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Cenovus Energy Seeks Partner for C$1.3B Narrows Lake Project

Zacks Equity Research
Updated
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Per sources, Cenovus Energy Inc CVE is looking for a partner to finance the costs amounting to C$1.3 billion ($993.1 million) relating to the construction of the supporting infrastructure at the company’s Narrows Lake oil sands project in Alberta.

The Canadian energy firm’s balance sheet has been under tremendous pressure after it spent C$17 billion on the purchase of oil sands and natural gas assets from ConocoPhillips (COP) last year. Hence, Cenovus Energy has been trying to raise funds in order to reduce its debt burden.

Though the transaction increased the company's size by twofold, shareholders have raised concerns with respect to its strained financial position. As a result, Cenovus Energy had to lay off personnel, lower costs and sell assets. In 2017, it raised about C$4 billion from divestments. This year, the company estimates further sales from its Deep Basin position.

To refrain from putting further pressure on its balance sheet, Cenovus Energy expects to secure the funds for the above-mentioned construction project from an external partner. In exchange, Cenovus Energy will enter into a long-term agreement with the partner to utilize the assets.

Per Cenovus Energy’s website, production from the first phase of Narrows Lake is anticipated at about 65,000 barrels of oil per day. About C$700 million has already been spent for the project’s advancement and another C$1.6-C$1.9 billion will be required to get the site ready for production.

Cenovus Energy did not reveal any detail regarding the development. Per sources, a teaser document highlighting the proposal has been sent to potentially interested parties.

The Narrows Lake infrastructure has attracted considerable investor interest in recent years, attracted by the stable cash flows they generate. Cenovus Energy is seeking to raise funds for the project as it also simultaneously prepares to divest a number of assets in the company’s Deep Basin position.

Price Performance

Cenovus Energy’s shares have lost 5.4% in the last three months against the industry’s 6% decline.


Zacks Rank & Key Picks

Cenovus Energy carries a Zacks Rank #3 (Hold).

A few better-ranked players in the same sector are Continental Resources, Inc CLR, Pioneer Natural Resources Company PXD and Concho Resources Inc CXO. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Continental Resources is an independent oil and natural gas exploration and production company. It witnessed an average positive earnings surprise of 64.9% in the last four quarters.

Headquartered at Irving, TX, Pioneer Natural Resources Company is an independent oil and gas exploration and production entity. It pulled off an average beat of 66.92% over the trailing four quarters.

Concho Resources is an independent oil and natural gas company. It came up with a positive surprise of 48.9% during the same time frame.

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Cenovus Energy Inc (CVE) : Free Stock Analysis Report
 
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