Cenovus To Curb Capital Spending In Weak Pricing Environment

Cenovus Energy Inc. (TSX:CVE) recently announced plan to slash 2020 capital budget by around 32%. Moreover, the company will likely put its crude-by-rail program under temporary suspension, while postponing final investment decisions of some major growth projects. This move was triggered by the recent events in the OPEC+ meeting, which ended up creating a Saudi Arabia-Russia oil price war and pushing oil prices to historical lows.

Budget Cut

Oil prices have witnessed a massive tumble recently, highest since the 1991 Gulf War, which dealt a huge blow to the already struggling Canadian hydrocarbon industry. Reacting to the market situation, Cenovus decided to curb capital spending in a bid to maintain balance sheet strength. Per the revised budget, the company is expected to make capital spending of C$0.9-C$1 billion in 2020. Notably, as of Dec 31, 2019, the Canadian energy player had cash and cash equivalents of C$186 million, and total long-term debt of C$6,699 million. Its total debt-to-capitalization ratio was 25.9%, considerably lower than the energy sector’s more than 31%.

Lowered Production Guidance

The temporary suspension of the crude-by-rail program is expected to halt the usage of credits under Alberta’s Special Production Allowance program. This will likely take a toll on the company’s total production by 5%. Production is now expected within 432-486 thousand barrels of oil equivalent per day. Oil sands production is now expected in the range of 350-400 thousand barrels per day, reflecting 6% fall from the original guidance.

Major Projects to Suffer

The company’s Christina Lake and Foster Creek projects, which were earlier expected to reach sanction-ready status in 2020, are kept on hold. Capital spending in its Deep Basin and Marten Hills operations is also likely to be suspended. The company will avoid making new projects sanctions owing to low oil price environment.

Price Performance

The stock has plunged 63.8% in the past year compared with 44.2% decline of the industry it belongs to.

Zacks Rank & Stocks to Consider

Cenovus currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Apache Corporation (NYSE:APA) , Matador Resources Company (NYSE:MTDR) and Phillips 66 (NYSE:PSX) Partners LP (NYSE:PSXP) , each having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apache beat the Zacks Consensus Estimate for earnings thrice in the last four quarters, with an average positive surprise of 119.7%.

Matador Resources’ 2020 earnings per share are expected to gain more than 5% year over year.

Phillips 66 Partners’ first-quarter 2020 earnings per share are expected to gain 10% year over year.

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