Cenovus Energy Inc. (CVE) Earnings Call Transcript & Summary

Mr. Chairman, my name is Gary Molnar, and I second the motion.

Thank you, Mr. Molnar. Are there any questions on the motion?

There are no questions on the motion.

We will now move on to Item 4, the amendment and reconfirmation of the shareholder rights plan as set forth on Pages 15 and 16 of the circular. Could I have a motion?

Mr. Chair, my name is Rhona DelFrari, and I move for a vote on item 4, the amendment and reconfirmation of the shareholder rights plan.

Thank you, Mr. DelFrari. Is there a seconder for the motion?

Mr. Chair, my name is Drew Zieglgansberger, and I second the motion.

Thank you, Mr. Zieglgansberger. Are there any questions on the motion?

There are no questions on the motion.

Online polling is now closed. While we tabulate the results, please enjoy our corporate video. [Presentation]

In order for today's resolutions to be passed, the approval by a simple majority of the votes cast by shareholders who voted online or by proxy at this meeting must be received. I have received the scrutineer's report and confirm as follows: PwC is appointed as auditors of Cenovus as approved by 99.65% of the votes cast by shareholders. Each director nominee is elected to the Board. The nonbinding advisory vote to accept the approach to executive compensation was approved by 97.8% of the votes cast for shareholders, and finally, the amendments and reconfirmation of the shareholder rights plan was approved by 96.55% of the votes cast by shareholders. I direct the secretary to file the final scrutineer's report with the minutes of the meeting. Details of the voting results will be filed with securities regulators and included in the news release, which will be issued later today. The formal business of the meeting is now complete. May I have a motion to conclude the meeting.

I move that this meeting conclude.

Thank you, Mr. Sandhar. I declare the formal business of the meeting is concluded. I now invite Mr. Jon McKenzie, Cenovus' President and Chief Executive Officer, to give his remarks, which will be followed by a question-and-answer session.

Great. And thank you, Alex. On behalf of Cenovus and our shareholders, I'd like to thank you for your contributions as Executive Chair. Your assistance and support as we've transitioned to our new roles with a refreshed Board of Directors and executive team has been invaluable. As our shareholders will see throughout this presentation, we are staying true to the priorities that have guided Cenovus' success over the past half dozen years. I would like to bring your attention to the advisory on the screen, which refers to some of the information I'm about to discuss. Additional information about our forward-looking statements and financial information can be found in our first quarter news release, first quarter management's discussion and analysis, and our 2023 annual report. These are all available on cenovus.com under Investors. Before I walk you through our 2023 performance and first quarter results, I want to take a moment to talk about our #1 priority this year and every year, safety. In 2023, we achieved a recordable injury frequency of 0.32. While we noted a marked decrease in the potential severity of our incidents, we are always looking for ways to improve. Last year, we safely achieved a number of important milestones. We restarted the refineries in Superior, Wisconsin and Toledo, Ohio and advanced our West White Rose project. And we did this without a significant safety incident. Last spring, with unprecedented wildfire activity in some of our conventional assets in Northwestern Alberta, we kept our staff and assets safe. I am proud of our teams for the focus on protecting what matters and their commitment to continually improving. Now I'll provide an overview of our progress through 2023 and then share an overview of Cenovus' first quarter results released earlier this morning. Delivering value to shareholders remains a top priority. Our total shareholder return over the past 3 years has continued to outperform both the TSX Composite Index and the TSX Energy Index. We continue to progress towards our $4 billion net debt target, reaching $4.8 billion as of March 31, 2024. When we reach $4 billion, we'll begin returning 100% of our excess free funds flow to shareholders either through share buybacks or a variable dividend. We have made a minor adjustment to our shareholder framework to improve our flexibility once we achieve the $4 billion, while continuing to strive to pay our target of 100% shareholder returns over time. You can find details in today's news release. Turning to our full year 2023 financial performance. We generated adjusted funds flow of $8.8 billion compared with $11 billion in the previous year. Free funds flow of $4.5 billion was lower than 2022 and net earnings were $6.5 billion in 2022 compared to $4.1 billion in 2023. This was primarily due to higher commodity pricing in 2022 as well as the acquisition and startup of the Toledo Refinery and the startup of Superior. Throughout 2023, we continue to demonstrate the strength of our assets. In the Upstream, I'll mention a couple of highlights. We continue to advance a number of optimization projects including the Narrows Lake tieback. This will allow us to produce our high-quality, low SOR resource back to Christina Lake processing facility. In our offshore business, the West White Rose project in Atlantic Canada was 75% complete at the end of the year. We also continue to improve our downstream reliability and margin capture. In the last half of the year, we started demonstrating our potential of our downstream with the Toledo and Superior refineries restarted and our integrated value chain fully operating. You saw this reflected in our improved third and fourth quarter results. Overall, we exited 2023 with our operated U.S. refining business on much improved footing. And in Canadian Refining, the Lloyd Upgrader and Refinery demonstrated strong and consistent performance. Through the rest of this year, we'll continue to improve our competitive cost structure through our value chain. Looking at our sustainability performance, we continue to advance the targets in our 5 environmental, social and governance focus areas. Notably, in 2023, 2 years ahead of schedule, we achieved our target of spending more than $1.2 billion with indigenous businesses between 2019 and 2025, and we're not stopping there. Economic inclusion is an important part of our approach to indigenous reconciliation, and we continue to look for opportunities to work with indigenous businesses. We also progressed our other ESG targets last year, including emissions reduction. A new milestone will see us reduce absolute methane emissions from upstream operations by 80% by year-end 2028 from our 2019 baseline, and we continue to advance several carbon capture projects across our operations. We also remain an active partner in the Pathways Alliance, working with 5 of our peers in the oil sands sector. Engineering and planning work for the CO2 pipeline continues to advance. In fact, just over a month ago, Pathways began filing regulatory applications for the carbon pipeline with the Alberta regulator. This proposed CCS pipeline is foundational to significantly reducing emissions towards Pathways goal of net 0 emissions from oil sands production by 2050. We continue to work collaboratively with the federal and Alberta governments on the fiscal and regulatory framework, the member company is required to proceed with the proposed Pathways carbon capture and storage network. I would note that in other oil-producing jurisdictions such as Norway and the U.S., projects like these are only being built with significant financial support from government. It will take similar co-investment along with a supportive regulatory environment for our industry to be able to make final investment decisions and proceed with this multi-decade, multibillion-dollar project. As I said, we continue to work with both levels of government on the appropriate framework and remain optimistic that we'll get there. It's important that we get it right as this project is critical to helping up Canada achieve its net 0 goals. Now I'll touch on our first quarter results. Over the past 3 months, we delivered solid operating and financial results. We returned $436 million to shareholders in the quarter. And yesterday, the Board of Directors approved a 29% increase in the annual base dividend to $0.72 per share. The Board also declared a variable dividend of $0.135 per share to be paid in the second quarter. Our upstream assets continue to perform well, averaging 800 and 100,000 BOE per day. This reflected increased production from our Lloyd Thermals, offset by the SeaRose FPSO vessel beginning its planned maintenance. The SeaRose left the White Rose field in January for Belfast and its asset life extension project is underway. We expect to resume production late in the third quarter of this year. In the downstream, our focus on driving improved performance at our U.S. refineries resulted in throughput of 551,000 barrels a day, an increase of about 72,000 barrels a day from the previous quarter. This solid operating performance with improved refining benchmark pricing, led to strong financial results in the quarter, with adjusted fund flows increasing to $2.3 billion from $2.1 billion in the fourth quarter of last year. Looking ahead to the rest of 2024, we will continue to invest to support future production growth, both next year and beyond. In our Downstream business, we will remain focused on reliability and expanding margin capture to fully demonstrate the value of our integrated business model, and we are on track to achieve our net debt target of $4 billion at some time this year, which will trigger returns -- sorry, which will trigger the return of 100% excess free funds flow to shareholders. So to sum it up, we remain laser-focused on safety. Over the last year, we have further strengthened our balance sheet. We are maximizing our world-class assets, improving the full value chain from our leading in situ oil sands assets through to our downstream business. We are making progress against our ESG targets and maintaining our position as a transparent sustainability leader. And we are generating meaningful shareholder returns. Thank you for your continued support of Cenovus. And now I'll open the floor to questions from registered shareholders and duly appointed proxyholders.

Thanks, Jon. We will now answer questions submitted online. Please click on the messaging icon on the information section of your screen to type and submit your question. We may group questions that are similar in nature for a single response. We run out of time and don't get to a question of questions and our answers, including those questions that are not addressed during the meeting will be posted on Cenovus' website within 5 business days. Seeing no questions, I turn it back to Mr. McKenzie.

On behalf of your Board of Directors and leadership team, we thank you for attending our Annual Meeting of Shareholders.

Thank you. That concludes our conference today. Thank you for participating.