UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For February 2020
Commission File Number: 1-34513
CENOVUS ENERGY INC.
(Translation of registrant’s name into English)
4100, 225 6 Avenue S.W.
Calgary, Alberta, Canada T2P 1N2
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☐ Form 40-F ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
DOCUMENTS FILED AS PART OF THIS FORM 6-K
See the Exhibit Index to this Form 6-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 12, 2020
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CENOVUS ENERGY INC. |
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(Registrant) |
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By: |
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/s/ Natasha L.S. Dhillon-Penner |
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Name: |
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Natasha L.S. Dhillon-Penner |
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Title: |
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Assistant Corporate Secretary |
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Form 6-K Exhibit Index
Exhibit No. |
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99.1 |
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News Release dated February 12, 2020 |
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99.2 |
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Interim Consolidated Financial Statements (unaudited) for the period ended December 31, 2019 |
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99.3 |
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Supplemental Financial Information (unaudited) –
Exhibit to December 31, 2019 Consolidated Financial Statements –
Consolidated Interest Coverage Ratios |
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Exhibit 99.1
Cenovus delivers strong 2019 financial and operating performance
Company generates $2.5 billion of free funds flow; reduces net debt
Calgary, Alberta (February 12, 2020) – Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) continued to gain momentum in 2019, generating free funds flow of $361 million in the fourth quarter and approximately $2.5 billion for the year, reducing net debt by 22% year-over-year and completing construction on its Christina Lake phase G oil sands expansion in March. In the fourth quarter of 2019, Cenovus increased its dividend by 25% and reached full ramp-up of its crude-by-rail shipping capacity.
“We continued to deliver on our commitments to shareholders last year,” said Alex Pourbaix, Cenovus President & Chief Executive Officer. “While running safe and reliable operations, we maintained our industry-leading low cost structure, exercised capital discipline and enhanced shareholder value. And through increased rail capacity, we further improved our market access position, providing greater exposure to global oil pricing.”
Key fourth-quarter and 2019 developments
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Reduced net debt by a further $289 million to $6.5 billion in the fourth quarter |
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Generated cash from operating activities of $740 million in the fourth quarter and $3.3 billion for the full year as well as adjusted funds flow of $678 million in the fourth quarter and $3.7 billion for the full year |
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Reduced year-over-year upstream operating expenses through focused cost leadership |
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Exceeded crude-by-rail shipping target, achieving 106,000 barrels per day (bbls/d) loaded in December |
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Achieved fourth-quarter oil sands production of more than 374,000 bbls/d, up from 355,000 bbls/d in the third quarter of 2019 mainly due to reduced curtailment levels |
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2019 production & financial summary1 |
(for the period ended December 31)
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2019
Q4 |
2018
Q4 |
% change |
2019
Full year |
2018
Full year |
% change |
Financial ($ millions, except per share amounts) |
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Cash from operating activities |
740 |
485 |
53 |
3,285 |
2,154 |
53 |
Adjusted funds flow2 |
678 |
-36 |
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3,724 |
1,674 |
122 |
Per share diluted |
0.55 |
-0.03 |
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3.03 |
1.36 |
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Free funds flow2 |
361 |
-312 |
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2,548 |
311 |
719 |
Operating earnings (loss) from continuing operations2 |
-164 |
-1,670 |
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456 |
-2,755 |
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Per share diluted |
-0.13 |
-1.36 |
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0.37 |
-2.24 |
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Net earnings (loss) from continuing operations |
113 |
-1,350 |
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2,194 |
-2,916 |
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Per share diluted |
0.09 |
-1.10 |
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1.78 |
-2.37 |
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Capital investment |
317 |
276 |
15 |
1,176 |
1,363 |
-14 |
Production (from continuing operations)3
(before royalties) |
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Oil sands (bbls/d) |
374,132 |
326,481 |
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354,257 |
362,996 |
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Deep Basin liquids3 (bbls/d) |
26,197 |
28,111 |
-7 |
26,673 |
32,454 |
-18 |
Total liquids production from
continuing operations3 (bbls/d) |
400,329 |
354,592 |
13 |
380,930 |
395,450 |
-4 |
Total natural gas (MMcf/d) |
403 |
469 |
-14 |
424 |
528 |
-20 |
Total production from continuing operations (BOE/d) |
467,448 |
432,713 |
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451,680 |
483,458 |
-7 |
1 Cenovus adopted IFRS 16, “Leases,” effective January 1, 2019; see full note in the Advisory.
2 Adjusted funds flow, free funds flow and operating earnings/loss are non-GAAP measures. See Advisory.
3 Includes oil and natural gas liquids (NGLs). |
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Financial highlights
In 2019, Cenovus increased cash from operating activities to approximately $3.3 billion from $2.2 billion the previous year and adjusted funds flow to about $3.7 billion from $1.7 billion in 2018. Cenovus had free funds flow of approximately $2.5 billion in 2019, an eight-fold increase from a year earlier, driven by higher adjusted funds flow and disciplined capital spending. Fourth-quarter free funds flow was $361 million compared with a shortfall of $312 million in the same period of 2018.
The company’s full-year upstream results benefited from a 52% narrowing of the differential between West Texas Intermediate (WTI) and Western Canadian Select (WCS) crude oil prices in 2019 compared with 2018 as well as increased sales at locations outside of Alberta, where the company was able to achieve higher realized prices. Refining margins were lower compared with 2018 primarily due to reduced realized crack spreads.
“With our low cost structure, continued focus on capital discipline and our diversified transportation portfolio to get more of our product to U.S. markets, we were able to generate very strong free funds flow in 2019,” said Pourbaix. “And we put that cash to good use, further deleveraging our balance sheet and increasing our dividend in the fourth quarter of the year.”
Operating earnings from continuing operations were $456 million in 2019, compared with an operating loss from continuing operations of nearly $2.8 billion in 2018. The year-ago results included a significant realized hedging loss, as well as a number of significant non-cash items. Full-year 2019 net earnings from continuing operations were approximately $2.2 billion compared with a net loss from continuing operations of $2.9 billion a year earlier. The year-over-year increase in net earnings was driven by higher operating earnings relative to 2018, non-operating foreign exchange gains of $787 million in 2019 compared with losses of $593 million in 2018 and a deferred income tax recovery in 2019, including $671 million related to the reduction of Alberta’s corporate income tax rate and $387 million due to an internal restructuring of the company’s U.S. operations resulting in an increased tax basis of its U.S. refining assets.
Further information on the company’s financial results are included in its 2019 Management Discussion & Analysis (MD&A) available in the Investors section at cenovus.com.
Balance sheet strength and capital discipline
Cenovus continued to make significant progress on its deleveraging plans through the past year, repaying approximately US$1.8 billion of its unsecured notes and reducing net debt to $6.5 billion by year end, compared with net debt of approximately $8.4 billion at the start of 2019. Cenovus’s net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) ratio was 1.6 times at the end of 2019, down from 1.9 times at the end of the third quarter and 5.9 times at the end of 2018. Deleveraging remains a top priority for Cenovus as the company continues to pursue its net debt target of $5 billion. At net debt of $5 billion, Cenovus anticipates being in a position to maintain a target ratio of less than two times net debt to adjusted EBITDA, at bottom-of-the-cycle commodity prices.
During the fourth quarter of 2019, Moody’s Investors Service affirmed Cenovus’s Ba1 credit rating and improved its outlook from ‘stable’ to ‘positive,’ citing the significant amount of debt reduction the company has achieved. In addition to making progress towards re-establishing an investment grade credit rating at Moody’s, Cenovus remains committed to
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maintaining its investment grade credit ratings at S&P Global Ratings, DBRS Limited and Fitch Ratings.
Market access and integration
Cenovus successfully ramped up its crude-by-rail shipping capacity in 2019 and in December exceeded its target by achieving average rail loading volumes of nearly 106,000 bbls/d.
While pipelines remain the cornerstone of Cenovus’s transportation strategy, rail continues to be an important option to bridge the gap until expansion pipelines are completed. Pipelines and rail are part of the company’s integrated business model designed to maximize exposure to global oil prices and mitigate pipeline congestion through a range of options to increase margins and reduce cash flow volatility.
Production curtailment
Cenovus’s 2019 oil sands production averaged 354,257 bbls/d, approximately 2% lower than in 2018 primarily due to the Government of Alberta’s mandated curtailment program. Fourth-quarter oil sands volumes averaged 374,132 bbls/d, 15% higher than the same quarter in 2018. In December 2019, the Alberta government introduced the Special Production Allowance (SPA) program, which allows crude oil producers to exceed mandated curtailment levels if those volumes are transported using incremental crude-by-rail capacity. In the fourth quarter of 2018, volumes were impacted by Cenovus’s voluntary decision to restrict oil sands production rates in response to pipeline constraints and wide light-heavy oil differentials. Cenovus anticipates higher oil production levels overall this year compared with 2019 due to the return to unconstrained production with the SPA program and the ramp-up of Christina Lake phase G over the next six to 12 months.
“While mandatory curtailment reduced our overall production volumes in 2019, it helped keep light-heavy oil price differentials from reaching the record highs we saw at the end of 2018, contributing to a significant overall benefit for the province and for our industry,” said Pourbaix. “Compared with 2018, our royalty payments to the province of Alberta increased significantly, more than doubling to $1.1 billion in 2019.”
Sustainability
Cenovus continues to deliver equally strong operational, financial and environmental, social and governance (ESG) performance with a continued focus on being an ESG leader within its industry. In January, Cenovus announced its four ESG focus areas and set bold targets to guide its performance related to climate and greenhouse gas (GHG) emissions, Indigenous engagement, land and wildlife and water stewardship. The company also announced last month it plans to invest $10 million per year for at least five years to build much-needed new homes in six Indigenous communities near Cenovus’s oil sands operations in northern Alberta.
As part of its commitment to strong ESG performance, Cenovus is committed to rigorous governance practices and industry-leading safety performance. In 2019, the company’s overall health and safety performance improved from the previous year due to Cenovus’s focus on risk management and asset integrity. The company also achieved the second-lowest recordable injury frequency in its history.
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Operating highlights
Oil sands
Fourth-quarter oil sands production at Cenovus’s Christina Lake and Foster Creek oil sands projects was more than 374,000 bbls/d, up from 355,000 bbls/d in the third quarter of 2019 mainly driven by the easing of mandatory curtailment levels. Full-year 2019 production declined slightly from a year earlier primarily due to curtailment. As a result of the SPA program and increased rail shipping capacity, Cenovus has returned to unconstrained production, and the company expects to ramp up its Christina Lake phase G expansion over the next six to 12 months.
Fourth-quarter oil sands operating costs were $8.06 per barrel (bbl) essentially flat with the same period a year earlier. Full-year oil sands operating costs were $8.15/bbl, up 7% from $7.65/bbl in 2018 primarily due to lower volumes as a result of mandated curtailment. Per-barrel oil sands operating costs also increased as a result of higher repairs and maintenance activity and related costs due to a turnaround at Christina Lake during the second quarter, and higher fuel costs. Fuel costs increased year-over-year due to higher natural gas prices and fuel consumption as Cenovus maintained normal steam injection rates at its oil sands operations while reducing production volumes to meet mandated curtailment levels. Cenovus continued to achieve further reductions in its oil sands sustaining capital costs in 2019, which declined 10% to $567 million, or approximately $4.00 per barrel of capacity from the previous year.
At Christina Lake, the steam to oil ratio (SOR) was 2.0 in 2019, compared with 1.9 in 2018. At Foster Creek, the SOR was unchanged at 2.8 from a year earlier.
Full-year 2019 oil sands operating margin increased more than three-fold year over year to approximately $3.5 billion due to higher average realized sales prices, decreased transportation and blending costs and realized risk management losses of $23 million compared with losses of approximately $1.6 billion in 2018, partially offset by lower sales volumes and higher royalties.
Deep Basin
Cenovus has largely completed work to optimize its Deep Basin operating model to reduce costs, improve efficiency and maximize value. The company continues to take a disciplined approach in the Deep Basin and is driving the business to be resilient at bottom-of-the-cycle commodity prices of US$45/bbl WTI and Alberta Energy Company (AECO) pricing of $1.50 per gigajoule. The Deep Basin generated operating margin in excess of capital investment of $64 million in the fourth quarter of 2019, up 45% from the same period a year earlier. Operating margin in excess of capital investment was $189 million for the full year.
Deep Basin production averaged 97,423 barrels of oil equivalent per day (BOE/d) in 2019, a 19% decrease from 2018 levels, due to natural declines from lower sustaining capital investment, the divestiture of Cenovus’s Pipestone Partnership in 2018 and temporary well shut-ins in response to low natural gas prices.
Total Deep Basin operating costs decreased 16% in 2019 compared with the previous year as a result of the Pipestone divestiture, lower third-party processing costs due to lower throughput and Cenovus focusing on optimizing operations. This optimization work included
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well interventions, repair and maintenance activities and leveraging the company’s processing infrastructure to lower the cost structure. Despite the 2019 year-over-year production decrease on a full-year basis, operating costs increased a modest 2% to $8.79/BOE from $8.58/BOE in 2018.
Refining and marketing
Cenovus’s Wood River, Illinois and Borger, Texas refineries, which are co-owned with the operator, Phillips 66, had solid operational performance in 2019. Crude oil runs and refined product output in 2019 were consistent with the previous year.
Refining and marketing operating margin for the fourth quarter was $109 million, compared with $251 million in the same quarter of 2018. Full-year refining and marketing operating margin was $737 million, compared with operating margin of $996 million in the year-earlier period. The year-over-year decrease was primarily due to reduced crude cost advantage as heavy and medium sour crude oil differentials narrowed.
Effective January 2020, the Wood River refinery was re-rated to reflect higher processing capacity of 346,000 gross bbls/d, an increase of 13,000 bbls/d from 2019.
Cenovus’s refining operating margin is calculated on a first-in, first-out (FIFO) inventory accounting basis. Using the last-in, first-out (LIFO) accounting method employed by most U.S. refiners, operating margin from refining and marketing would have been $140 million lower in 2019, compared with $118 million higher in 2018.
Reserves
Cenovus’s proved and probable reserves are evaluated each year by independent qualified reserves evaluators (IQREs). At the end of 2019, Cenovus had total proved reserves of approximately 5.1 billion BOE, essentially unchanged from 2018, while total proved plus probable reserves decreased 2% to about 6.9 billion BOE. Proved bitumen reserves were approximately 4.8 billion barrels, while proved plus probable bitumen reserves were about 6.4 billion barrels, both relatively unchanged from 2018. Cenovus’s reserve life index (RLI) for proved reserves is in excess of 30 years, with proved plus probable reserves having an RLI in excess of 40 years.
Cenovus’s 2019 proved reserves finding and development (F&D) costs were $7.57/BOE, excluding changes in future development costs, up 74% from 2018, reflecting lower proved reserves additions, partially offset by decreased capital spending. Three-year average proved reserves F&D costs were $5.97/BOE, excluding changes in future development costs.
Cenovus, which primarily holds long-life bitumen reserves, believes another meaningful measure of efficiency is F&D costs for proved developed reserves, excluding changes in future development costs. For 2019, Cenovus’s bitumen proved developed reserves F&D costs were $2.49/bbl, excluding changes in future development costs, a decrease of more than 50% from 2018, mainly as a result of lower capital expenditure on Christina Lake phase G, deferral of oil sands sustaining capital expenditure and the company’s focus on maximizing value.
More details about Cenovus’s reserves and other oil and gas information is available in the Advisory, the company’s Annual Information Form (AIF) and Annual Report on Form 40-F
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for the year ended December 31, 2019, which are available on SEDAR at sedar.com, EDGAR at sec.gov and Cenovus’s website at cenovus.com.
Dividend
For the first quarter of 2020, the Board of Directors declared a dividend of $0.0625 per share, payable on March 31, 2020 to common shareholders of record as of March 13, 2020. Based on the February 11, 2020 closing share price on the Toronto Stock Exchange of $11.98, this represents an annualized yield of approximately 2.1%. Declaration of dividends is at the sole discretion of the Board and will continue to be evaluated on a quarterly basis.
Year-end disclosure documents
Today, Cenovus is filing its audited Consolidated Financial Statements, MD&A, and AIF with Canadian securities regulatory authorities. The company is also filing its Annual Report on Form 40-F for the year ended December 31, 2019 with the U.S. Securities and Exchange Commission. Copies of these documents will be available today on SEDAR at sedar.com, EDGAR at sec.gov (for the Form 40-F) and the company's website at cenovus.com under Investors. They can also be requested free of charge by email at investor.relations@cenovus.com.
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Conference Call Today
9 a.m. Mountain Time (11 a.m. Eastern Time)
Cenovus will host a conference call today, February 12, 2020, starting at 9 a.m. MT (11 a.m. ET). To participate, please dial 888-231-8191 (toll-free in North America) or 647-427-7450 approximately 10 minutes prior to the conference call. A live audio webcast of the conference call will also be available via cenovus.com. The webcast will be archived for approximately 90 days. |
ADVISORY
Basis of Presentation
Cenovus reports financial results in Canadian dollars and presents production volumes on a net to Cenovus before royalties basis, unless otherwise stated. Cenovus prepares its financial statements in accordance with International Financial Reporting Standards (IFRS).
Barrels of Oil Equivalent
Natural gas volumes have been converted to barrels of oil equivalent (BOE) on the basis of six thousand cubic feet (Mcf) to one barrel (bbl). BOE may be misleading, particularly if used in isolation. A conversion ratio of one bbl to six Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil compared with natural gas is significantly different from the energy equivalency conversion ratio of 6:1, utilizing a conversion on a 6:1 basis is not an accurate reflection of value.
Finding and Development Costs
Finding and development (F&D) costs are calculated by dividing the sum of total exploration and development costs incurred in 2019 in respect of the relevant product types by the sum of total additions and revisions for the applicable category of reserves in the same period. The additions and revisions for the applicable category of reserves for the period are
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determined by Cenovus's IQREs, effective December 31, 2019, and for purposes of determining F&D costs, exclude changes resulting from acquisitions, dispositions and production. F&D costs provide an indication of the unit cost of finding and developing new reserves. F&D costs do not have a standardized meaning and are defined differently by different companies and as such are not comparable to similar measures presented by other issuers.
Reserves Estimates
Estimates of reserves referenced in this release were prepared effective December 31, 2019 by IQREs, based on the Canadian Oil and Gas Evaluation Handbook and in compliance with the requirements of National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. Estimates are presented using an average of the January 1, 2020 price forecasts from three IQREs. For additional information about our reserves and other oil and gas information, see “Reserves Data and Other Oil and Gas Information” in Cenovus's AIF and Annual Report on Form 40-F for the year ended December 31, 2019 (available on SEDAR at sedar.com, on EDGAR at sec.gov and Cenovus's website at cenovus.com).
Accounting Changes
Cenovus adopted International Financial Reporting Standard 16, “Leases,” effective January 1, 2019 using the modified retrospective approach; therefore, 2018 comparative information has not been restated.
Non-GAAP Measures and Additional Subtotal
This news release contains references to adjusted EBITDA, adjusted funds flow, cash flow, capitalization, free funds flow, operating earnings (loss) and net debt, which are non-GAAP measures, and operating margin, which is an additional subtotal found in Notes 1 and 11 of Cenovus's Audited Consolidated Financial Statements for the year ended December 31, 2019 (available on SEDAR at sedar.com, on EDGAR at sec.gov and Cenovus's website at cenovus.com). These measures do not have a standardized meaning as prescribed by IFRS. Readers should not consider these measures in isolation or as a substitute for analysis of the company's results as reported under IFRS. These measures are defined differently by different companies and therefore are not comparable to similar measures presented by other issuers. For definitions, as well as reconciliations to GAAP measures, and more information on these and other non-GAAP measures and additional subtotals, refer to “Non-GAAP Measures and Additional Subtotals” on page 1 of Cenovus's Management's Discussion & Analysis (MD&A) for the period ended December 31, 2019 (available on SEDAR at sedar.com, on EDGAR at sec.gov and Cenovus's website at cenovus.com).
Forward-looking Information
This news release contains certain forward-looking statements and forward-looking information (collectively referred to as “forward-looking information”) within the meaning of applicable securities legislation, including the United States Private Securities Litigation Reform Act of 1995, about our current expectations, estimates and projections about the future, based on certain assumptions made by us in light of our experience and perception of historical trends. Although Cenovus believes that the expectations represented by such forward-looking information are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking information as actual results may differ materially from those expressed or implied.
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Forward-looking information in this document is identified by words such as “anticipate”, “committed”, “continue”, “driving”, “expect”, “focus”, “plan”, “target” and “will” or similar expressions and includes suggestions of future outcomes, including, but not limited to statements about: maintaining a target ratio of less than two times Net Debt to adjusted EBITDA at bottom-of-the-cycle commodity prices; maintaining investment grade credit ratings; maximizing exposure to global oil prices and mitigating pipeline congestion through a range of options to increase margins and reduce cash flow volatility; future oil production in 2020, including returning to unconstrained production; Cenovus’s four ESG focus areas and related targets and ambitions; plans to invest $10 million per year for at least five years in six Indigenous communities; the ramp-up of the Christina Lake phase G expansion over the next six to 12 months; achieving resilience in the Deep Basin at commodity prices of US$45/bbl WTI and AECO pricing of $1.50 per gigajoule; and all statements related to the company’s updated 2020 Guidance (dated December 9, 2019).
Developing forward-looking information involves reliance on a number of assumptions and consideration of certain risks and uncertainties, some of which are specific to Cenovus and others that apply to the industry generally. The factors or assumptions on which our forward-looking information is based include, but are not limited to: forecast oil and natural gas, natural gas liquids, condensate and refined products prices, light-heavy crude oil price differentials and other assumptions identified in Cenovus’s 2020 guidance (dated December 9, 2019), available at cenovus.com; bottom-of-the-cycle commodity prices of about US$45/bbl WTI and C$44/bbl WCS; projected capital investment levels, the flexibility of capital spending plans and associated sources of funding; achievement of further cost reductions and sustainability thereof; applicable royalty regimes, including expected royalty rates; future improvements in availability of product transportation capacity; increase to our share price and market capitalization over the long term; future narrowing of crude oil differentials; the Government of Alberta’s mandatory production curtailment continuing to maintain a relatively narrow differential between WTI and WCS crude oil prices thereby positively impacting cash flows for Cenovus; the ability of our refining capacity, dynamic storage, existing pipeline commitments, financial hedge transactions and plans to ramp up crude-by-rail loading capacity to partially mitigate a portion of our WCS crude oil volumes against wider differentials; ability to produce from our oil sands facilities on an unconstrained basis; estimates of quantities of oil, bitumen, natural gas and liquids from properties and other sources not currently classified as proved; accounting estimates and judgments; results; our ability to obtain necessary regulatory and partner approvals; the successful and timely implementation of capital projects, development programs or stages thereof; our ability to generate sufficient cash flow to meet our current and future obligations; our ability to obtain and retain qualified staff and equipment in a timely and cost-efficient manner; the availability of Indigenous owned or operated businesses; our ability to develop, access and implement all technology and equipment necessary to achieve expected future results, and that such results are realized.
2020 guidance, dated December 9, 2019, assumes: Brent prices of US$60.00/bbl, WTI prices of US$55.00/bbl; WCS of US$37.50/bbl; AECO natural gas prices of $1.80/Mcf; Chicago 3-2-1 crack spread of US$16.00/bbl; and an exchange rate of $0.76 US$/C$.
The risk factors and uncertainties that could cause our actual results to differ materially, include, but are not limited to: our ability to access or implement some or all of the technology necessary to efficiently and effectively operate our assets and achieve expected future results; volatility of and other assumptions regarding commodity prices; failure of the
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Government of Alberta’s mandatory production curtailment to continue to cause the differential between the WTI and the WCS crude oil prices to narrow or to narrow sufficiently to positively impact our cash flows; unexpected consequences related to the Government of Alberta’s mandatory production curtailment; the effectiveness of our risk management program; the accuracy of cost estimates regarding commodity prices, currency and interest rates; product supply and demand; accuracy of our share price and market capitalization assumptions; market competition, including from alternative energy sources; risks inherent in our marketing operations, including credit risks, exposure to counterparties and partners, including ability and willingness of such parties to satisfy contractual obligations in a timely manner; risks inherent in the operation of our crude-by-rail terminal, including health, safety and environmental risks; our ability to maintain desirable ratios of net debt to adjusted EBITDA as well as net debt to Capitalization; our ability to access various sources of debt and equity capital, generally, and on terms acceptable to us; our ability to finance growth and sustaining capital expenditures; changes in credit ratings applicable to us or any of our securities; accuracy of our reserves, future production and future net revenue estimates; accuracy of our accounting estimates and judgements; our ability to replace and expand oil and gas reserves; potential requirements under applicable accounting standards for impairment or reversal of estimated recoverable amounts of some or all of our assets or goodwill from time to time; our ability to maintain our relationship with our partners and to successfully manage and operate our integrated business; reliability of our assets including in order to meet production targets; potential disruption or unexpected technical difficulties in developing new products and manufacturing processes; ability to successfully complete development programs; the occurrence of unexpected events such as fires, severe weather conditions, explosions, blow-outs, equipment failures, transportation incidents and other accidents or similar events; refining and marketing margins; cost escalations; potential failure of products to achieve or maintain acceptance in the market; risks associated with fossil fuel industry reputation and litigation related thereto; unexpected cost increases or technical difficulties in constructing or modifying manufacturing or refining facilities; unexpected difficulties in producing, transporting or refining of bitumen and/or crude oil into petroleum and chemical products; risks associated with technology and equipment and its application to our business, including potential cyberattacks; risks associated with climate change and our assumptions relating thereto; the timing and the costs of well and pipeline construction; our ability to secure adequate and cost effective product transportation including sufficient pipeline, crude-by-rail, marine or alternate transportation, including to address any gaps caused by constraints in the pipeline system; possible failure to obtain and retain qualified staff and equipment in a timely and cost efficient manner; changes in the regulatory framework in any of the locations in which we operate, including changes to the regulatory approval process and land-use designations, royalty, tax, environmental, greenhouse gas, carbon, climate change and other laws or regulations, or changes to the interpretation of such laws and regulations, as adopted or proposed, the impact thereof and the costs associated with compliance; changes in general economic, market and business conditions; the political and economic conditions in the countries in which we operate or supply; the occurrence of unexpected events and the instability resulting therefrom; and risks associated with existing and potential future lawsuits, shareholder proposals and regulatory actions against us.
Statements relating to “reserves” are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future.
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Readers are cautioned that the foregoing lists are not exhaustive and are made as at the date hereof. Events or circumstances could cause our actual results to differ materially from those estimated or projected and expressed in, or implied by, the forward-looking information. For a full discussion of Cenovus’s material risk factors, refer to “Risk Management and Risk Factors” in the Corporation’s annual 2019 MD&A, which section of the MD&A is incorporated by reference into this AIF, and to the risk factors described in other documents Cenovus files from time to time with securities regulatory authorities in Canada, available on SEDAR at sedar.com, and with the U.S. Securities and Exchange Commission on EDGAR at sec.gov, and on the Corporation’s website at cenovus.com.
Cenovus Energy Inc.
Cenovus Energy Inc. is a Canadian integrated oil and natural gas company. It is committed to maximizing value by sustainably developing its assets in a safe, innovative and cost-efficient manner, integrating environmental, social and governance considerations into its business plans. Operations include oil sands projects in northern Alberta, which use specialized methods to drill and pump the oil to the surface, and established natural gas and oil production in Alberta and British Columbia. The company also has 50% ownership in two U.S. refineries. Cenovus shares trade under the symbol CVE, and are listed on the Toronto and New York stock exchanges. For more information, visit cenovus.com.
Find Cenovus on Facebook, Twitter, LinkedIn, YouTube and Instagram.
|
|
CENOVUS CONTACTS:
Investor Relations
Investor Relations general line
403-766-7711
|
Media
Reg Curren
Senior Media Advisor
403-766-2004
Media Relations general line
403-766-7751 |
10
Exhibit 99.2
Cenovus Energy Inc.
Interim Consolidated Financial Statements (unaudited)
For the Periods Ended December 31, 2019
(Canadian Dollars)
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
For the periods ended December 31, 2019
TABLE OF CONTENTS
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
2 |
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (unaudited)
For the periods ended December 31,
($ millions, except per share amounts)
|
|
|
Three Months Ended |
|
|
Twelve Months Ended |
|
|
Notes |
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
|
|
|
5,163 |
|
|
|
4,516 |
|
|
|
21,353 |
|
|
|
21,389 |
|
Less: Royalties |
|
|
|
325 |
|
|
|
(29 |
) |
|
|
1,172 |
|
|
|
545 |
|
|
|
|
|
4,838 |
|
|
|
4,545 |
|
|
|
20,181 |
|
|
|
20,844 |
|
Expenses |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Product |
|
|
|
2,059 |
|
|
|
2,555 |
|
|
|
8,427 |
|
|
|
8,744 |
|
Transportation and Blending |
|
|
|
1,416 |
|
|
|
1,269 |
|
|
|
5,184 |
|
|
|
5,942 |
|
Operating |
|
|
|
514 |
|
|
|
501 |
|
|
|
2,088 |
|
|
|
2,184 |
|
Production and Mineral Taxes |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
(Gain) Loss on Risk Management |
24 |
|
|
(25 |
) |
|
|
(678 |
) |
|
|
156 |
|
|
|
305 |
|
Depreciation, Depletion and Amortization |
6,12,13 |
|
|
581 |
|
|
|
398 |
|
|
|
2,249 |
|
|
|
2,131 |
|
Exploration Expense |
6,11 |
|
|
72 |
|
|
|
2,115 |
|
|
|
82 |
|
|
|
2,123 |
|
General and Administrative |
|
|
|
127 |
|
|
|
87 |
|
|
|
336 |
|
|
|
391 |
|
Onerous Contract Provisions |
18 |
|
|
3 |
|
|
|
(63 |
) |
|
|
(5 |
) |
|
|
629 |
|
Finance Costs |
4 |
|
|
135 |
|
|
|
138 |
|
|
|
511 |
|
|
|
627 |
|
Interest Income |
|
|
|
(3 |
) |
|
|
(8 |
) |
|
|
(12 |
) |
|
|
(19 |
) |
Foreign Exchange (Gain) Loss, Net |
5 |
|
|
(139 |
) |
|
|
547 |
|
|
|
(404 |
) |
|
|
854 |
|
Re-measurement of Contingent Payment |
17 |
|
|
27 |
|
|
|
(361 |
) |
|
|
164 |
|
|
|
50 |
|
Research Costs |
|
|
|
4 |
|
|
|
2 |
|
|
|
20 |
|
|
|
25 |
|
(Gain) Loss on Divestiture of Assets |
|
|
|
(9 |
) |
|
|
1 |
|
|
|
(2 |
) |
|
|
795 |
|
Other (Income) Loss, Net |
|
|
|
(7 |
) |
|
|
(1 |
) |
|
|
(11 |
) |
|
|
(12 |
) |
Earnings (Loss) From Continuing Operations Before
Income Tax |
|
|
|
83 |
|
|
|
(1,957 |
) |
|
|
1,397 |
|
|
|
(3,926 |
) |
Income Tax Expense (Recovery) |
8 |
|
|
(30 |
) |
|
|
(607 |
) |
|
|
(797 |
) |
|
|
(1,010 |
) |
Net Earnings (Loss) From Continuing Operations |
|
|
|
113 |
|
|
|
(1,350 |
) |
|
|
2,194 |
|
|
|
(2,916 |
) |
Net Earnings (Loss) From Discontinued Operations |
7 |
|
|
- |
|
|
|
(6 |
) |
|
|
- |
|
|
|
247 |
|
Net Earnings (Loss) |
|
|
|
113 |
|
|
|
(1,356 |
) |
|
|
2,194 |
|
|
|
(2,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Earnings (Loss) Per Share ($) |
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
|
|
0.09 |
|
|
|
(1.10 |
) |
|
|
1.78 |
|
|
|
(2.37 |
) |
Discontinued Operations |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.20 |
|
Net Earnings (Loss) Per Share |
|
|
|
0.09 |
|
|
|
(1.10 |
) |
|
|
1.78 |
|
|
|
(2.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements (unaudited).
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
3 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
For the periods ended December 31,
($ millions)
|
|
|
Three Months Ended |
|
|
Twelve Months Ended |
|
|
Notes |
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss) |
|
|
|
113 |
|
|
|
(1,356 |
) |
|
|
2,194 |
|
|
|
(2,669 |
) |
Other Comprehensive Income (Loss), Net of Tax |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items That Will Not be Reclassified to Profit or Loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial Gain (Loss) Relating to Pension and Other
Post-Retirement Benefits |
|
|
|
12 |
|
|
|
(3 |
) |
|
|
5 |
|
|
|
(3 |
) |
Change in the Fair Value of Equity Instruments at FVOCI (1) |
|
|
9 |
|
|
|
1 |
|
|
|
12 |
|
|
|
1 |
|
Items That May be Reclassified to Profit or Loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment |
|
|
|
(86 |
) |
|
|
263 |
|
|
|
(228 |
) |
|
|
397 |
|
Total Other Comprehensive Income (Loss), Net of Tax |
|
|
|
(65 |
) |
|
|
261 |
|
|
|
(211 |
) |
|
|
395 |
|
Comprehensive Income (Loss) |
|
|
|
48 |
|
|
|
(1,095 |
) |
|
|
1,983 |
|
|
|
(2,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Fair Value through Other Comprehensive Income (“FVOCI”). |
See accompanying Notes to Consolidated Financial Statements (unaudited).
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
4 |
CONSOLIDATED BALANCE SHEETS (unaudited)
As at December 31,
($ millions)
|
Notes |
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
|
|
186 |
|
|
|
781 |
|
Accounts Receivable and Accrued Revenues |
|
|
|
1,551 |
|
|
|
1,238 |
|
Income Tax Receivable |
|
|
|
10 |
|
|
|
- |
|
Inventories |
10 |
|
|
1,532 |
|
|
|
1,013 |
|
Risk Management |
24,25 |
|
|
5 |
|
|
|
163 |
|
Total Current Assets |
|
|
|
3,284 |
|
|
|
3,195 |
|
Exploration and Evaluation Assets |
1,11 |
|
|
787 |
|
|
|
785 |
|
Property, Plant and Equipment, Net |
1,12 |
|
|
27,834 |
|
|
|
28,698 |
|
Right-of-Use Assets, Net |
1,13 |
|
|
1,325 |
|
|
|
- |
|
Income Tax Receivable |
|
|
|
- |
|
|
|
160 |
|
Other Assets |
14 |
|
|
211 |
|
|
|
64 |
|
Goodwill |
1 |
|
|
2,272 |
|
|
|
2,272 |
|
Total Assets |
|
|
|
35,713 |
|
|
|
35,174 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Liabilities |
|
|
|
2,210 |
|
|
|
1,833 |
|
Long-Term Debt |
15 |
|
|
- |
|
|
|
682 |
|
Lease Liabilities |
16 |
|
|
196 |
|
|
|
- |
|
Contingent Payment |
17 |
|
|
79 |
|
|
|
15 |
|
Onerous Contract Provisions |
18 |
|
|
17 |
|
|
|
50 |
|
Income Tax Payable |
|
|
|
17 |
|
|
|
17 |
|
Risk Management |
24,25 |
|
|
2 |
|
|
|
3 |
|
Total Current Liabilities |
|
|
|
2,521 |
|
|
|
2,600 |
|
Long-Term Debt |
15 |
|
|
6,699 |
|
|
|
8,482 |
|
Lease Liabilities |
16 |
|
|
1,720 |
|
|
|
- |
|
Contingent Payment |
17 |
|
|
64 |
|
|
|
117 |
|
Onerous Contract Provisions |
18 |
|
|
46 |
|
|
|
613 |
|
Decommissioning Liabilities |
19 |
|
|
1,235 |
|
|
|
875 |
|
Other Liabilities |
20 |
|
|
195 |
|
|
|
158 |
|
Deferred Income Taxes |
|
|
|
4,032 |
|
|
|
4,861 |
|
Total Liabilities |
|
|
|
16,512 |
|
|
|
17,706 |
|
Shareholders’ Equity |
|
|
|
19,201 |
|
|
|
17,468 |
|
Total Liabilities and Shareholders’ Equity |
|
|
|
35,713 |
|
|
|
35,174 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements (unaudited).
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
5 |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)
($ millions)
|
Share
Capital |
|
|
Paid in
Surplus |
|
|
Retained
Earnings |
|
|
AOCI (1) |
|
|
Total |
|
|
(Note 21) |
|
|
|
|
|
|
|
|
|
|
(Note 22) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2017 |
|
11,040 |
|
|
|
4,361 |
|
|
|
3,937 |
|
|
|
643 |
|
|
|
19,981 |
|
Net Earnings (Loss) |
|
- |
|
|
|
- |
|
|
|
(2,669 |
) |
|
|
- |
|
|
|
(2,669 |
) |
Other Comprehensive Income (Loss) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
395 |
|
|
|
395 |
|
Total Comprehensive Income (Loss) |
|
- |
|
|
|
- |
|
|
|
(2,669 |
) |
|
|
395 |
|
|
|
(2,274 |
) |
Common Shares Issued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based Compensation Expense |
|
- |
|
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
6 |
|
Dividends on Common Shares |
|
- |
|
|
|
- |
|
|
|
(245 |
) |
|
|
- |
|
|
|
(245 |
) |
As at December 31, 2018 |
|
11,040 |
|
|
|
4,367 |
|
|
|
1,023 |
|
|
|
1,038 |
|
|
|
17,468 |
|
Net Earnings (Loss) |
|
- |
|
|
|
- |
|
|
|
2,194 |
|
|
|
- |
|
|
|
2,194 |
|
Other Comprehensive Income (Loss) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(211 |
) |
|
|
(211 |
) |
Total Comprehensive Income (Loss) |
|
- |
|
|
|
- |
|
|
|
2,194 |
|
|
|
(211 |
) |
|
|
1,983 |
|
Stock-Based Compensation Expense |
|
- |
|
|
|
10 |
|
|
|
- |
|
|
|
- |
|
|
|
10 |
|
Dividends on Common Shares |
|
- |
|
|
|
- |
|
|
|
(260 |
) |
|
|
- |
|
|
|
(260 |
) |
As at December 31, 2019 |
|
11,040 |
|
|
|
4,377 |
|
|
|
2,957 |
|
|
|
827 |
|
|
|
19,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Accumulated Other Comprehensive Income (Loss).
See accompanying Notes to Consolidated Financial Statements (unaudited).
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
6 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the periods ended December 31,
($ millions)
|
|
|
Three Months Ended |
|
|
Twelve Months Ended |
|
|
Notes |
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss) |
|
|
|
113 |
|
|
|
(1,356 |
) |
|
|
2,194 |
|
|
|
(2,669 |
) |
Depreciation, Depletion and Amortization |
6,12,13 |
|
|
581 |
|
|
|
398 |
|
|
|
2,249 |
|
|
|
2,131 |
|
Exploration Expense |
6,11 |
|
|
72 |
|
|
|
2,115 |
|
|
|
82 |
|
|
|
2,123 |
|
Deferred Income Tax Expense (Recovery) |
8 |
|
|
(24 |
) |
|
|
(584 |
) |
|
|
(814 |
) |
|
|
(794 |
) |
Unrealized (Gain) Loss on Risk Management |
24 |
|
|
(8 |
) |
|
|
(741 |
) |
|
|
149 |
|
|
|
(1,249 |
) |
Unrealized Foreign Exchange (Gain) Loss |
5 |
|
|
(267 |
) |
|
|
350 |
|
|
|
(827 |
) |
|
|
649 |
|
Re-measurement of Contingent Payment |
17 |
|
|
27 |
|
|
|
(361 |
) |
|
|
164 |
|
|
|
50 |
|
(Gain) Loss on Discontinuance |
7 |
|
|
- |
|
|
|
7 |
|
|
|
- |
|
|
|
(301 |
) |
(Gain) Loss on Divestiture of Assets |
|
|
|
(9 |
) |
|
|
1 |
|
|
|
(2 |
) |
|
|
795 |
|
Unwinding of Discount on Decommissioning Liabilities |
4,19 |
|
|
15 |
|
|
|
16 |
|
|
|
58 |
|
|
|
63 |
|
Onerous Contract Provisions, Net of Cash Paid |
18 |
|
|
(1 |
) |
|
|
(63 |
) |
|
|
(15 |
) |
|
|
618 |
|
Realized Foreign Exchange (Gain) Loss on Non-Operating
Items |
|
|
|
122 |
|
|
|
195 |
|
|
|
401 |
|
|
|
206 |
|
Other |
|
|
|
57 |
|
|
|
(13 |
) |
|
|
85 |
|
|
|
52 |
|
Net Change in Other Assets and Liabilities |
|
|
|
(29 |
) |
|
|
(22 |
) |
|
|
(84 |
) |
|
|
(72 |
) |
Net Change in Non-Cash Working Capital |
|
|
|
91 |
|
|
|
543 |
|
|
|
(355 |
) |
|
|
552 |
|
Cash From (Used in) Operating Activities |
|
|
|
740 |
|
|
|
485 |
|
|
|
3,285 |
|
|
|
2,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures – Exploration and Evaluation Assets |
11 |
|
|
(33 |
) |
|
|
(35 |
) |
|
|
(73 |
) |
|
|
(55 |
) |
Capital Expenditures – Property, Plant and Equipment |
12 |
|
|
(287 |
) |
|
|
(252 |
) |
|
|
(1,110 |
) |
|
|
(1,322 |
) |
Proceeds From Divestitures |
|
|
|
2 |
|
|
|
(4 |
) |
|
|
1 |
|
|
|
1,050 |
|
Net Change in Investments and Other |
|
|
|
(108 |
) |
|
|
- |
|
|
|
(133 |
) |
|
|
9 |
|
Net Change in Non-Cash Working Capital |
|
|
|
(40 |
) |
|
|
(82 |
) |
|
|
(117 |
) |
|
|
(295 |
) |
Cash From (Used in) Investing Activities |
|
|
|
(466 |
) |
|
|
(373 |
) |
|
|
(1,432 |
) |
|
|
(613 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) Before Financing Activities |
|
|
|
274 |
|
|
|
112 |
|
|
|
1,853 |
|
|
|
1,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Repayment) of Long-Term Debt |
|
|
|
(678 |
) |
|
|
(1,144 |
) |
|
|
(2,279 |
) |
|
|
(1,144 |
) |
Net Issuance (Repayment) of Revolving Long-Term Debt |
|
|
|
272 |
|
|
|
- |
|
|
|
276 |
|
|
|
(20 |
) |
Principal Repayment of Leases |
16 |
|
|
(42 |
) |
|
|
- |
|
|
|
(150 |
) |
|
|
- |
|
Dividends Paid on Common Shares |
9 |
|
|
(77 |
) |
|
|
(62 |
) |
|
|
(260 |
) |
|
|
(245 |
) |
Other |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
Cash From (Used in) Financing Activities |
|
|
|
(525 |
) |
|
|
(1,206 |
) |
|
|
(2,413 |
) |
|
|
(1,410 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Gain (Loss) on Cash and Cash
Equivalents Held in Foreign Currency |
|
|
- |
|
|
|
10 |
|
|
|
(35 |
) |
|
|
40 |
|
Increase (Decrease) in Cash and Cash Equivalents |
|
|
|
(251 |
) |
|
|
(1,084 |
) |
|
|
(595 |
) |
|
|
171 |
|
Cash and Cash Equivalents, Beginning of Period |
|
|
|
437 |
|
|
|
1,865 |
|
|
|
781 |
|
|
|
610 |
|
Cash and Cash Equivalents, End of Period |
|
|
|
186 |
|
|
|
781 |
|
|
|
186 |
|
|
|
781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements (unaudited).
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
7 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
1. DESCRIPTION OF BUSINESS AND SEGMENTED DISCLOSURES
Cenovus Energy Inc. and its subsidiaries, (together “Cenovus” or the “Company”) are in the business of developing, producing and marketing crude oil, natural gas liquids (“NGLs”) and natural gas in Canada with marketing activities and refining operations in the United States (“U.S.”).
Cenovus is incorporated under the “Canada Business Corporations Act” and its shares are listed on the Toronto (“TSX”) and New York (“NYSE”) stock exchanges. The executive and registered office is located at 4100, 225 6 Avenue S.W., Calgary, Alberta, Canada, T2P 1N2. Information on the Company’s basis of preparation for these interim Consolidated Financial Statements is found in Note 2.
Management has determined the operating segments based on information regularly reviewed for the purposes of decision making, allocating resources and assessing operational performance by Cenovus’s chief operating decision makers. The Company evaluates the financial performance of its operating segments primarily based on operating margin. The Company’s reportable segments are:
|
• |
Oil Sands, which includes the development and production of bitumen in northeast Alberta. Cenovus’s bitumen assets include Foster Creek, Christina Lake and Narrows Lake as well as other projects in the early stages of development. |
|
• |
Deep Basin, which includes approximately 2.8 million net acres of land primarily in the Elmworth‑Wapiti, Kaybob-Edson, and Clearwater operating areas, rich in natural gas and NGLs. The assets reside in Alberta and British Columbia and include interests in numerous natural gas processing facilities. |
|
• |
Refining and Marketing, which is responsible for transporting, selling and refining crude oil into petroleum and chemical products. Cenovus jointly owns two refineries in the U.S. with the operator Phillips 66, an unrelated U.S. public company. In addition, Cenovus owns and operates a crude-by-rail terminal in Alberta. This segment coordinates Cenovus’s marketing and transportation initiatives to optimize product mix, delivery points, transportation commitments and customer diversification. The marketing of crude oil and natural gas sourced from Canada, including physical product sales that settle in the U.S., is considered to be undertaken by a Canadian business. U.S. sourced crude oil and natural gas purchases and sales are attributed to the U.S. |
|
• |
Corporate and Eliminations, which primarily includes unrealized gains and losses recorded on derivative financial instruments, gains and losses on divestiture of assets, as well as other Cenovus-wide costs for general and administrative, financing activities and research costs. As financial instruments are settled, the realized gains and losses are recorded in the reportable segment to which the derivative instrument relates. Eliminations include adjustments for internal usage of natural gas production between segments, transloading services provided to the Oil Sands segment by the Company’s rail terminal, crude oil production used as feedstock by the Refining and Marketing segment, and unrealized intersegment profits in inventory. Eliminations are recorded at transfer prices based on current market prices. The Corporate and Eliminations segment is attributed to Canada, with the exception of unrealized risk management gains and losses, which have been attributed to the country in which the transacting entity resides. |
As at January 5, 2018, all of the Conventional segment assets were sold. Refer to Note 7 for more information.
The following tabular financial information presents the segmented information first by segment, then by product and geographic location.
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
8 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
A) Results of Operations – Segment and Operational Information
|
|
Oil Sands |
|
|
Deep Basin |
|
|
Refining and
Marketing |
|
For the three months ended December 31, |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
|
|
2,659 |
|
|
|
1,380 |
|
|
|
190 |
|
|
|
190 |
|
|
|
2,555 |
|
|
|
3,048 |
|
Less: Royalties |
|
|
316 |
|
|
|
(39 |
) |
|
|
9 |
|
|
|
10 |
|
|
|
- |
|
|
|
- |
|
|
|
|
2,343 |
|
|
|
1,419 |
|
|
|
181 |
|
|
|
180 |
|
|
|
2,555 |
|
|
|
3,048 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Product |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,198 |
|
|
|
2,597 |
|
Transportation and Blending |
|
|
1,416 |
|
|
|
1,263 |
|
|
|
20 |
|
|
|
18 |
|
|
|
- |
|
|
|
- |
|
Operating |
|
|
268 |
|
|
|
248 |
|
|
|
80 |
|
|
|
100 |
|
|
|
250 |
|
|
|
203 |
|
Production and Mineral Taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
(Gain) Loss on Risk Management |
|
|
(15 |
) |
|
|
86 |
|
|
|
- |
|
|
|
- |
|
|
|
(2 |
) |
|
|
(3 |
) |
Operating Margin |
|
|
674 |
|
|
|
(178 |
) |
|
|
81 |
|
|
|
62 |
|
|
|
109 |
|
|
|
251 |
|
Depreciation, Depletion and Amortization |
|
|
416 |
|
|
|
320 |
|
|
|
72 |
|
|
|
6 |
|
|
|
67 |
|
|
|
57 |
|
Exploration Expense |
|
|
8 |
|
|
|
(2 |
) |
|
|
64 |
|
|
|
2,117 |
|
|
|
- |
|
|
|
- |
|
Segment Income (Loss) |
|
|
250 |
|
|
|
(496 |
) |
|
|
(55 |
) |
|
|
(2,061 |
) |
|
|
42 |
|
|
|
194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
For the three months ended December 31, |
|
|
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
|
|
|
|
|
|
|
|
|
|
(241 |
) |
|
|
(102 |
) |
|
|
5,163 |
|
|
|
4,516 |
|
Less: Royalties |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
325 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
(241 |
) |
|
|
(102 |
) |
|
|
4,838 |
|
|
|
4,545 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Product |
|
|
|
|
|
|
|
|
|
|
(139 |
) |
|
|
(42 |
) |
|
|
2,059 |
|
|
|
2,555 |
|
Transportation and Blending |
|
|
|
|
|
|
|
|
|
|
(20 |
) |
|
|
(12 |
) |
|
|
1,416 |
|
|
|
1,269 |
|
Operating |
|
|
|
|
|
|
|
|
|
|
(84 |
) |
|
|
(50 |
) |
|
|
514 |
|
|
|
501 |
|
Production and Mineral Taxes |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
(Gain) Loss on Risk Management |
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
(761 |
) |
|
|
(25 |
) |
|
|
(678 |
) |
Depreciation, Depletion and Amortization |
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
15 |
|
|
|
581 |
|
|
|
398 |
|
Exploration Expense |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
72 |
|
|
|
2,115 |
|
Segment Income (Loss) |
|
|
|
|
|
|
|
|
|
|
(16 |
) |
|
|
748 |
|
|
|
221 |
|
|
|
(1,615 |
) |
General and Administrative |
|
|
|
|
|
|
|
|
|
|
127 |
|
|
|
87 |
|
|
|
127 |
|
|
|
87 |
|
Onerous Contract Provisions |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
(63 |
) |
|
|
3 |
|
|
|
(63 |
) |
Finance Costs |
|
|
|
|
|
|
|
|
|
|
135 |
|
|
|
138 |
|
|
|
135 |
|
|
|
138 |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(8 |
) |
|
|
(3 |
) |
|
|
(8 |
) |
Foreign Exchange (Gain) Loss, Net |
|
|
|
|
|
|
|
|
|
|
(139 |
) |
|
|
547 |
|
|
|
(139 |
) |
|
|
547 |
|
Re-measurement of Contingent Payment |
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
(361 |
) |
|
|
27 |
|
|
|
(361 |
) |
Research Costs |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
2 |
|
|
|
4 |
|
|
|
2 |
|
(Gain) Loss on Divestiture of Assets |
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
1 |
|
|
|
(9 |
) |
|
|
1 |
|
Other (Income) Loss, Net |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
(1 |
) |
|
|
(7 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
138 |
|
|
|
342 |
|
|
|
138 |
|
|
|
342 |
|
Earnings (Loss) From Continuing Operations Before Income Tax |
|
|
|
|
|
|
|
|
|
|
|
83 |
|
|
|
(1,957 |
) |
Income Tax Expense (Recovery) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
(607 |
) |
Net Earnings (Loss) From Continuing Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113 |
|
|
|
(1,350 |
) |
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
9 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
|
|
Oil Sands |
|
|
Deep Basin |
|
|
Refining and Marketing |
|
For the twelve months ended December 31, |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
|
|
10,838 |
|
|
|
10,026 |
|
|
|
691 |
|
|
|
904 |
|
|
|
10,513 |
|
|
|
11,183 |
|
Less: Royalties |
|
|
1,143 |
|
|
|
473 |
|
|
|
29 |
|
|
|
72 |
|
|
|
- |
|
|
|
- |
|
|
|
|
9,695 |
|
|
|
9,553 |
|
|
|
662 |
|
|
|
832 |
|
|
|
10,513 |
|
|
|
11,183 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Product |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,844 |
|
|
|
9,261 |
|
Transportation and Blending |
|
|
5,152 |
|
|
|
5,879 |
|
|
|
82 |
|
|
|
90 |
|
|
|
- |
|
|
|
- |
|
Operating |
|
|
1,039 |
|
|
|
1,037 |
|
|
|
337 |
|
|
|
403 |
|
|
|
948 |
|
|
|
927 |
|
Production and Mineral Taxes |
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
(Gain) Loss on Risk Management |
|
|
23 |
|
|
|
1,551 |
|
|
|
- |
|
|
|
26 |
|
|
|
(16 |
) |
|
|
(1 |
) |
Operating Margin |
|
|
3,481 |
|
|
|
1,086 |
|
|
|
242 |
|
|
|
312 |
|
|
|
737 |
|
|
|
996 |
|
Depreciation, Depletion and Amortization |
|
|
1,543 |
|
|
|
1,439 |
|
|
|
319 |
|
|
|
412 |
|
|
|
280 |
|
|
|
222 |
|
Exploration Expense |
|
|
18 |
|
|
|
6 |
|
|
|
64 |
|
|
|
2,117 |
|
|
|
- |
|
|
|
- |
|
Segment Income (Loss) |
|
|
1,920 |
|
|
|
(359 |
) |
|
|
(141 |
) |
|
|
(2,217 |
) |
|
|
457 |
|
|
|
774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Eliminations |
|
|
Consolidated |
|
For the twelve months ended December 31, |
|
|
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
|
|
|
|
|
|
|
|
|
|
(689 |
) |
|
|
(724 |
) |
|
|
21,353 |
|
|
|
21,389 |
|
Less: Royalties |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
1,172 |
|
|
|
545 |
|
|
|
|
|
|
|
|
|
|
|
|
(689 |
) |
|
|
(724 |
) |
|
|
20,181 |
|
|
|
20,844 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Product |
|
|
|
|
|
|
|
|
|
|
(417 |
) |
|
|
(517 |
) |
|
|
8,427 |
|
|
|
8,744 |
|
Transportation and Blending |
|
|
|
|
|
|
|
|
|
|
(50 |
) |
|
|
(27 |
) |
|
|
5,184 |
|
|
|
5,942 |
|
Operating |
|
|
|
|
|
|
|
|
|
|
(236 |
) |
|
|
(183 |
) |
|
|
2,088 |
|
|
|
2,184 |
|
Production and Mineral Taxes |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
(Gain) Loss on Risk Management |
|
|
|
|
|
|
|
|
|
|
149 |
|
|
|
(1,271 |
) |
|
|
156 |
|
|
|
305 |
|
Depreciation, Depletion and Amortization |
|
|
|
|
|
|
|
|
|
|
107 |
|
|
|
58 |
|
|
|
2,249 |
|
|
|
2,131 |
|
Exploration Expense |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
82 |
|
|
|
2,123 |
|
Segment Income (Loss) |
|
|
|
|
|
|
|
|
|
|
(242 |
) |
|
|
1,216 |
|
|
|
1,994 |
|
|
|
(586 |
) |
General and Administrative |
|
|
|
|
|
|
|
|
|
|
336 |
|
|
|
391 |
|
|
|
336 |
|
|
|
391 |
|
Onerous Contract Provisions |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
629 |
|
|
|
(5 |
) |
|
|
629 |
|
Finance Costs |
|
|
|
|
|
|
|
|
|
|
511 |
|
|
|
627 |
|
|
|
511 |
|
|
|
627 |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
(19 |
) |
|
|
(12 |
) |
|
|
(19 |
) |
Foreign Exchange (Gain) Loss, Net |
|
|
|
|
|
|
|
|
|
|
(404 |
) |
|
|
854 |
|
|
|
(404 |
) |
|
|
854 |
|
Re-measurement of Contingent Payment |
|
|
|
|
|
|
|
|
|
|
164 |
|
|
|
50 |
|
|
|
164 |
|
|
|
50 |
|
Research Costs |
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
25 |
|
|
|
20 |
|
|
|
25 |
|
(Gain) Loss on Divestiture of Assets |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
795 |
|
|
|
(2 |
) |
|
|
795 |
|
Other (Income) Loss, Net |
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
|
(12 |
) |
|
|
(11 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
597 |
|
|
|
3,340 |
|
|
|
597 |
|
|
|
3,340 |
|
Earnings (Loss) From Continuing Operations Before Income Tax |
|
|
|
|
|
|
|
|
|
|
|
1,397 |
|
|
|
(3,926 |
) |
Income Tax Expense (Recovery) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(797 |
) |
|
|
(1,010 |
) |
Net Earnings (Loss) From Continuing Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,194 |
|
|
|
(2,916 |
) |
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
10 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
B) Revenues by Product
|
Three Months Ended |
|
|
Twelve Months Ended |
|
For the periods ended December 31, |
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Upstream |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil |
|
2,373 |
|
|
|
1,433 |
|
|
|
9,790 |
|
|
|
9,662 |
|
Natural Gas |
|
86 |
|
|
|
82 |
|
|
|
300 |
|
|
|
321 |
|
NGLs |
|
51 |
|
|
|
64 |
|
|
|
202 |
|
|
|
333 |
|
Other |
|
14 |
|
|
|
20 |
|
|
|
65 |
|
|
|
69 |
|
Refined Product |
|
2,089 |
|
|
|
2,321 |
|
|
|
8,291 |
|
|
|
9,032 |
|
Market Optimization |
|
466 |
|
|
|
727 |
|
|
|
2,222 |
|
|
|
2,151 |
|
Corporate and Eliminations |
|
(241 |
) |
|
|
(102 |
) |
|
|
(689 |
) |
|
|
(724 |
) |
Revenues From Continuing Operations |
|
4,838 |
|
|
|
4,545 |
|
|
|
20,181 |
|
|
|
20,844 |
|
C) Geographical Information
|
Revenues |
|
|
Three Months Ended |
|
|
Twelve Months Ended |
|
For the periods ended December 31, |
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Canada |
|
2,722 |
|
|
|
2,150 |
|
|
|
11,799 |
|
|
|
11,695 |
|
United States |
|
2,116 |
|
|
|
2,395 |
|
|
|
8,382 |
|
|
|
9,149 |
|
Consolidated |
|
4,838 |
|
|
|
4,545 |
|
|
|
20,181 |
|
|
|
20,844 |
|
|
|
|
|
|
Non-Current Assets (1) |
|
As at December 31, |
|
|
|
|
2019 |
|
|
2018 |
|
Canada |
|
|
|
|
|
28,336 |
|
|
|
27,644 |
|
United States |
|
|
|
|
|
4,093 |
|
|
|
4,175 |
|
Consolidated |
|
|
|
|
|
32,429 |
|
|
|
31,819 |
|
(1) |
Includes exploration and evaluation (“E&E”) assets, property, plant and equipment (“PP&E”), right-of-use (“ROU”) assets, other assets and goodwill. |
D) Assets by Segment
|
E&E Assets |
|
|
PP&E |
|
|
ROU Assets |
|
As at December 31, |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Oil Sands |
|
703 |
|
|
|
639 |
|
|
|
20,924 |
|
|
|
21,646 |
|
|
|
768 |
|
|
|
- |
|
Deep Basin |
|
84 |
|
|
|
146 |
|
|
|
2,433 |
|
|
|
2,482 |
|
|
|
3 |
|
|
|
- |
|
Refining and Marketing |
|
- |
|
|
|
- |
|
|
|
4,131 |
|
|
|
4,284 |
|
|
|
77 |
|
|
|
- |
|
Corporate and Eliminations |
|
- |
|
|
|
- |
|
|
|
346 |
|
|
|
286 |
|
|
|
477 |
|
|
|
- |
|
Consolidated |
|
787 |
|
|
|
785 |
|
|
|
27,834 |
|
|
|
28,698 |
|
|
|
1,325 |
|
|
|
- |
|
|
|
|
Goodwill |
|
|
Total Assets |
|
As at December 31, |
|
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Oil Sands |
|
|
|
|
|
2,272 |
|
|
|
2,272 |
|
|
|
26,317 |
|
|
|
25,373 |
|
Deep Basin |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
2,640 |
|
|
|
2,742 |
|
Refining and Marketing |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
5,688 |
|
|
|
5,621 |
|
Corporate and Eliminations |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
1,068 |
|
|
|
1,424 |
|
Discontinued Operations |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14 |
|
Consolidated |
|
|
|
|
|
2,272 |
|
|
|
2,272 |
|
|
|
35,713 |
|
|
|
35,174 |
|
E) Capital Expenditures (1)
|
Three Months Ended |
|
|
Twelve Months Ended |
|
For the periods ended December 31, |
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Capital Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Sands |
|
204 |
|
|
|
169 |
|
|
|
706 |
|
|
|
887 |
|
Deep Basin |
|
17 |
|
|
|
18 |
|
|
|
53 |
|
|
|
211 |
|
Refining and Marketing |
|
66 |
|
|
|
61 |
|
|
|
280 |
|
|
|
208 |
|
Corporate and Eliminations |
|
30 |
|
|
|
28 |
|
|
|
137 |
|
|
|
57 |
|
|
|
317 |
|
|
|
276 |
|
|
|
1,176 |
|
|
|
1,363 |
|
Acquisition Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Sands |
|
- |
|
|
|
14 |
|
|
|
2 |
|
|
|
332 |
|
Deep Basin |
|
4 |
|
|
|
1 |
|
|
|
7 |
|
|
|
9 |
|
Refining and Marketing |
|
- |
|
|
|
- |
|
|
|
4 |
|
|
|
- |
|
Total Capital Expenditures |
|
321 |
|
|
|
291 |
|
|
|
1,189 |
|
|
|
1,704 |
|
(1) |
Includes expenditures on PP&E and E&E assets. |
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
11 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
2. BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE
In these interim Consolidated Financial Statements, unless otherwise indicated, all dollars are expressed in Canadian dollars. All references to C$ or $ are to Canadian dollars and references to US$ are to U.S. dollars.
These interim Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including International Accounting Standard 34, “Interim Financial Reporting” (“IAS 34”), and have been prepared following the same accounting policies and methods of computation as the annual Consolidated Financial Statements for the year ended December 31, 2018, except as identified in Note 3.
Certain information provided for the prior year has been reclassified to conform to the presentation adopted for the period ended December 31, 2019. Certain information and disclosures normally included in the notes to the annual Consolidated Financial Statements have been condensed or have been disclosed on an annual basis only. Accordingly, these interim Consolidated Financial Statements should be read in conjunction with the annual Consolidated Financial Statements for the year ended December 31, 2018, which have been prepared in accordance with IFRS as issued by the IASB.
These interim Consolidated Financial Statements were approved by the Audit Committee effective February 11, 2020.
3. CHANGES IN ACCOUNTING POLICIES
A) Adoption of IFRS 16, “Leases”
Effective January 1, 2019, the Company adopted IFRS 16, “Leases” (“IFRS 16”). The Company has applied the new standard using the modified retrospective approach. The modified retrospective approach does not require restatement of prior period financial information as it recognizes the cumulative effect as an adjustment to opening retained earnings and applies the standard prospectively. Therefore, the comparative information in the Company’s consolidated balance sheet, consolidated statements of earnings, other comprehensive income, shareholders’ equity and cash flows has not been restated.
On adoption, Management elected to use the following practical expedients permitted under the standard:
• |
Apply a single discount rate to a portfolio of leases with similar characteristics; |
• |
Account for leases with a remaining term of less than twelve months as at January 1, 2019 as short-term leases; |
• |
Account for lease payments as an expense and not recognize a ROU asset if the underlying asset is of a low dollar value (less than US$5 thousand); |
• |
The use of hindsight in determining the lease term where the contract contains terms to extend or terminate the lease; |
• |
Account for lease and non-lease components as a single lease component for lease liabilities related to storage tanks; and |
• |
Use the Company’s previous assessment under IAS 37, “Provisions, Contingent Liabilities and Contingent Assets” (“IAS 37”) for onerous contracts instead of reassessing the ROU assets for impairment on January 1, 2019.
|
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
12 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
The impacts of the adoption of IFRS 16 as at January 1, 2019 are as follows:
|
|
Notes |
|
As Reported at December 31, 2018 |
|
|
Adjustments |
|
|
Balance on Adoption as at January 1, 2019 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable and Accrued Revenues |
|
iv |
|
|
1,238 |
|
|
|
2 |
|
|
|
1,240 |
|
Property, Plant and Equipment, Net |
|
v |
|
|
28,698 |
|
|
|
(3 |
) |
|
|
28,695 |
|
Right-of-Use Assets, Net |
|
ii |
|
|
- |
|
|
|
1,491 |
|
|
|
|
|
|
|
iii |
|
|
- |
|
|
|
(585 |
) |
|
|
|
|
|
|
iv |
|
|
- |
|
|
|
(16 |
) |
|
|
|
|
|
|
v |
|
|
- |
|
|
|
3 |
|
|
|
893 |
|
Other Assets |
|
iv |
|
|
64 |
|
|
|
14 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Portion of Lease Liabilities |
|
i |
|
|
- |
|
|
|
(128 |
) |
|
|
(128 |
) |
Current Portion of Onerous Contract Provisions |
|
iii |
|
|
(50 |
) |
|
|
37 |
|
|
|
(13 |
) |
Non-Current Lease Liabilities |
|
i |
|
|
- |
|
|
|
(1,363 |
) |
|
|
|
|
|
|
v |
|
|
- |
|
|
|
(3 |
) |
|
|
(1,366 |
) |
Non-Current Onerous Contract Provisions |
|
iii |
|
|
(613 |
) |
|
|
548 |
|
|
|
(65 |
) |
Other Liabilities |
|
v |
|
|
(158 |
) |
|
|
3 |
|
|
|
(155 |
) |
Total |
|
|
|
|
29,179 |
|
|
|
- |
|
|
|
29,179 |
|
Notes:
i) Lease Liabilities
On adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had previously been classified as operating leases under the principles of IAS 17, “Leases” (“IAS 17”). Under the principles of the new standard these leases have been measured at the present value of the remaining lease payments, discounted using the Company’s incremental borrowing rates at January 1, 2019. Incremental borrowing rates as at January 1, 2019 range from 4.0 percent to 5.7 percent. Leases with a remaining term of less than twelve months and low-value leases were excluded. Total lease liabilities of $1.5 billion were recorded as at January 1, 2019, of which $128 million was the current portion.
ii) ROU Assets
The associated ROU assets were measured at the amount equal to the lease liability on January 1, 2019 less any amount previously recognized under IAS 37 for onerous contract provisions with no impact on retained earnings.
iii) Onerous Contract Provisions
On initial adoption, Management has applied the practical expedient to use the Company’s previous assessment under IAS 37 for onerous contracts. This resulted in a reduction of $585 million to the December 31, 2018 onerous contract provisions.
iv) Sublease Contracts
On transition, the Company reassessed the classification of its sublease contracts previously classified as operating leases under IAS 17. The Company concluded certain of these subleases were finance leases under IFRS 16 and as a result a $16 million net investment in finance leases was recognized on adoption of IFRS 16, of which, the current portion was $2 million.
v) Reclassify Previously Recognized Finance Leases
Leases accounted for as finance leases under IAS 17 was reclassified to ROU assets and lease liabilities from PP&E and other liabilities, respectively.
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
13 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
vi) Reconciliation of Commitments to Lease Liability
The following table provides a reconciliation of the commitments as at December 31, 2018 to the Company’s lease liabilities as at January 1, 2019:
|
Total |
|
Transportation and Storage |
|
23,341 |
|
Real Estate |
|
1,831 |
|
Capital Commitments |
|
24 |
|
Other Long-Term Commitments |
|
490 |
|
Commitments as at December 31, 2018 |
|
25,686 |
|
|
|
|
|
Less: |
|
|
|
Non-Lease Components |
|
(1,143 |
) |
Agreements that do not Contain a Lease |
|
(22,811 |
) |
Lease Agreements with Assets not yet Available for Use |
|
(507 |
) |
Short-Term Leases |
|
(8 |
) |
|
|
|
|
Add: |
|
|
|
Provision Previously Recognized under IAS 37 |
|
1,064 |
|
Finance Lease Liabilities under IAS 17 |
|
4 |
|
Lease Liabilities Commitments as at December 31, 2018 |
|
2,285 |
|
|
|
|
|
Impact of Discounting |
|
(791 |
) |
Lease Liability as at January 1, 2019 |
|
1,494 |
|
B) Update to Significant Accounting Policies
Leases
The Company applied IFRS 16 using the modified retrospective approach; therefore, the comparative information provided continues to be accounted for in accordance with the Company’s previous accounting policy found in the annual Consolidated Financial Statements for the year ended December 31, 2018.
The following accounting policy is applicable from January 1, 2019:
The Company assesses whether a contract is a lease based on whether the contract conveys the right to control the use of an underlying asset for a period of time in exchange for consideration. The Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. However, for the leases of storage tanks, the Company has elected not to separate non-lease components.
As Lessee
Leases are recognized as a ROU asset and a corresponding lease liability at the date on which the leased asset is available for use by the Company. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of fixed payments, variable lease payments that are based on an index or a rate, amounts expected to be paid by the lessee under residual value guarantees, the exercise price of purchase options if the lessee is reasonably certain to exercise that option, and payments of penalties for terminating the lease, less any lease incentives receivable. These payments are discounted using the Company’s incremental borrowing rate when the rate implicit in the lease is not readily available. The Company uses a single discount rate for a portfolio of leases with reasonably similar characteristics.
Lease payments are allocated between the liability and finance costs. The finance cost is charged to net earnings over the lease term.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in the future lease payments arising from a change in an index or rate, if there is a change in the amount expected to be payable under a residual value guarantee or if there is a change in the assessment of whether the Company will exercise a purchase, extension or termination option that is within the control of the Company.
When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the ROU asset or is recorded in the Consolidated Statement of Earnings if the carrying amount of the ROU asset has been reduced to zero.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or site on which it is located less any lease payments made at or before the commencement date.
The ROU asset is depreciated, on a straight-line basis, over the shorter of the estimated useful life of the asset or the lease term. The ROU asset may be adjusted for certain remeasurements of the lease liability and impairment losses.
Leases that have terms of less than twelve months or leases on which the underlying asset is of low value are recognized as an expense in the Consolidated Statement of Earnings on a straight-line basis over the lease term.
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
14 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
A lease modification will be accounted for as a separate lease if the modification increases the scope of the lease and if the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope. For a modification that is not a separate lease or where the increase in consideration is not commensurate, at the effective date of the lease modification, the Company will remeasure the lease liability using the Company’s incremental borrowing rate, when the rate implicit to the lease is not readily available, with a corresponding adjustment to the ROU asset. A modification that decreases the scope of the lease will be accounted for by decreasing the carrying amount of the ROU asset, and recognizing a gain or loss in net earnings that reflects the proportionate decrease in scope.
As Lessor
As a lessor, the Company assesses at inception whether a lease is a finance or operating lease. Leases where the Company transfers substantially all of the risk and rewards incidental to ownership of the underlying asset are classified as financing leases. Under a finance lease, the Company recognizes a receivable at an amount equal to the net investment in the lease which is the present value of the aggregate of lease payments receivable by the lessor. If substantially all the risks and rewards of ownership of an asset are not transferred the lease is classified as an operating lease. The Company recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as other income.
When the Company is an intermediate lessor, it accounts for its interest in the head lease and the sublease separately. It assesses the lease classification of a sublease with reference to the ROU asset from the head lease not with reference to the underlying assets. If the head lease is a short-term lease to which the Company applies the exemption for lease accounting, the sublease is classified as an operating lease.
Uncertain Tax Positions
Effective January 1, 2019, the Company adopted International Financial Reporting Interpretation Committee (“IFRIC”) 23, “Uncertainty over Income Tax Treatments” using the modified approach. The interpretation provides clarity on how to account for a tax position when there is uncertainty over income tax treatments. In determining the likely resolution of the uncertain tax positions, a position may be considered separately or as a group. In addition, an assessment is required to determine the probability that the tax authority will accept the tax position taken in income tax filings. If the uncertain income tax treatment is unlikely to be accepted, the accounting tax position must reflect an appropriate level of uncertainty. An uncertain tax position may be reassessed if new information changes the original assessment. The adoption of IFRIC 23 did not have a material impact on the Consolidated Financial Statements.
C) Critical Accounting Judgments and Estimate Uncertainty
Critical Judgments in Determining the Lease Term
In determining the lease term, Management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment.
D) New Accounting Standards and Interpretations not yet Adopted
A number of new standards, amendments to accounting standards and interpretations are effective for annual periods beginning or after January 1, 2020 and have not been applied in preparing the Consolidated Financial Statements for the year ended December 31, 2019. These standards and interpretations are not expected to have a material impact on the Company’s Consolidated Financial Statements.
4. FINANCE COSTS
|
Three Months Ended |
|
|
Twelve Months Ended |
|
For the periods ended December 31, |
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Interest Expense – Short-Term Borrowings and
Long-Term Debt |
|
90 |
|
|
|
121 |
|
|
|
407 |
|
|
|
516 |
|
Net (Discount) Premium on Redemption of
Long-Term Debt (Note 15) |
|
1 |
|
|
|
(10 |
) |
|
|
(63 |
) |
|
|
17 |
|
Interest Expense – Lease Liabilities (Note 16) |
|
23 |
|
|
|
- |
|
|
|
82 |
|
|
|
- |
|
Unwinding of Discount on Decommissioning Liabilities
(Note 19) |
|
15 |
|
|
|
16 |
|
|
|
58 |
|
|
|
62 |
|
Other |
|
6 |
|
|
|
11 |
|
|
|
27 |
|
|
|
32 |
|
|
|
135 |
|
|
|
138 |
|
|
|
511 |
|
|
|
627 |
|
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
15 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
5. FOREIGN EXCHANGE (GAIN) LOSS, NET
|
Three Months Ended |
|
|
Twelve Months Ended |
|
For the periods ended December 31, |
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Unrealized Foreign Exchange (Gain) Loss on Translation of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar Debt Issued From Canada |
|
(258 |
) |
|
|
296 |
|
|
|
(800 |
) |
|
|
602 |
|
Other |
|
(9 |
) |
|
|
54 |
|
|
|
(27 |
) |
|
|
47 |
|
Unrealized Foreign Exchange (Gain) Loss |
|
(267 |
) |
|
|
350 |
|
|
|
(827 |
) |
|
|
649 |
|
Realized Foreign Exchange (Gain) Loss |
|
128 |
|
|
|
197 |
|
|
|
423 |
|
|
|
205 |
|
|
|
(139 |
) |
|
|
547 |
|
|
|
(404 |
) |
|
|
854 |
|
6. IMPAIRMENT CHARGES AND REVERSALS
A) Cash-Generating Unit Net Impairments
On a quarterly basis, the Company assesses its cash-generating units (“CGUs”) for indicators of impairment or when facts and circumstances suggest the carrying amount may exceed its recoverable amount. Goodwill is tested for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to the CGU to which it relates.
2019 Upstream Impairments
As indicators of impairment were noted due to a decline in forward natural gas prices since December 31, 2018, the Company tested its Deep Basin CGUs for impairment. As at December 31, 2019, there was no impairment of goodwill or the Company’s CGUs.
Key Assumptions
The recoverable amounts of Cenovus’s upstream CGUs were determined based on FVLCOD or an evaluation of comparable asset transactions. The fair values for producing properties were calculated based on discounted after-tax cash flows of proved and probable reserves using forward prices and cost estimates, prepared by Cenovus’s independent qualified reserves evaluators (“IQREs”) (Level 3). Key assumptions in the determination of future cash flows from reserves include crude oil and natural gas prices, costs to develop and the discount rate. All reserves have been evaluated as at December 31, 2019 by the Company’s IQREs.
Crude Oil, NGLs and Natural Gas Prices
The forward prices as at December 31, 2019, used to determine future cash flows from crude oil, NGLs and natural gas reserves were:
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
Average
Annual
Increase
Thereafter |
|
WTI (US$/barrel) (1) |
|
61.00 |
|
|
|
63.75 |
|
|
|
66.18 |
|
|
|
67.91 |
|
|
|
69.48 |
|
|
|
2.0 |
% |
WCS (C$/barrel) (2) |
|
57.57 |
|
|
|
62.35 |
|
|
|
64.33 |
|
|
|
66.23 |
|
|
|
67.97 |
|
|
|
2.1 |
% |
Edmonton C5+ (C$/barrel) |
|
76.83 |
|
|
|
79.82 |
|
|
|
82.30 |
|
|
|
84.72 |
|
|
|
86.71 |
|
|
|
2.0 |
% |
AECO (C$/Mcf) (3) (4) |
|
2.04 |
|
|
|
2.32 |
|
|
|
2.62 |
|
|
|
2.71 |
|
|
|
2.81 |
|
|
|
2.1 |
% |
(1) |
West Texas Intermediate (“WTI”). |
(2) |
Western Canadian Select (“WCS”). |
(3) |
Alberta Energy Company (“AECO”) natural gas. |
(4) |
Assumes gas heating value of one million British thermal units per thousand cubic feet. |
Discount and Inflation Rates
Discounted future cash flows are determined by applying a discount rate between 10 percent and 15 percent based on the individual characteristics of the CGU, and other economic and operating factors. Inflation is estimated at two percent.
2018 Net Upstream Impairments
As at December 31, 2018, the book value of the Company’s net assets was greater than its market capitalization; therefore, the Company tested its upstream CGUs for impairment. As at December 31, 2018, there was no impairment of goodwill or the Company’s CGUs. However, the impairment test provided evidence that previously recognized impairment losses should be reversed.
As at December 31, 2018, the recoverable amount of the Clearwater CGU was estimated to be $761 million. Earlier in 2018, impairment losses of $100 million were recorded due to a decline in forward prices. The impairment was recorded as additional DD&A in the Deep Basin segment. In the fourth quarter of 2018, the Company reversed $132 million of impairment losses, net of the DD&A that would have been recorded had no impairments been recorded. The reversal was due to improved recovery, extensions, and well performance and changes to the development plan.
There were no goodwill impairments for the twelve months ended December 31, 2018.
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
16 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
Key Assumptions
The recoverable amounts of Cenovus’s upstream CGUs were determined based on FVLCOD or an evaluation of comparable asset transactions. The fair values for producing properties were calculated based on discounted after-tax cash flows of proved and probable reserves using forward prices and cost estimates, prepared by Cenovus’s IQREs (Level 3). Key assumptions in the determination of future cash flows from reserves include crude oil and natural gas prices, costs to develop and the discount rate. All reserves were evaluated as at December 31, 2018 by the IQREs.
Crude Oil, NGLs and Natural Gas Prices
The forward prices as at December 31, 2018, used to determine future cash flows from crude oil, NGLs and natural gas reserves were:
|
2019 |
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
Average
Annual
Increase
Thereafter |
|
WTI (US$/barrel) |
|
58.58 |
|
|
|
64.60 |
|
|
|
68.20 |
|
|
|
71.00 |
|
|
|
72.81 |
|
|
|
2.0 |
% |
WCS (C$/barrel) |
|
51.55 |
|
|
|
59.58 |
|
|
|
65.89 |
|
|
|
68.61 |
|
|
|
70.53 |
|
|
|
2.1 |
% |
Edmonton C5+ (C$/barrel) |
|
70.10 |
|
|
|
79.21 |
|
|
|
83.33 |
|
|
|
86.20 |
|
|
|
88.16 |
|
|
|
2.0 |
% |
AECO (C$/Mcf) |
|
1.88 |
|
|
|
2.31 |
|
|
|
2.74 |
|
|
|
3.05 |
|
|
|
3.21 |
|
|
|
2.0 |
% |
Discount and Inflation Rates
Discounted future cash flows are determined by applying a discount rate between 10 percent and 15 percent based on the individual characteristics of the CGU, and other economic and operating factors. Inflation is estimated at two percent.
B) Asset Impairments and Write-downs
Exploration and Evaluation Assets
For the year ended December 31, 2019, $82 million of previously capitalized E&E costs were written off as the carrying value was not considered to be recoverable and recorded as exploration expense. Write-downs of $64 million and $18 million were recorded in the Deep Basin and Oil Sands segments, respectively.
In 2018, Management completed a comprehensive review of the Deep Basin development plan considering factors such as well inventory, pace of development, infrastructure constraints, economic thresholds and limited capital spending on the assets going forward. As such, previously capitalized E&E costs of $2.1 billion were written off as exploration expense in the Elmworth, Wapiti, Kaybob, Edson and Clearwater areas within the Deep Basin segment.
Property, Plant and Equipment, Net
For the year ended December 31, 2019, the Company recorded an impairment loss of $20 million mainly in the Oil Sands segment related to a natural gas property that was written down to its recoverable amount. In addition, $10 million of corporate assets primarily related to leasehold improvements were written off. These impairment losses were recorded as additional DD&A in the Oil Sands segment and Corporate and Eliminations segment.
In 2018, the Company recorded an impairment loss of $6 million in the Oil Sands segment for information technology assets that were written down to their recoverable amounts.
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
17 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
7. DISCONTINUED OPERATIONS
Results of Discontinued Operations
On January 5, 2018, the Company completed the sale of its Suffield crude oil and natural gas operations in southern Alberta for cash proceeds of $512 million, before closing adjustments. A before-tax gain on discontinuance of $343 million was recorded on the sale.
The following table presents the results of discontinued operations, including asset sales:
For the periods ended December 31, 2018 |
Three
Months
Ended |
|
|
Twelve
Months
Ended |
|
Revenues |
|
|
|
|
|
|
|
Gross Sales |
|
(1 |
) |
|
|
14 |
|
Less: Royalties |
|
1 |
|
|
|
3 |
|
|
|
(2 |
) |
|
|
11 |
|
Expenses |
|
|
|
|
|
|
|
Transportation and Blending |
|
- |
|
|
|
1 |
|
Operating |
|
1 |
|
|
|
(28 |
) |
Production and Mineral Taxes |
|
- |
|
|
|
1 |
|
Operating Margin |
|
(3 |
) |
|
|
37 |
|
Finance Costs |
|
- |
|
|
|
1 |
|
Earnings (Loss) From Discontinued Operations Before Income Tax |
|
(3 |
) |
|
|
36 |
|
Deferred Tax Expense (Recovery) |
|
(2 |
) |
|
|
9 |
|
After-tax Earnings (Loss) From Discontinued Operations |
|
(1 |
) |
|
|
27 |
|
After-tax Gain (Loss) on Discontinuance (1) |
|
(5 |
) |
|
|
220 |
|
Net Earnings (Loss) From Discontinued Operations |
|
(6 |
) |
|
|
247 |
|
(1) |
Net of $2 million deferred tax recovery in the three months ended December 31, 2018 and $81 million deferred tax expense in the twelve months ended December 31, 2018, respectively. |
Cash flows from discontinued operations reported in the Consolidated Statement of Cash Flows are:
For the periods ended December 31, 2018 |
Three
Months
Ended |
|
|
Twelve
Months
Ended |
|
Cash From (Used in) Operating Activities |
|
(3 |
) |
|
|
36 |
|
Cash From (Used in) Investing Activities |
|
(5 |
) |
|
|
404 |
|
Net Cash Flow |
|
(8 |
) |
|
|
440 |
|
8. INCOME TAXES
The provision for income taxes is:
|
Three Months Ended |
|
|
Twelve Months Ended |
|
For the periods ended December 31, |
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Current Tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
(8 |
) |
|
|
(20 |
) |
|
|
14 |
|
|
|
(128 |
) |
United States |
|
2 |
|
|
|
(7 |
) |
|
|
3 |
|
|
|
2 |
|
Total Current Tax Expense (Recovery) |
|
(6 |
) |
|
|
(27 |
) |
|
|
17 |
|
|
|
(126 |
) |
Deferred Tax Expense (Recovery) |
|
(24 |
) |
|
|
(580 |
) |
|
|
(814 |
) |
|
|
(884 |
) |
Tax Expense (Recovery) From Continuing Operations |
|
(30 |
) |
|
|
(607 |
) |
|
|
(797 |
) |
|
|
(1,010 |
) |
For the twelve months ended December 31, 2019, a current tax expense was recorded compared with a recovery in 2018 due to the carry back of losses to recover tax paid in previous years. The maximum recovery was reached in 2018.
In 2019, the Government of Alberta enacted a reduction in the provincial corporate tax rate from 12 percent to eight percent over four years. As a result, the Company recorded a deferred income tax recovery of $671 million for the year ended December 31, 2019. In addition, the Company has recorded a deferred income tax recovery of $387 million due to an internal restructuring of the Company’s U.S. operations resulting in a step-up in the tax basis of the Company’s refining assets.
In 2018, the Company recorded a deferred tax recovery related to current period losses, including the write-down of the Deep Basin E&E assets and a $78 million recovery arising from an adjustment to the tax basis of the Company’s refining assets. The increase in tax basis was a result of the Company’s partner recognizing a taxable gain on its interest in WRB Refining LP (“WRB”), which due to an election filed with the U.S. tax authorities, was added to the tax basis of WRB’s assets.
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
18 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
The following table reconciles income taxes calculated at the Canadian statutory rate with the recorded income taxes:
For the twelve months ended December 31, |
|
2019 |
|
|
|
2018 |
|
Earnings (Loss) From Continuing Operations Before Income Tax |
|
1,397 |
|
|
|
(3,926 |
) |
Canadian Statutory Rate |
26.5% |
|
|
27.0% |
|
Expected Income Tax Expense (Recovery) From Continuing Operations |
|
370 |
|
|
|
(1,060 |
) |
Effect on Taxes Resulting From: |
|
|
|
|
|
|
|
Foreign Tax Rate Differential |
|
(52 |
) |
|
|
(57 |
) |
Non-Taxable Capital (Gains) Losses |
|
(38 |
) |
|
|
89 |
|
Non-Recognition of Capital (Gains) Losses |
|
(39 |
) |
|
|
87 |
|
Adjustments Arising From Prior Year Tax Filings |
|
4 |
|
|
|
3 |
|
Recognition of U.S. Tax Basis |
|
(387 |
) |
|
|
(78 |
) |
Change in Statutory Rates |
|
(671 |
) |
|
|
- |
|
Non-Deductible Expenses |
|
- |
|
|
|
3 |
|
Other |
|
16 |
|
|
|
3 |
|
Total Tax Expense (Recovery) From Continuing Operations |
|
(797 |
) |
|
|
(1,010 |
) |
Effective Tax Rate |
(57.1)% |
|
|
25.7% |
|
9. PER SHARE AMOUNTS
A) Net Earnings (Loss) Per Share – Basic and Diluted
|
Three Months Ended |
|
|
Twelve Months Ended |
|
For the periods ended December 31, |
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Earnings (Loss) From: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
113 |
|
|
|
(1,350 |
) |
|
|
2,194 |
|
|
|
(2,916 |
) |
Discontinued Operations |
|
- |
|
|
|
(6 |
) |
|
|
- |
|
|
|
247 |
|
Net Earnings (Loss) |
|
113 |
|
|
|
(1,356 |
) |
|
|
2,194 |
|
|
|
(2,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic – Weighted Average Number of Shares (millions) |
|
1,228.8 |
|
|
|
1,228.8 |
|
|
|
1,228.8 |
|
|
|
1,228.8 |
|
Dilutive Effect of Cenovus NSRs (1) |
|
0.6 |
|
|
|
0.1 |
|
|
|
0.6 |
|
|
|
0.4 |
|
Diluted – Weighted Average Number of Shares |
|
1,229.4 |
|
|
|
1,228.9 |
|
|
|
1,229.4 |
|
|
|
1,229.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Earnings (Loss) Per Share From: ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
0.09 |
|
|
|
(1.10 |
) |
|
|
1.78 |
|
|
|
(2.37 |
) |
Discontinued Operations |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.20 |
|
Net Earnings (Loss) Per Share |
|
0.09 |
|
|
|
(1.10 |
) |
|
|
1.78 |
|
|
|
(2.17 |
) |
(1) |
Net settlement rights (“NSRs”). |
B) Dividends Per Share
For the twelve months ended December 31, 2019, the Company paid dividends of $260 million or $0.2125 per share (twelve months ended December 31, 2018 – $245 million or $0.20 per share).
10. INVENTORIES
As at December 31, 2019, as a result of a decline in refined product prices, Cenovus recorded a write-down of its product inventory of $25 million from cost to net realizable value (December 31, 2018 – $47 million).
11. EXPLORATION AND EVALUATION ASSETS
|
Total |
|
As at December 31, 2018 |
|
785 |
|
Additions |
|
73 |
|
Exploration Expense (Note 6) |
|
(82 |
) |
Change in Decommissioning Liabilities |
|
9 |
|
Exchange Rate Movements and Other |
|
2 |
|
As at December 31, 2019 |
|
787 |
|
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
19 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
12. PROPERTY, PLANT AND EQUIPMENT, NET
|
Upstream Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development
& Production |
|
|
Other
Upstream |
|
|
Refining
Equipment |
|
|
Other (1) |
|
|
Total |
|
COST |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at January 1, 2019 (Note 3) |
|
28,046 |
|
|
|
333 |
|
|
|
5,628 |
|
|
|
1,213 |
|
|
|
35,220 |
|
Additions |
|
695 |
|
|
|
- |
|
|
|
228 |
|
|
|
193 |
|
|
|
1,116 |
|
Change in Decommissioning Liabilities |
|
340 |
|
|
|
- |
|
|
|
9 |
|
|
|
5 |
|
|
|
354 |
|
Exchange Rate Movements and Other |
|
(9 |
) |
|
|
- |
|
|
|
(288 |
) |
|
|
3 |
|
|
|
(294 |
) |
Divestitures |
|
(40 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(40 |
) |
As at December 31, 2019 |
|
29,032 |
|
|
|
333 |
|
|
|
5,577 |
|
|
|
1,414 |
|
|
|
36,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at January 1, 2019 (Note 3) |
|
3,918 |
|
|
|
333 |
|
|
|
1,441 |
|
|
|
833 |
|
|
|
6,525 |
|
Depreciation, Depletion and Amortization |
|
1,735 |
|
|
|
- |
|
|
|
241 |
|
|
|
75 |
|
|
|
2,051 |
|
Impairment Losses (Note 6) |
|
20 |
|
|
|
- |
|
|
|
- |
|
|
|
10 |
|
|
|
30 |
|
Exchange Rate Movements and Other |
|
31 |
|
|
|
- |
|
|
|
(86 |
) |
|
|
- |
|
|
|
(55 |
) |
Divestitures |
|
(29 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(29 |
) |
As at December 31, 2019 |
|
5,675 |
|
|
|
333 |
|
|
|
1,596 |
|
|
|
918 |
|
|
|
8,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CARRYING VALUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at January 1, 2019 (Note 3) |
|
24,128 |
|
|
|
- |
|
|
|
4,187 |
|
|
|
380 |
|
|
|
28,695 |
|
As at December 31, 2019 |
|
23,357 |
|
|
|
- |
|
|
|
3,981 |
|
|
|
496 |
|
|
|
27,834 |
|
(1)Includes crude-by-rail terminal, office furniture, fixtures, leasehold improvements, information technology and aircraft.
13. RIGHT-OF-USE ASSETS, NET
|
Real
Estate |
|
|
Railcars
& Barges |
|
|
Storage
Assets |
|
|
Refining
Equipment |
|
|
Other |
|
|
Total |
|
COST |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at January 1, 2019 (Note 3) |
|
517 |
|
|
|
63 |
|
|
|
292 |
|
|
|
13 |
|
|
|
9 |
|
|
|
894 |
|
Additions |
|
10 |
|
|
|
436 |
|
|
|
172 |
|
|
|
- |
|
|
|
6 |
|
|
|
624 |
|
Terminations |
|
- |
|
|
|
- |
|
|
|
(11 |
) |
|
|
- |
|
|
|
- |
|
|
|
(11 |
) |
Reclassifications |
|
(8 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8 |
) |
Re-measurement |
|
- |
|
|
|
(2 |
) |
|
|
18 |
|
|
|
(2 |
) |
|
|
- |
|
|
|
14 |
|
Exchange Rate Movements and Other |
|
(10 |
) |
|
|
(2 |
) |
|
|
(7 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(21 |
) |
As at December 31, 2019 |
|
509 |
|
|
|
495 |
|
|
|
464 |
|
|
|
10 |
|
|
|
14 |
|
|
|
1,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED DEPRECIATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at January 1, 2019 (Note 3) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
Depreciation |
|
29 |
|
|
|
55 |
|
|
|
75 |
|
|
|
2 |
|
|
|
4 |
|
|
|
165 |
|
Impairment Losses |
|
3 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
Terminations |
|
- |
|
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
Exchange Rate Movements and Other |
|
- |
|
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
As at December 31, 2019 |
|
32 |
|
|
|
55 |
|
|
|
73 |
|
|
|
3 |
|
|
|
4 |
|
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CARRYING VALUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at January 1, 2019 (Note 3) |
|
517 |
|
|
|
63 |
|
|
|
292 |
|
|
|
12 |
|
|
|
9 |
|
|
|
893 |
|
As at December 31, 2019 |
|
477 |
|
|
|
440 |
|
|
|
391 |
|
|
|
7 |
|
|
|
10 |
|
|
|
1,325 |
|
In 2019, Cenovus recognized $17 million of lease income. Lease income is earned on operating leases related to the Company’s real estate ROU assets in which Cenovus is the lessor, and from the recovery of non-lease components for operating costs and unreserved parking related to the Company's net investment in finance leases. Finance leases are included in other assets as net investment in finance leases.
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
20 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
14. OTHER ASSETS
As at |
December 31, 2019 |
|
|
January 1,
2019 (1) |
|
Intangible Assets |
|
101 |
|
|
|
6 |
|
Equity Investments (Note 24) |
|
52 |
|
|
|
38 |
|
Net Investment in Finance Leases |
|
30 |
|
|
|
14 |
|
Long-Term Receivables |
|
21 |
|
|
|
12 |
|
Prepaids |
|
7 |
|
|
|
8 |
|
|
|
211 |
|
|
|
78 |
|
In 2019, Cenovus entered into an agreement to assume a firm capacity shipper position in a pipeline transportation services agreement from a third party. The fee was recorded as an intangible asset at cost and will be amortized over the life of the contract of approximately 10 years.
15. LONG-TERM DEBT AND CAPITAL STRUCTURE
As at December 31, |
Notes |
|
2019 |
|
|
2018 |
|
Revolving Term Debt |
A |
|
|
265 |
|
|
|
- |
|
U.S. Dollar Denominated Unsecured Notes |
B |
|
|
6,492 |
|
|
|
9,241 |
|
Total Debt Principal |
|
|
|
6,757 |
|
|
|
9,241 |
|
Debt Discounts and Transaction Costs |
|
|
|
(58 |
) |
|
|
(77 |
) |
Long-Term Debt |
|
|
|
6,699 |
|
|
|
9,164 |
|
Less: Current Portion |
|
|
|
- |
|
|
|
682 |
|
Long-Term Portion |
|
|
|
6,699 |
|
|
|
8,482 |
|
As at December 31, 2019, the Company is in compliance with all of the terms of its debt agreements.
A) Revolving Term Debt
Cenovus has in place a committed credit facility that consists of a $1.2 billion tranche and a $3.3 billion tranche. On October 23, 2019, the Company extended the maturity date of the $1.2 billion tranche from November 30, 2021 to November 30, 2022 and the maturity date of the $3.3 billion tranche from November 30, 2022 to November 30, 2023. Borrowings are available by way of Bankers’ Acceptances, London Interbank Offered Rate based loans, prime rate loans or U.S base rate loans.
B) Unsecured Notes
At maturity, on October 15, 2019, the Company repaid, in full the 5.70 percent unsecured notes with a remaining principal of US$500 million.
In addition, during the twelve months ended December 31, 2019, the Company paid US$1,214 million to repurchase a portion of its unsecured notes with a principal amount of US$1,276 million. A gain on the repurchase of $63 million was recorded in finance costs.
C) Capital Structure
Cenovus’s capital structure objectives remain unchanged from previous periods. Cenovus’s capital structure consists of shareholders’ equity plus Net Debt. Net Debt includes the Company’s short-term borrowings, and the current and long-term portions of long-term debt, net of cash and cash equivalents and short-term investments. Cenovus conducts its business and makes decisions consistent with that of an investment grade company. The Company’s objectives when managing its capital structure are to maintain financial flexibility, preserve access to capital markets, ensure its ability to finance internally generated growth and to fund potential acquisitions while maintaining the ability to meet the Company’s financial obligations as they come due. To ensure financial resilience, Cenovus may, among other actions, adjust capital and operating spending, draw down on its credit facility or repay existing debt, adjust dividends paid to shareholders, purchase the Company’s common shares for cancellation, issue new debt, or issue new shares.
Cenovus monitors its capital structure and financing requirements using, among other things, non-GAAP financial metrics consisting of Net Debt to Adjusted Earnings Before Interest, Taxes and DD&A (“Adjusted EBITDA”) and Net Debt to Capitalization. These metrics are used to steward Cenovus’s overall debt position as measures of Cenovus’s overall financial strength.
Cenovus targets a Net Debt to Adjusted EBITDA ratio of less than 2.0 times over the long-term. This ratio may periodically be above the target due to factors such as persistently low commodity prices. Cenovus also manages its Net Debt to Capitalization ratio to ensure compliance with the associated covenant as defined in its committed credit facility agreement.
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
21 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
Net Debt to Adjusted EBITDA (1)
As at December 31, |
|
|
|
2019 |
|
|
|
2018 |
|
Current Portion of Long-Term Debt |
|
|
|
- |
|
|
|
682 |
|
Long-Term Debt |
|
|
|
6,699 |
|
|
|
8,482 |
|
Less: Cash and Cash Equivalents |
|
|
|
(186 |
) |
|
|
(781 |
) |
Net Debt |
|
|
|
6,513 |
|
|
|
8,383 |
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss) |
|
|
|
2,194 |
|
|
|
(2,669 |
) |
Add (Deduct): |
|
|
|
|
|
|
|
|
|
Finance Costs |
|
|
|
511 |
|
|
|
628 |
|
Interest Income |
|
|
|
(12 |
) |
|
|
(19 |
) |
Income Tax Expense (Recovery) |
|
|
|
(797 |
) |
|
|
(920 |
) |
Depreciation, Depletion and Amortization |
|
|
|
2,249 |
|
|
|
2,131 |
|
E&E Write-down |
|
|
|
82 |
|
|
|
2,123 |
|
Unrealized (Gain) Loss on Risk Management |
|
|
|
149 |
|
|
|
(1,249 |
) |
Foreign Exchange (Gain) Loss, Net |
|
|
|
(404 |
) |
|
|
854 |
|
Re-measurement of Contingent Payment |
|
|
|
164 |
|
|
|
50 |
|
(Gain) Loss on Discontinuance |
|
|
|
- |
|
|
|
(301 |
) |
(Gain) Loss on Divestitures of Assets |
|
|
|
(2 |
) |
|
|
795 |
|
Other (Income) Loss, Net |
|
|
|
(11 |
) |
|
|
(12 |
) |
Adjusted EBITDA (2) |
|
|
|
4,123 |
|
|
|
1,411 |
|
|
|
|
|
|
|
|
|
|
|
Net Debt to Adjusted EBITDA |
|
|
1.6x |
|
|
5.9x |
|
(1) |
IFRS 16 was adopted January 1, 2019 using the modified retrospective approach; therefore, comparative information has not been restated. |
(2) |
Calculated on a trailing twelve-month basis. Includes discontinued operations. |
Net Debt to Capitalization
As at December 31, |
|
|
|
2019 |
|
|
|
2018 |
|
Net Debt |
|
|
|
6,513 |
|
|
|
8,383 |
|
Shareholders’ Equity |
|
|
|
19,201 |
|
|
|
17,468 |
|
|
|
|
|
25,714 |
|
|
|
25,851 |
|
Net Debt to Capitalization |
|
|
25% |
|
|
32% |
|
Under the terms of Cenovus’s committed credit facility, the Company is required to maintain a debt to capitalization ratio, as defined in the agreement, not to exceed 65 percent. The Company is well below this limit.
16. LEASE LIABILITIES
|
Total |
|
As at January 1, 2019 (Note 3) |
|
1,494 |
|
Additions |
|
590 |
|
Interest Expense (Note 4) |
|
82 |
|
Lease Payments |
|
(232 |
) |
Terminations |
|
(11 |
) |
Re-measurement |
|
15 |
|
Exchange Rate Movements and Other |
|
(22 |
) |
As at December 31, 2019 |
|
1,916 |
|
Less: Current Portion |
|
196 |
|
Long-Term Portion |
|
1,720 |
|
The Company has lease liabilities for contracts related to office space, railcars, barges, storage assets, drilling rigs, and other refining and field equipment. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Discount rates during the year ended December 31, 2019 were between 2.7 percent and 5.7 percent, depending on the duration of the lease term.
For the periods ended December 31, 2019 |
Three Months Ended |
|
|
Twelve
Months
Ended |
|
Variable Lease Payments |
|
4 |
|
|
|
19 |
|
Short-Term Lease Payments |
|
3 |
|
|
|
13 |
|
The Company has variable lease payments related to property taxes for real estate contracts. Short-term leases are leases with terms of twelve months or less.
The Company has included extension options in the calculation of finance lease liabilities where the Company has the right to extend a lease term at its discretion and is reasonably certain to exercise the extension option. The Company does not have any significant termination options and the residual amounts are not material.
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
22 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
Undiscounted cash outflows relating to the lease liabilities are:
As at December 31, 2019 |
Total |
|
Less than 1 Year |
|
277 |
|
Years 2 and 3 |
|
466 |
|
Years 4 and 5 |
|
410 |
|
Thereafter |
|
1,544 |
|
Total (1) |
|
2,697 |
|
(1)Includes principal and interest.
17. CONTINGENT PAYMENT
|
Total |
|
As at December 31, 2018 |
|
132 |
|
Re-measurement (1) |
|
164 |
|
Liabilities Settled or Payable |
|
(153 |
) |
As at December 31, 2019 |
|
143 |
|
Less: Current Portion |
|
79 |
|
Long-Term Portion |
|
64 |
|
(1) |
Contingent payment is carried at fair value. Changes in fair value are recorded in net earnings. |
In connection with the acquisition (the “Acquisition”) from ConocoPhillips Company and certain of its subsidiaries (collectively, “ConocoPhillips”), Cenovus agreed to make quarterly payments to ConocoPhillips during the five years subsequent to May 17, 2017 for quarters in which the average WCS crude oil price exceeds $52.00 per barrel during the quarter. The quarterly payment will be $6 million for each dollar that the WCS price exceeds $52.00 per barrel. The calculation includes an adjustment mechanism related to certain significant production outages at Foster Creek and Christina Lake, which may reduce the amount of a contingent payment. There are no maximum payment terms. As at December 31, 2019, $14 million was payable under this agreement (December 31, 2018 – $nil).
18. ONEROUS CONTRACT PROVISIONS
|
Total |
|
As at January 1, 2019 (Note 3) |
|
78 |
|
Liabilities Settled |
|
(13 |
) |
Change in Assumptions |
|
(9 |
) |
Change in Discount Rate |
|
4 |
|
Unwinding of Discount on Onerous Contract Provisions |
|
3 |
|
As at December 31, 2019 |
|
63 |
|
Less: Current Portion |
|
17 |
|
Long-Term Portion |
|
46 |
|
In 2019, the provision for onerous contracts relates to the non-lease components of the Company’s real estate contracts consisting of operating costs and unreserved parking. The provision represents the present value of the difference between the future payments that Cenovus is obligated to make under the non-cancellable contracts and the estimated sublease recoveries, discounted at a credit-adjusted risk-free rate of between 2.8 percent and 4.1 percent. The onerous contract provision is expected to be settled in periods up to and including the year 2040. The estimate may vary as a result of changes in the use of the leased office space and sublease arrangements, where applicable.
19. DECOMMISSIONING LIABILITIES
The decommissioning provision represents the present value of the expected future costs associated with the retirement of upstream crude oil and natural gas assets, refining facilities and the crude-by-rail terminal.
The aggregate carrying amount of the obligation is:
|
Total |
|
As at December 31, 2018 |
|
875 |
|
Liabilities Incurred |
|
3 |
|
Liabilities Settled |
|
(52 |
) |
Liabilities Disposed |
|
(8 |
) |
Change in Estimated Future Cash Flows |
|
21 |
|
Change in Discount Rate |
|
339 |
|
Unwinding of Discount on Decommissioning Liabilities (Note 4) |
|
58 |
|
Foreign Currency Translation |
|
(1 |
) |
As at December 31, 2019 |
|
1,235 |
|
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
23 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
The undiscounted amount of estimated future cash flows required to settle the obligation has been discounted using a credit-adjusted risk-free rate of 4.9 percent as at December 31, 2019 (December 31, 2018 – 6.5 percent).
20. OTHER LIABILITIES
As at |
December 31, 2019 |
|
|
January 1,
2019 (1) |
|
Employee Long-Term Incentives |
|
103 |
|
|
|
41 |
|
Pension and Other Post-Employment Benefit Plan |
|
73 |
|
|
|
75 |
|
Other |
|
19 |
|
|
|
39 |
|
|
|
195 |
|
|
|
155 |
|
21. SHARE CAPITAL
A) Authorized
Cenovus is authorized to issue an unlimited number of common shares, and first and second preferred shares not exceeding, in aggregate, 20 percent of the number of issued and outstanding common shares. The first and second preferred shares may be issued in one or more series with rights and conditions to be determined by the Company’s Board of Directors prior to issuance and subject to the Company’s articles.
B) Issued and Outstanding
|
2019 |
|
|
2018 |
|
As at December 31, |
Number of
Common
Shares
(thousands) |
|
|
Amount |
|
|
Number of
Common
Shares
(thousands) |
|
|
Amount |
|
Outstanding, Beginning of Year |
|
1,228,790 |
|
|
|
11,040 |
|
|
|
1,228,790 |
|
|
|
11,040 |
|
Common Shares Issued Under Stock Option Plan (Note 23) |
|
38 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Outstanding, End of Period |
|
1,228,828 |
|
|
|
11,040 |
|
|
|
1,228,790 |
|
|
|
11,040 |
|
As at December 31, 2019, ConocoPhillips continued to hold the 208 million common shares issued as partial consideration related to the Acquisition.
There were no preferred shares outstanding as at December 31, 2019 (December 31, 2018 – nil).
As at December 31, 2019, there were 26 million (December 31, 2018 – 23 million) common shares available for future issuance under the stock option plan .
22. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
Defined Benefit Pension Plan |
|
|
Foreign Currency Translation Adjustment |
|
|
Private Equity Instruments |
|
|
Total |
|
As at December 31, 2017 |
|
(4 |
) |
|
|
633 |
|
|
|
14 |
|
|
|
643 |
|
Other Comprehensive Income (Loss), Before Tax |
|
(5 |
) |
|
|
397 |
|
|
|
1 |
|
|
|
393 |
|
Income Tax |
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
As at December 31, 2018 |
|
(7 |
) |
|
|
1,030 |
|
|
|
15 |
|
|
|
1,038 |
|
Other Comprehensive Income (Loss), Before Tax |
|
6 |
|
|
|
(228 |
) |
|
|
14 |
|
|
|
(208 |
) |
Income Tax |
|
(1 |
) |
|
|
- |
|
|
|
(2 |
) |
|
|
(3 |
) |
As at December 31, 2019 |
|
(2 |
) |
|
|
802 |
|
|
|
27 |
|
|
|
827 |
|
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
24 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
23. STOCK-BASED COMPENSATION PLANS
Cenovus has a number of stock-based compensation plans which include stock options with associated NSRs, performance share units (“PSUs”), restricted share units (“RSUs”) and deferred share units (“DSUs”). The following tables summarize information related to Cenovus’s stock-based compensation plans:
|
Units
Outstanding |
|
|
Units
Exercisable |
|
As at December 31, 2019 |
(thousands) |
|
|
(thousands) |
|
NSRs |
|
31,528 |
|
|
|
23,977 |
|
PSUs |
|
6,912 |
|
|
|
- |
|
RSUs |
|
8,372 |
|
|
|
- |
|
DSUs |
|
1,237 |
|
|
|
1,237 |
|
The weighted average exercise price of NSRs as at December 31, 2019 was $22.61.
|
Units
Granted |
|
|
Units
Vested and
Exercised/
Paid Out |
|
For the twelve months ended December 31, 2019 |
(thousands) |
|
|
(thousands) |
|
NSRs |
|
3,867 |
|
|
|
164 |
|
PSUs |
|
2,604 |
|
|
|
- |
|
RSUs |
|
2,742 |
|
|
|
1,568 |
|
DSUs |
|
341 |
|
|
|
488 |
|
In the twelve months ended December 31, 2019, 164 thousand NSRs, with a weighted average exercise price of $9.48, were exercised and net settled for 38 thousand common shares (Note 21).
The following table summarizes the stock-based compensation expense (recovery) recorded for all plans:
|
Three Months Ended |
|
|
Twelve Months Ended |
|
For the periods ended December 31, |
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
NSRs |
|
2 |
|
|
|
- |
|
|
|
9 |
|
|
|
6 |
|
PSUs |
|
9 |
|
|
|
(5 |
) |
|
|
15 |
|
|
|
(6 |
) |
RSUs |
|
10 |
|
|
|
(2 |
) |
|
|
34 |
|
|
|
9 |
|
DSUs |
|
1 |
|
|
|
(5 |
) |
|
|
9 |
|
|
|
- |
|
Stock-Based Compensation Expense (Recovery) |
|
22 |
|
|
|
(12 |
) |
|
|
67 |
|
|
|
9 |
|
Stock-Based Compensation Costs Capitalized |
|
5 |
|
|
|
(3 |
) |
|
|
20 |
|
|
|
4 |
|
Total Stock-Based Compensation |
|
27 |
|
|
|
(15 |
) |
|
|
87 |
|
|
|
13 |
|
24. FINANCIAL INSTRUMENTS
Cenovus’s financial assets and financial liabilities consist of cash and cash equivalents, accounts receivable and accrued revenues, net investment in finance leases, accounts payable and accrued liabilities, risk management assets and liabilities, private equity investments, long-term receivables, lease liabilities, contingent payment, short-term borrowings and long-term debt. Risk management assets and liabilities arise from the use of derivative financial instruments.
A) Fair Value of Non-Derivative Financial Instruments
The fair values of cash and cash equivalents, accounts receivable and accrued revenues, accounts payable and accrued liabilities, and short-term borrowings approximate their carrying amount due to the short-term maturity of these instruments.
The fair values of long-term receivables and net investment in finance leases approximate their carrying amount due to the specific non-tradeable nature of these instruments.
Long-term debt is carried at amortized cost. The estimated fair values of long-term borrowings have been determined based on period-end trading prices of long-term borrowings on the secondary market (Level 2). As at December 31, 2019, the carrying value of Cenovus’s debt was $6,699 million and the fair value was $7,610 million (December 31, 2018 carrying value – $9,164 million, fair value – $8,431 million).
Equity investments classified at FVOCI comprise equity investments in private companies. The Company classifies certain private equity instruments at FVOCI as they are not held for trading and fair value changes are not reflective of the Company’s operations. These assets are carried at fair value on the Consolidated Balance Sheets in other assets. Fair value is determined based on recent private placement transactions (Level 3) when available.
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
25 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
The following table provides a reconciliation of changes in the fair value of private equity investments classified at FVOCI:
|
2019 |
|
|
2018 |
|
Fair Value, Beginning of Year |
|
38 |
|
|
|
37 |
|
Change in Fair Value (1) |
|
14 |
|
|
|
1 |
|
Fair Value, End of Year |
|
52 |
|
|
|
38 |
|
(1) |
Changes in fair value are recorded in OCI. |
B) Fair Value of Risk Management Assets and Liabilities
The Company’s risk management assets and liabilities consist of crude oil swaps, futures and options, as well as condensate futures and swaps, foreign exchange and interest rate swaps. Crude oil, condensate and, if entered into, natural gas contracts are recorded at their estimated fair value based on the difference between the contracted price and the period-end forward price for the same commodity, using quoted market prices or the period-end forward price for the same commodity extrapolated to the end of the term of the contract (Level 2). The fair value of foreign exchange swaps are calculated using external valuation models which incorporate observable market data, including foreign exchange forward curves (Level 2) and the fair value of interest rate swaps are calculated using external valuation models which incorporate observable market data, including interest rate yield curves (Level 2).
Summary of Unrealized Risk Management Positions
|
2019 |
|
|
2018 |
|
|
Risk Management |
|
|
Risk Management |
|
As at December 31, |
Asset |
|
|
Liability |
|
|
Net |
|
|
Asset |
|
|
Liability |
|
|
Net |
|
Crude Oil |
|
5 |
|
|
|
2 |
|
|
|
3 |
|
|
|
156 |
|
|
|
2 |
|
|
|
154 |
|
Foreign Exchange |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
(1 |
) |
Interest Rate |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7 |
|
|
|
- |
|
|
|
7 |
|
Total Fair Value |
|
5 |
|
|
|
2 |
|
|
|
3 |
|
|
|
163 |
|
|
|
3 |
|
|
|
160 |
|
The following table presents the Company’s fair value hierarchy for risk management assets and liabilities carried at fair value:
As at December 31, |
2019 |
|
|
2018 |
|
Level 2 – Prices Sourced From Observable Data or Market Corroboration |
|
3 |
|
|
|
160 |
|
Prices sourced from observable data or market corroboration refers to the fair value of contracts valued in part using active quotes and in part using observable, market-corroborated data.
The following table provides a reconciliation of changes in the fair value of Cenovus’s risk management assets and liabilities from January 1 to December 31:
|
2019 |
|
|
2018 |
|
Fair Value of Contracts, Beginning of Year |
|
160 |
|
|
|
(986 |
) |
Fair Value of Contracts Realized During the Year |
|
7 |
|
|
|
1,554 |
|
Change in Fair Value of Contracts in Place at Beginning of Year and Contracts Entered Into
During the Year |
|
(156 |
) |
|
|
(305 |
) |
Unamortized (Amortized) Premium on Put Options |
|
- |
|
|
|
(16 |
) |
Unrealized Foreign Exchange Gain (Loss) on U.S. Dollar Contracts |
|
(8 |
) |
|
|
(87 |
) |
Fair Value of Contracts, End of Year |
|
3 |
|
|
|
160 |
|
C) Fair Value of Contingent Payment
The contingent payment is carried at fair value on the Consolidated Balance Sheets. Fair value is estimated by calculating the present value of the future expected cash flows using an option pricing model (Level 3), which assumes the probability distribution for WCS is based on the volatility of WTI options, volatility of Canadian-U.S. foreign exchange rate options and both WTI and WCS futures pricing, and discounted at a credit-adjusted risk-free rate of 2.6 percent. Fair value of the contingent payment has been calculated by Cenovus’s internal valuation team which consists of individuals who are knowledgeable about and have experience in fair value techniques. As at December 31, 2019, the fair value of the contingent payment was estimated to be $143 million.
As at December 31, 2019, average WCS forward pricing for the remaining term of the contingent payment is $46.57 per barrel. The average volatility of WTI options and the Canadian-U.S. foreign exchange rate options used to value the contingent payment was 24 percent and five percent, respectively. Changes in the following inputs to the option pricing model, with fluctuations in all other variables held constant, could have resulted in unrealized gains (losses) impacting earnings before income tax as follows:
|
Sensitivity Range |
|
Increase |
|
|
Decrease |
|
WCS Forward Prices |
± $5.00 per bbl |
|
|
(129 |
) |
|
|
80 |
|
WTI Option Volatility |
± five percent |
|
|
(45 |
) |
|
|
42 |
|
Canadian to U.S. Dollar Foreign Exchange Rate Option Volatility |
± five percent |
|
|
10 |
|
|
|
(19 |
) |
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
26 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
D) Earnings Impact of (Gains) Losses From Risk Management Positions
|
Three Months Ended |
|
|
Twelve Months Ended |
|
For the periods ended December 31, |
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Realized (Gain) Loss (1) |
|
(17 |
) |
|
|
63 |
|
|
|
7 |
|
|
|
1,554 |
|
Unrealized (Gain) Loss (2) |
|
(8 |
) |
|
|
(741 |
) |
|
|
149 |
|
|
|
(1,249 |
) |
(Gain) Loss on Risk Management From Continuing
Operations |
|
(25 |
) |
|
|
(678 |
) |
|
|
156 |
|
|
|
305 |
|
(1) |
Realized gains and losses on risk management are recorded in the reportable segment to which the derivative instrument relates. |
(2) |
Unrealized gains and losses on risk management are recorded in the Corporate and Eliminations segment. |
25. RISK MANAGEMENT
Cenovus is exposed to financial risks, including market risk related to commodity prices, foreign exchange rates, interest rates as well as credit risk and liquidity risk.
To manage exposure to interest rate volatility, the Company may periodically enter into interest rate swap contracts. In the twelve months ended December 31, 2019, the Company unwound the remaining US$150 million of its interest rate swaps, resulting in a risk management loss of $1 million. To mitigate the Company’s exposure to foreign exchange rate fluctuations, the Company periodically enters into foreign exchange contracts. There were no interest rate or foreign exchange contracts outstanding as at December 31, 2019.
In addition, the Company may periodically enter into other financial positions as a part of ongoing operations to market the Company’s production. As at December 31, 2019, the fair value of other financial positions was an asset of $3 million, and consisted of WCS, WTI and condensate instruments.
Sensitivities
The following table summarizes the sensitivity of the fair value of Cenovus’s risk management positions to independent fluctuations in commodity prices, with all other variables held constant. Management believes the fluctuations identified in the table below are a reasonable measure of volatility. The impact of fluctuating commodity prices on the Company’s open risk management positions could have resulted in unrealized gains (losses) impacting earnings before income tax as follows:
|
Sensitivity Range |
Increase |
|
|
Decrease |
|
Crude Oil Commodity Price |
± US$5.00 per bbl Applied to WTI and Condensate Hedges |
|
3 |
|
|
|
(3 |
) |
Crude Oil Differential Price |
± US$2.50 per bbl Applied to Differential Hedges Tied to Production |
|
5 |
|
|
|
(5 |
) |
As at December 31, 2019, approximately 97 percent of the Company’s accruals, joint operations, trade receivables and net investment in finance leases were investment grade, and substantially all of the Company’s accounts receivable were outstanding less than 60 days. The average expected credit loss on the Company’s accruals, joint operations, trade receivables and net investment in finance leases was 0.3 percent as at December 31, 2019 (December 31, 2018 – 0.4 percent).
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
27 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
26. SUPPLEMENTARY CASH FLOW INFORMATION
The following table provides a reconciliation of liabilities to cash flows arising from financing activities:
|
Dividends Payable |
|
|
Long-Term Debt |
|
|
Lease Liabilities |
|
As at December 31, 2017 |
|
- |
|
|
|
9,513 |
|
|
|
- |
|
Changes From Financing Cash Flows: |
|
|
|
|
|
|
|
|
|
|
|
(Repayment) of Long-Term Debt |
|
|
|
|
|
(1,144 |
) |
|
|
|
|
Net Issuance (Repayment) of Revolving Long-Term Debt |
|
- |
|
|
|
(20 |
) |
|
|
- |
|
Dividends Paid |
|
(245 |
) |
|
|
- |
|
|
|
- |
|
Non-Cash Changes: |
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared |
|
245 |
|
|
|
- |
|
|
|
- |
|
Foreign Exchange (Gain) Loss |
|
- |
|
|
|
817 |
|
|
|
- |
|
Finance Costs |
|
- |
|
|
|
(2 |
) |
|
|
- |
|
As at December 31, 2018 |
|
- |
|
|
|
9,164 |
|
|
|
- |
|
Adjustment for Change in Accounting Policy (Note 3) |
|
- |
|
|
|
- |
|
|
|
1,494 |
|
As at January 1, 2019 (Note 3) |
|
- |
|
|
|
9,164 |
|
|
|
1,494 |
|
Changes From Financing Cash Flows: |
|
|
|
|
|
|
|
|
|
|
|
Dividends Paid |
|
(260 |
) |
|
|
- |
|
|
|
- |
|
Net Issuance (Repayment) of Long-Term Debt |
|
- |
|
|
|
(2,279 |
) |
|
|
- |
|
Net Issuance (Repayment) of Revolving Long-Term Debt |
|
- |
|
|
|
276 |
|
|
|
- |
|
Principal Repayment of Leases |
|
- |
|
|
|
- |
|
|
|
(150 |
) |
Non-Cash Changes: |
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared |
|
260 |
|
|
|
- |
|
|
|
- |
|
Foreign Exchange (Gain) Loss |
|
- |
|
|
|
(399 |
) |
|
|
(23 |
) |
Gain on Repurchase of Debt and Amortization of Debt Issuance Costs |
|
- |
|
|
|
(63 |
) |
|
|
- |
|
Lease Additions |
|
- |
|
|
|
- |
|
|
|
590 |
|
Re-measurement of Lease Liabilities |
|
- |
|
|
|
- |
|
|
|
15 |
|
Lease Terminations |
|
- |
|
|
|
- |
|
|
|
(11 |
) |
Other |
|
- |
|
|
|
- |
|
|
|
1 |
|
As at December 31, 2019 |
|
- |
|
|
|
6,699 |
|
|
|
1,916 |
|
27. COMMITMENTS AND CONTINGENCIES
A) Commitments
Cenovus has entered into various commitments in the normal course of operations primarily related to demand charges on firm transportation agreements. In addition, the Company has commitments related to its risk management program and an obligation to fund its defined benefit pension and other post-employment benefit plans.
As at December 31, 2019 |
1 Year |
|
|
2 Years |
|
|
3 Years |
|
|
4 Years |
|
|
5 Years |
|
|
Thereafter |
|
|
Total |
|
|
Transportation and Storage (1) |
|
1,005 |
|
|
|
959 |
|
|
|
1,026 |
|
|
|
1,456 |
|
|
|
1,381 |
|
|
|
15,672 |
|
|
|
21,499 |
|
|
Real Estate (2) |
|
35 |
|
|
|
36 |
|
|
|
38 |
|
|
|
39 |
|
|
|
42 |
|
|
|
662 |
|
|
|
852 |
|
|
Other Long-Term Commitments |
|
104 |
|
|
|
44 |
|
|
|
36 |
|
|
|
34 |
|
|
|
28 |
|
|
|
108 |
|
|
|
354 |
|
|
Total Payments (3) |
|
1,144 |
|
|
|
1,039 |
|
|
|
1,100 |
|
|
|
1,529 |
|
|
|
1,451 |
|
|
|
16,442 |
|
|
|
22,705 |
|
|
(1) |
Includes transportation commitments of $13 billion (2018 – $14 billion) that are subject to regulatory approval or have been approved, but are not yet in service. |
(2) |
Relates to the non-lease components of lease liabilities consisting of operating costs and unreserved parking for office space. Excludes committed payments for which a provision has been provided. |
(3) |
Contracts undertaken on behalf of WRB are reflected at Cenovus’s 50 percent interest. |
On January 1, 2019, the Company adopted IFRS 16 which resulted in the recognition of lease liabilities related to operating leases on the balance sheet. These liabilities were previously reported as commitments. For a reconciliation of the Company’s commitments as at December 31, 2018 to its lease liabilities as at January 1, 2019, see Note 3.
Transportation and storage commitments include future commitments relating to railcar and storage tank leases of $31 million and $11 million, respectively, that have not yet commenced. The railcar leases are expected to commence in 2020 with lease terms between six years and eight years and the storage tank leases are expected to commence in 2020 with lease terms of five years.
As at December 31, 2019, there were outstanding letters of credit aggregating $364 million issued as security for performance under certain contracts (December 31, 2018 – $336 million).
B) Contingencies
Legal Proceedings
Cenovus is involved in a limited number of legal claims associated with the normal course of operations. Cenovus believes that any liabilities that might arise from such matters, to the extent not provided for, are not likely to have a material effect on its Consolidated Financial Statements.
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
28 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the periods ended December 31, 2019
Contingent Payment
In connection with the Acquisition, Cenovus agreed to make quarterly payments to ConocoPhillips during the five years subsequent to May 17, 2017 for quarters in which the average WCS crude oil price exceeds $52.00 per barrel during the quarter. As at December 31, 2019, the estimated fair value of the contingent payment was $143 million (see Note 17).
Cenovus Energy Inc. – Q4 2019 Interim Consolidated Financial Statements |
29 |
Exhibit 99.3
CENOVUS ENERGY INC.
Supplemental Financial Information (unaudited)
Exhibit to the December 31, 2019 Consolidated Financial Statements
Consolidated Interest Coverage Ratios
The following financial ratios are provided by Cenovus Energy Inc. (the “Company”) in connection with the offering of common shares, debt securities, preferred shares, subscription receipts, warrants, share purchase contracts and/or units of the Company by way of base shelf prospectus dated September 19, 2019. These ratios are based on the Company's consolidated financial statements that are prepared in accordance with International Financial Reporting Standards, which are generally accepted in Canada.
Interest coverage ratios for the year ended December 31, 2019
|
|
|
(times) |
Net earnings available for all interest bearing financial liabilities (1)
|
4.3x |
Net earnings available for all interest bearing financial liabilities before unrealized (gains) and losses on risk management activities (2) |
4.6x |
(1) |
Calculated as net earnings plus income tax and borrowing costs on all interest bearing financial liabilities (including lease liabilities); divided by borrowing costs on all interest bearing financial liabilities (including lease liabilities). |
(2) |
Calculated as net earnings plus income tax and borrowing costs on all interest bearing financial liabilities (including lease liabilities) before unrealized (gains) and losses on risk management activities; divided by borrowing costs on all interest bearing financial liabilities (including lease liabilities). |
The Company believes the interest coverage ratio based on net earnings available for all interest bearing financial liabilities before unrealized (gains) and losses on risk management activities is a relevant measure for investors as the realization of unrealized (gains) and losses are yet to be determined and will be realized in future periods.
This regulatory filing also includes additional resources:
cve-ex991_9.pdf
cve-992.pdf
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