the previous quarter, reflecting lower planned maintenance offset in part by modestly lower throughput and higher energy and electricity costs. Adjusted market capture, as John mentioned, was 114%, with economic conditions continuing to favor the configuration of our refineries. Widening heavy crude differentials, strong diesel and jet fuel margins, and the relative strength of secondary products versus gasoline were all tailwinds in our results. Looking forward, capture rates are expected to normalize through the spring and summer. However, we are seeing significantly higher volatility in product prices in the current environment, and how these prices settle relative to each other over the coming months may impact our capture rates. Capital investment in the first quarter was approximately $1.2 billion, supporting sustaining activity across the business along with investment in growth optimization projects at Christina Lake, North Sunrise, Foster Creek and West Whiterose. Our capital guidance for 2026 remains unchanged at 5 to 5.3 billion. Turning to net debt at the end of the quarter, our balance was approximately 8.1 billion, a modest decrease from the prior quarter with higher adjusted funds flow partially offset by a 1.1 billion increase. Non cash working capital this increase in working capital is typical of periods where commodity prices rise to the extent we saw through the latter part of the quarter as current commodity prices. At current commodity prices, we would expect the pace of deleveraging to accelerate significantly in the coming quarters. Shareholder returns in the first quarter were $1 billion, including 356 million in common share purchases, 379 million through dividends, and $300 million through the redemption of our Series 1 and 2 preferred shares. These were the last outstanding series of preferred shares of the original 900 million, which we have redeemed over the past two years, resulting in a lower cost and a simplified capital structure going forward. Consistent with our commitment to grow shareholder returns, our Board of Directors has approved a 10% increase to the annual base dividend to $0.88 per share. This increase reflects the growth of our business and the strength of our operations, which both fund the dividend and our sustaining capital requirements at a $45 WTI oil price. I’ll now turn the call back to John for some closing remarks.
John McKenzie (Chief Executive Officer)
Great. Thanks Cam. Now, as we close the book on the first quarter, it’s worth reiterating that volatility and geopolitical uncertainty are not new to our industry. We’ve seen many cycles over the decades. It’s why we constructed our capital structure, financial framework and operating model to perform through a wide range of market conditions. While higher benchmark prices underscore the operating leverage and the cash flow generating capability of our business, they do not change our strategy. Our focus remains on executing the business plan that we laid out in December. Our company responded accordingly this quarter, delivering consistently strong operational performance across both upstream and downstream. We increased our production rates, ran our refineries with high availability and utilization, completed the West White Rose Project and accelerated the integration of Christina Lake north with our unique high quality long reserve life assets coupled with our disciplined capital allocation framework and dedicated and highly competent people, our business performance continues to press our competitive advantages. Now, before we open the line for questions, I want to talk about an opportunity that we as Canadians have if we choose to seize it. The events of the last few weeks have clearly shown the world that energy security is national security and energy security is is economic security. The reality is the world needs affordable, abundant, reliable energy from all sources, regardless of how we label them. The world will require hydrocarbons to form a material component of the energy supply mix for decades to come. And there are no examples of First World nations that don’t also have access to affordable, abundant, reliable energy. It is essential and irreplaceable for a high quality standard of living. In Canada, we are blessed with some of the highest quality, longest life resources in the world, including the Canadian oil sands. These resources not only supply Canada with affordable, reliable, abundant energy we use and take for granted every day in our modern lives. But they also fund our social benefit network. Schools, hospitals, roads, pensions through the payment of taxes and royalties and the creation of high paying jobs. And yet, the national dialogue on further development of the oil sands has been myopically focused on the climate agenda and climate policy, which have ignored a multitude of benefits that responsible oil sands development has brought to this country. Of the top 10 global producing oil nations, Canada is recognized as the most responsible producer across a broad range of metrics. The result of this myopic dialogue, however, is that we have created a set of national policies and regulations that make resource development and investment in Canada uncompetitive with the rest of the world. Only one greenfield oil sands project has been approved and built since 2013. Capital has left Canada to find more competitive jurisdictions. And Canada has ceded high paying jobs, taxes and royalties to countries like Russia, Iran, Iraq and the United States. Our uncompetitive national climate policies and regulations have not reduced global demand for oil by one barrel. It just means that the oil the world demands and the associated benefits are not coming from or to Canada. It does the country no service to negligibly reduce the impact of climate change over the next century. If we materially erode our social benefit network over the next 15 years. And yet we have an opportunity to course correct. If we recognize that we are in a global competition for investment and we choose to compete, we have the opportunity to become the energy superpower that our Prime Minister has advocated for. But continuing to add incremental costs and protracted expensive …
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