Morningstar | Best Idea Cenovus Energy Sells Assets; Stock Still Deeply Undervalued. See Updated Analyst Note from 10 Aug 2018
In an expected move, Best Idea Cenovus Energy entered into an agreement to sell its Pipestone and Wembley natural gas and liquids business in northern Alberta to aid in the deleveraging of its balance sheet. Cenovus will receive CAD 625 million in cash proceeds, which approximates CAD 71,000 per flowing barrel. Management expects the deal to close during the third quarter of 2018. The business produced an average of 8,800 barrels of oil equivalent per day year-to-date with 55% of the production coming from natural gas.We think this is a good move for Cenovus because we don’t ascribe much value to its non-oil sands exploration and development assets. Most importantly, we think this will aid in the company in achieving its deleveraging goal of less than 2 times net debt/EBITDA by the end of 2019. We fully expect Cenovus to meet its goal. At that point, we expect the company to begin its industry leading, solvent-assisted technology growth projects.
We are maintaining our $16 (CAD 21) fair value estimate and no-moat rating, and we still see tremendous upside in the stock. We believe the market is too narrowly focused on the company's temporary increase in short-term leverage and is overlooking the immense growth potential in its oil sands reserves that can be brought on line with solvent-aided process technology. Despite the upside in the stock, we still caution investors that the stock could retreat in the medium term if oil prices fall to our midcycle estimate of $55/bbl or if the heavy oil discount remains high. We remind investors, though, that these assumptions are already priced into our model. We expect lower price realizations over the next few quarters, coupled with high levels of leverage. However, we expect the heavy oil discount to narrow over the long-run as producers take advantage of rail options in 2019 and pipeline expansion projects are placed into service and Cenovus to see an uptick in cash flow.
For a deeper look into Cenovus and its upside, please see our October 2017 report "The King in the North: Cenovus Energy."
Cenovus Energy is in the business of development, production and marketing of crude oil, natural gas and natural gas liquids ("NGLs") in Canada with refining operations in the U.S. Co. operates in two business segments: Upstream, which includes Co.'s development and production of crude oil, NGLs in Canada, is organized into two operations: Oil sands and conventional; and Refining and Marketing, which is focused on the refining of crude oil products into petroleum and chemical products at two refineries located in the U.S. This segment also markets Co.'s crude oil and natural gas, as well as third-party purchases and sales of product.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.