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AUTHOR: Fahad Salman Research Analyst

TSX: +0.83% S&P 500: -0.89% DOW: -2.03%


Over the past week, the Canadian equity markets were slightly higher due to increases in energy, financials, and utilities. U.S. equities have been decreasing because of tensions with China but we may be seeing a rebound this week after the Dow broke its 8-day losing streak on Friday.

As oil prices have continued to rise following actions taken by the U.S., we have seen large gains in the energy sector. Cenovus Energy, being one of the largest oil companies in Canada is one of the reasons why the TSX closed higher last week, as it rose 8.6% over the week.

Cenovus Energy Inc. (TSX:CVE) (NYSE:CVE)

Cenovus Energy is a $16.32 billion Canadian integrated oil and natural gas company. According to CVE, “it is committed to maximizing value by responsibly developing its assets in a safe, innovative and efficient way.” It is engaged in developing, producing, and marketing crude oil, natural gas liquids and natural gas in Canada with marketing activities and refining operations in the U.S (1). More specifically, it operates oil sands extraction projects in Alberta with established natural gas and oil production in Alberta and British Columbia. Additionally, CVE has stakes in refineries which operate in the U.S.

Cenovus has been consistently focusing on capital discipline, cost reductions, and deleveraging its balance sheet (2). It has reduced the amount of capital needed to sustain the base business and expand any future projects. Not only are costs being reduced, but CVE has been focusing on using technology and innovation to achieve margin improvement. As Cenovus continues to grow its revenue, focus on reducing its costs and capital requirements, and consistently strives for innovation, investors can expect great results.

A challenge that the company has been facing is the market access constraints for Canadian crude oil production. The strategy here is to maintain firm transportation commitments to support growth plans but leave capacity for optimization. Additionally, the company is expecting to supplement firm capacity with active blending, storage, sourcing, and destination optimization to ensure maximizing the margins on barrels that are produced.

Ultimately, as Cenovus continues to manage its growth and operational efficiencies, we can expect great long-term growth. Not to mention, events such as the U.S. cutting oil and gas imports from Iran and Venezuela benefit CVE as the price for its products continues to rise. While efficient management of its operations and a decreased supply of oil are very positive, one thing to watch out for is how tough the constraints are for market access. As additional pipelines are added in Canada, we may see these constraints begin to dissipate.

Note: Percentages Up and Down are percentages of the total number of stocks in the sector and are not stock returns

Sources: Questrade IQ Edge, S&P Capital IQ, Google Finance

Works Cited

(1) https://web.tmxmoney.com/company.php?qm_symbol=CVE

(2) https://www.cenovus.com/invest/docs/2018/Q1-2018-Management-Discussion-Analysis.pdf

The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the authors, which do not necessarily correspond to the opinions of University of Waterloo Finance Association (“UWFA”). Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by UWFA. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.