Q1 2021 Cenovus Energy Inc Earnings Call

May 7, 2021

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Good day, ladies and gentlemen, and thank you for standing by welcome to the Synovus energy first quarter of of thoughts as well.

Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to Cenovus Energy's Q1 results. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. You can join the queue at any time by pressing star one. Members of the investment community will have the opportunity to ask questions first. At the conclusion of that session, members of the media may then ask questions. Please be advised that this conference call may not be recorded or rebroadcast without the express consent of Cenovus Energy. I would now like to turn the call over to Ms. Sherry Wendt, Vice President, Investor Relations. Please go ahead, Ms. Wendt.

A reminder of today's call is being recorded.

At this time all participants are in a listen only mode.

Following the presentation, we will conduct a question and answer session. You can join the queue at any time by pressing star one.

Members of the investment community will have the opportunity to ask questions first at the conclusion of that session and members of the media May then ask questions.

Please be advised that this conference call may not be recorded or rebroadcast without the express consent of Synovus energy.

I would now like to turn the call over to MS. Sherry Wendt, Vice President of Investor Relations. Please go ahead Ms Wendt.

Thank you operator, and welcome everyone to our 2021 first quarter results conference call and.

Sherry Wendt: Thank you, operator, and welcome everyone to our 2021 Q1 Results Conference Call. I'm here this morning with our President and Chief Executive Officer, Alex Pourbaix, Executive Vice President and Chief Operating Officer, Jon McKenzie, Executive Vice President and Chief Financial Officer, Jeff Hart, and Executive Vice President, Strategy and Corporate Development, Kam Sandhar. Due to COVID-19 physical distancing guidelines, the rest of our leadership team members are in listen-only mode today from other locations. We look forward to having everyone back in the same room once protocols allow. I'll refer you to the advisories located at the end of today's news release. These describe the forward-looking information, non-GAAP measures and oil and gas terms referred to today and outline the risk factors and assumptions relevant to this discussion. Additional information is available in Cenovus' annual MD&A and our most recent annual information form and Form 40-F.

I'm here this morning, with our President and Chief Executive Officer, Alex per day, Executive Vice President and Chief Operating Officer, John Mckenzie Executive Vice President and Chief Financial Officer, Jeff Hart, and Executive Vice President of strategy and corporate development can center.

Due to COVID-19, physical distancing guidelines and the rest of arms of the Peter ship team members are in listen only mode. Today from other locations. We look forward to having everyone back in the same room once protocols of Wow.

I'll refer you to the advisories located at the end of today's news release. These describe the forward looking information and non-GAAP measures and oil and gas terms referred to today and outline the risks and factors and assumptions relevant to this discussion.

Additional information as the available and synovus as annual MD&A and our most recent annual information form and form 40 F.

Sherry Wendt: All figures are presented in Canadian dollars and before royalties, unless otherwise stated. You'll find our updated guidance posted on cenovus.com under Investors. Alex will provide brief comments, and then we'll take your questions. We ask that you please hold off on any detailed modeling questions and instead follow up on those directly with our investor relations team after the call. If you could please keep to one question with a maximum of one follow-up, you can rejoin the queue for any other questions. Alex, please go ahead.

All figures are presented in Canadian dollars and before royalties unless otherwise stated you'll find our updated guidance posted on synovus start com under investors.

Alex will provide brief comments and then we'll take your questions. We ask that you. Please hold off on any detailed modeling questions and instead of follow up on those directly with our Investor Relations team. After the call and if you could please keep to one question with the maximum of one follow up you can rejoin the queue for any other questions Alex.

Please go ahead.

Thanks, Jerry and good morning, everybody.

Alex Pourbaix: Thanks, Sherry, and good morning, everybody. Today marks an important milestone for Cenovus. We're reporting our inaugural results as a newly combined company after closing our transaction with Husky on 1 January 2021. The entire company has been working diligently to integrate the legacy organizations, and I and the rest of the team are extremely pleased with the progress we've made in such a short time. I just want to make a really important point that this did not come without personal impacts to our staff. Since the closing of this transaction, we've had to make difficult decisions about workforce reductions as we drive to deliver on our planned synergy targets. I'd like to acknowledge the professionalism and contribution of Cenovus' people through this period, including those who have left the company.

Today marks an important milestone for synovus, we're reporting our inaugural results as the newly combined company. After closing our transaction with Husky on January 1st the entire company has been working diligently to integrate the legacy organizations and I and the rest of the team are extremely pleased with the progress we've.

Made and such a short time and.

And I just want to make a really important point that this has come and not come without personal impacts to our staff since the closing of this transaction we've had to make difficult decisions about work force reductions as we drive to deliver on our planned synergy targets.

I'd like to acknowledge the professionalism and contribution of synovus as people through this period, including those who have left the company.

I've really been impressed by the grit and determination of our staff, who have pushed forward our integration with a sense of urgency even with the incredible challenges posed by COVID-19 through it all our staffs of continued to reinforce the they're the most talented and dedicated team that I've ever worked with.

Alex Pourbaix: I've really been impressed by the grit and determination of our staff, who have pushed forward our integration with a sense of urgency, even with the incredible challenges posed by COVID-19. Through it all, our staff have continued to reinforce that they are the most talented and dedicated team that I've ever worked with, and they continue to drive the exceptional performance of our assets. You may recall that workforce reductions represented the bulk of the planned CAD 600 million in operational cost reductions included in our initial target of CAD 1.2 billion in annual run rate synergies. In Q1, we completed about two-thirds of our planned workforce reductions, with the balance to occur later this year and into 2022.

And they continue to drive the exceptional performance of our assets.

You may recall the work force reductions represented the bulk of the planned $600 million and operational cost reductions included and our initial target of $1 2 billion and annual run rate synergies in the first quarter. We completed about two thirds of our planned work force reductions with the balance to occur lay.

For this year and into 2020 to <unk>.

Alex Pourbaix: Combined with our 2021 capital budget, which set us to deliver the CAD 600 million in capital synergies, we are on track to achieve the combined CAD 1.2 billion annual run rate synergies by the end of this year. We're already seeing synergies in the operations that were not included in the initial annual run rate. In the quarter, we demonstrated the benefits of applying Cenovus' thermal operating expertise on assets brought into the portfolio through the Husky transaction, which resulted in increased production rates at the Lloydminster Thermals. I'll speak to that in a little more detail shortly. One thing I wanna make clear before we get into our results is that safety performance, including asset integrity, remains our highest priority.

Combined with our 2021 capital budget, which set us to deliver the $600 million and capital synergies. We are on track to achieve the combined $1 2 billion annual run rate synergies by the end of this year and we're already seeing synergies and the operations that were not included in the initial annual run.

Rate in the quarter, we demonstrated the benefits of applying synovus is thermal operating expertise on assets brought into the portfolio through the husky transaction, which resulted in increased production rates at the Lloyd Mr Thermals, and I'll speak to that and the little more detail shortly.

One thing I want to make clear before we get into our results. It's the safety performance, including asset integrity remains our highest priority. We're harmonizing. The two legacy safety programs, which is an important focus of our integration work and we are driving for continued improvements and our safety performance with the.

Alex Pourbaix: We're harmonizing the two legacy safety programs, which is an important focus of our integration work, and we're driving for continued improvements in our safety performance. With COVID-19 cases rising across Canada, including the areas where we operate, the health and well-being of our workforce remains a critical priority. Our sites are operating safely and efficiently. We're continuing to work closely with governments, health authorities, and industry to protect our people, and we have the necessary protocols in place to help ensure worker health and safety across the company. Our goal is to make Cenovus a top-tier safety performer, and to achieve this, we'll continue to prioritize safety above all else. Turning to operational results now. As I mentioned, the combined assets have been performing exceptionally well.

COVID-19 cases, rising across Canada, including the areas, where we operate the health and wellbeing of our work force remains of critical priority. Our sites are operating safely and efficiently. We're continuing to work closely with governments health authorities and industry to protect our people and we have the necessary prone.

The calls in place to help ensure worker health and safety across the company. Our goal is to make the synovus a top tier safety performer and to achieve this we'll continue to prioritize safety above all else.

Turning to operational results now as I mentioned, the combined assets have been performing exceptionally well starting with the upstream production of 770000 barrels per day and the first quarter was at the higher and of our full year guidance range and our oil sands business Christina Lake and foster.

Alex Pourbaix: Starting with the upstream, production of 770,000 barrels per day in Q1 was at the higher end of our full year guidance range. In our oil sands business, Christina Lake and Foster Creek continue to be the foundation of our operations. These two assets were key to our CAD 1.9 billion operating margin for the quarter, contributing the majority of the CAD 1.1 billion of operating margin from the oil sands segment, with netbacks of CAD 25.60 per barrel at Foster Creek and CAD 27.28 per barrel at Christina Lake. Christina Lake's steady performance continued through the quarter. At Foster Creek, we commissioned the most prolific well pads ever in our oil sands operation, and production grew steadily through the quarter, with March averaging 171,000 barrels per day.

The <unk> Creek continue to be the foundation of our operations. These two assets were key to our 1.9 billion dollar operating margin for the quarter contributing and the majority of the $1 1 billion of operating margin from the oil Sands segment with net backs of $25 60 per barrel at foster.

Creek and $27.28 per barrel at Christina Lake.

Christina Lake steady performance continued through the quarter at Foster Creek, we commissioned of the most prolific well pads ever and the oil sands operation and production grew steadily through the quarter with March averaging 171000 barrels per day.

As I mentioned earlier, we're starting to see some of synovus as operating strategies pay early returns of the Lloyd Thermals Synovus has a long track record of continuous improvement of the Foster Creek and Christina Lake operations, and we're bringing this mindset and experience to the Sag D and thermal assets.

Alex Pourbaix: As I mentioned earlier, we're starting to see some of Cenovus' operating strategies pay early returns at the Lloyd Thermals. Cenovus has a long track record of continuous improvement at the Foster Creek and Christina Lake operations, and we're bringing this mindset and experience to the SAGD and thermal assets acquired through the Husky transaction. To put this into context, Cenovus has drilled over 1/3 of all SAGD wells in Alberta. In mid-April this year, the Christina Lake integrated team completed the longest SAGD lateral well in history at 2,234m. With that well, Cenovus now holds all of the top 16 spots for longest SAGD wells drilled in the industry, and this latest well is 23% longer than our previous record.

Acquired through the Husky transaction.

To put this into context and <unk> drilled over a third of all Sag D Wells and Alberta and in mid April this year, the Christina Lake integrated team completed the longest sag D lateral well and history at 2000, and 234 meters without well Synovus now holds.

All of the top 16 spots for longest Sag D wells drilled in the industry and this latest well is 23% longer than our previous record with the expertise and data that comes from the company's collective experience Synovus has established the leading operating practices, including.

Alex Pourbaix: With the expertise and data that comes from the company's collective experience, Cenovus has established leading operating practices, including improved conformance, subcool strategy, and bottom water management. Cenovus' operating strategies are being implemented at the assets acquired through the Husky transaction. These shifts were beginning to show early results in Q1, including supporting increased production rates at the Lloyd Thermals. Production was up to an average of 96,000 barrels per day in the quarter, including a few days where we actually achieved over 100,000 barrels per day. Overall, that strong performance saw the Lloyd Thermals contribute about a quarter of the total oil sands operating margin in Q1. Conventional operations continued to provide strong operating margins.

Roof conformance sub cool strategy and bought our water Boston and water management.

Now of Synovus as operating strategies are being implemented at the assets acquired through the Husky transaction.

And these shifts we are beginning to show early results and the first quarter, including supporting the increased production rates at the Lloyd thermals.

Production was up to an average of 96000 barrels per day, and the quarter, including a few days, where we actually achieved over the 100000 barrels per day, Mark overall that strong performance of the saw the Lloyd thermals contribute about a quarter of the total oil sands operating margin in Q1.

Conventional operations continued to provide strong operating margins, we benefited from our Q4 winter drilling program coming into production, coupled with marketing activities, allowing us to take additional advantage of higher <unk> prices.

Alex Pourbaix: We benefited from our Q4 winter drilling program coming into production, coupled with marketing activities, allowing us to take additional advantage of higher AECO prices. Meanwhile, our assets in the Asia Pacific region continued to demonstrate stable production and strong netbacks of CAD 58.53 per barrel, which contributed to operating margin of more than CAD 344 million from the offshore business. In Downstream, recovery of refined product demand lagged the recovery of crude oil pricing in the quarter. There were also some significant weather impacts to US operations. Moving to the Downstream segments in Canadian manufacturing, the upgrader in Lloydminster Asphalt Refinery continued to deliver reliable operating performance, running near capacity through the quarter and with an average utilization of 96%.

Meanwhile, our assets and the Asia Pacific region continued to demonstrate stable production and strong net backs of $58 and 53 per barrel, which contributed to operating margin of more than $344 million from the offshore business and downstream recovery of refined product demand.

<unk> the recovery of crude oil pricing and the quarter. There were also some significant weather impacts to U S operations moving to the downstream segments and Canadian manufacturing, the upgrader and Lloyd Lloyd Minster of asphalt refinery continued to deliver reliable operating performance running near capacity through the <unk>.

Order and with an average utilization of 96%.

Alex Pourbaix: In US manufacturing, economic run cuts to balance throughput with lower demand early in the quarter, as well as winter storms, resulted in overall lower utilization rates, hindering financial results. Escalation of the cost of RINs also weighed into what we captured on the crack spread. While refining margins were challenged in the quarter, we're now seeing pretty clear signs that the demand recovery for refined products will happen at an accelerated pace through the rest of the year, especially in the United States. As a result, we expect stronger results from US manufacturing for the remainder of 2021. Rounding out the operational discussion, the Superior Refinery rebuild is progressing well, on track to meet our schedule and budgeted capital before insurance proceeds.

And U S manufacturing economic run cuts to balanced throughput with lower demand early in the quarter as well as winter storms resulted in overall lower utilization rates hindering financial results escalation of the cost of Rens also ate into what we captured on the crack spread while refining.

<unk> were challenged in the quarter, we're now seen pretty clear signs of the demand recovery for refined products will happen at an accelerated pace through the rest of the year, especially in the United States. As a result, we expect stronger results from U S manufacturing for the remainder of 2021 rounding out the operational.

<unk> and the superior refinery rebuild is progressing well on track to meet our schedule and budgeted capital before insurance proceeds.

Okay.

Turning to our financial results, we reported adjusted funds flow of just over $1 1 billion or <unk> 56 per share with free funds flow of just about $600 million, but I'd ask everyone to keep in mind. If you added back the transaction related costs that hit adjusted funds flow for the.

Alex Pourbaix: Turning to our financial results, we reported adjusted funds flow of just over CAD 1.1 billion or CAD 0.56 per share, with free funds flow of just about CAD 600 million. I'd ask everyone to keep in mind, if you added back the transaction-related costs that hit adjusted funds flow for the quarter, our adjusted funds flow for the period would have been nearly CAD 1.5 billion, which would have equated to about CAD 0.75 per share. Similarly, free funds flow would have been about CAD 950 million. Turning to our net debt position, I'll reiterate that deleveraging remains a top priority for Cenovus. You might recall that when we put out our Q4 results in early February, we talked about an opening combined net debt position of about CAD 13.1 billion on 1 January.

The quarter, our adjusted funds flow for the period would have been nearly one 5 billion, which would've equated to about 75 per share and similarly free funds flow would have been about $950 million.

Turning to our net debt position of <unk>.

Reiterate the deleveraging remains a top priority for synovus you might recall the when we put out our fourth quarter results in early February we talked about and opening combined net debt position of about $13 1 billion on January one.

Net debt rose slightly quarter over quarter, driven by of working capital build of almost $900 million driven mainly by the rise and commodity prices over the period. In addition, we have the transaction related costs that I, just mentioned with current commodity prices and having a significant portion.

Alex Pourbaix: Net debt rose slightly quarter-over-quarter, driven by a working capital build of almost CAD 900 million, driven mainly by the rise in commodity prices over the period. In addition, we have the transaction-related costs that I just mentioned. With current commodity prices and having a significant portion of the transaction-related costs behind us, we expect to make substantial progress on our deleveraging through the rest of the year. Meanwhile, we have already seen net debt come down below CAD 13 billion since the end of Q1. Assuming the forward curves play out, we have line of sight towards our interim net debt target of CAD 10 billion by the end of the year, opening the door to consider other forms of capital allocation, including increase in shareholder returns.

Of the transaction related costs behind us, we expect to make substantial progress on our deleveraging through the rest of the year. Meanwhile, we have already seen net debt come down below 13 billion since the end of the first quarter and assuming the forward curves play out we have line of sight towards our interim net debt target.

<unk> of 10 billion by the end of the year opening the door to consider other forms of capital allocation, including increasing shareholder returns that said the bulk of free funds flow. We will continue to be applied to the balance sheet until we have achieved our longer term target net debt level at or below 8 billion.

Alex Pourbaix: That said, the bulk of free funds flow will continue to be applied to the balance sheet until we have achieved our longer-term target net debt level at or below CAD 8 billion. Switching gears to ESG, we're encouraged by the potential for government support for GHG reduction opportunities that will benefit our industry. We've been vocal in our position that government involvement at all levels, working with partners in industry, will be critical to finding solutions to allow our industry to play an important role in helping Canada meet its climate goals. As we work through the refreshed business plan for the newly combined company, we've conducted a thorough assessment of our significant ESG areas. Safety and asset integrity, along with a robust government framework, remain the foundation of our ESG strategy and underpin the five ESG focus areas we've identified for the combined company.

Yeah.

Switching gears to ESG, we're encouraged by the potential for government support for GHT reduction opportunities that will benefit our industry, we've been vocal and our position the government involvement at all levels working with partners and industry will be critical to finding solutions to allow our industry to play and <unk>.

<unk> role and helping Canada meet its climate goals as.

As we work through the or refreshed business plan for the newly combined company. We've conducted a thorough assessment of our significant ESG areas safety and asset integrity, along with a robust government framework remain the foundation of our ESG strategy and underpin the five ESG focus areas we've identified.

<unk> for the combined company these are.

Alex Pourbaix: These are climate and GHG emissions, indigenous reconciliation, water stewardship, biodiversity, and inclusion and diversity. We're working to establish meaningful ESG targets for each of the five focus areas embedded as part of our business plan for the expanded company, and we expect to announce them later this year. Looking forward, we remain well on track to achieve our budget commitments and production targets. With the strength of our upstream operating margin in Q1 and the outlook for accelerated refined product demand recovery over the rest of the year, we have a runway for meeting our first net debt target of CAD 10 billion sooner than we originally expected. We're very confident that we will achieve our initial target run rate synergies, and we have already started assessing opportunities that could create additional efficiencies in 2022 and beyond.

Climate and <unk> emissions indigenous reconciliation water stewardship biodiversity and inclusion and diversity, we're working to establish and meaningful ESG targets for each of the five focus areas embedded as part of our business plan for the expanded company and we expect to announce some lay.

For this year.

Looking forward, we remain well on track to achieve our budget commitments and production targets with the strength of our upstream operating margin and the first quarter and the outlook for accelerated refine refined product demand recovery over the rest of the year, we have of runway for meeting our first net debt target.

And of $10 billion sooner than we originally expected we're very confident that we will achieve our initial target run rate synergies and we have already started assessing opportunities that could create additional efficiencies in 2022 and beyond and with that we're happy to take any ones questions.

Alex Pourbaix: With that, we're happy to take anyone's questions.

Yeah.

Thank you, ladies and gentlemen, as a reminder, you can join the queue to ask the question by pressing star one.

Operator: Thank you. Ladies and gentlemen, as a reminder, you can join the queue to ask a question by pressing star one. We will now begin the question and answer session and go to the first caller from Greg Pardy at RBC Capital Markets. Please go ahead.

We'll now begin the question and answer session and go.

To the first caller from Greg Pardy with RBC capital markets. Please go ahead.

Yeah. Thanks, Thanks, Good morning, Thanks for the rundown Alex.

Greg Pardy: Yeah, thanks. Thanks. Good morning. Thanks for the rundown, Alex. I'll just maybe just hit the two elephants in the room. I guess one is, could you provide any color maybe around your asset disposition process? Then the second is kind of related, which is, you know, how are you thinking about just the COP news this year, or news this week and then just, the potential for buybacks?

Just maybe the simple two elephants in the room I guess one is.

Could you provide any color maybe around your asset disposition process and the.

And the second is kind of related which is how are you thinking about just the COPD news this year and our.

Since we commenced and Scott and the potential for buybacks.

Okay sure.

Alex Pourbaix: Okay, sure. I'll talk about the asset disposition process first, Greg. I've said this a couple of times, but nobody who follows this company should assume the fact we've been relatively muted, you know, in talking about specific assets for sale or target prices or targets for divesting assets. Nobody should mistake, you know, the fact that we've been relatively quiet about that with a lack of interest or attention. We are laser-focused on getting our debt down to CAD 10 billion and below, and we recognize that getting asset sales of non-core assets can accelerate that very meaningfully and free up lots of optionality for the company going forward.

The.

And talking about the asset disposition of process first Greg and.

And I've said this a couple of times, but nobody who follows this company should assume the fact, we've been relatively muted.

In talking about specific assets for sale or target prices are targets for divesting assets nobody should mistake.

And the fact that we've been relatively quiet about that with a lack of interest or attention.

We see we are laser focused on getting our debt down to $10 billion and below and we recognize that getting the asset getting asset sales of non core assets can accelerate that very meaningfully and free up lots of.

Of Optionality for the company going forward. So I think I'm I'm happy to say that we are well advanced and in our thinking and actions around asset divestitures and.

Alex Pourbaix: I think I'm happy to say that we are well advanced in our thinking and actions around asset divestitures. You know, as before, we're just not gonna talk about any specific issues. On ConocoPhillips, I'll give some thoughts, and others may jump in. You know, as I have said for many years, you know, we always knew ConocoPhillips was not going to be a long-term shareholder, so the decision to divest doesn't surprise us. I will say, you know, we were a little bit surprised in the manner and the decision as to how they intend to do it.

And as before and we're just not going to talk about any any specific.

And a specific issues.

And on on Conoco, and I'll give some ill give some thoughts and others may jump in.

Yes.

As I have said for a for many many years.

And we always knew conoco was not going to be of long term shareholders. So the the decision to divest doesn't surprise us I will say, we we were a little bit surprised and in the manner and and the decision as to how they intend to do it I mean, we we have.

Alex Pourbaix: I mean, we have been in close contact with ConocoPhillips the entire time that I've been here, and we've indicated many times that, you know, we'd be very willing to work with them and offer up any ideas we had as to good ways to do that. That, I think, that opportunity is still open to us. I've certainly talked to my counterpart, and I know my team have talked to their counterparts over there. We'll see where that goes. As I said, kind of at the start of talking about asset divestitures, you know, the whole goal for this company is to drive our net debt down.

<unk>.

In close contact with Conoco, the entire time that I've been here and we've indicated many many times that we would be very willing to work with them and and.

And any and and offer up any ideas. We had is the good ways to do that and.

And that I think that that opportunity is still open to us Ive certainly talked to my counterpart and I know my team of talk to their counterparts over there. So.

We'll see where that goes in and as I said kind of at the start of talking about asset divestitures.

The whole goal for this company is the drive is to drive our net debt down and if we're successful doing that and if we can accelerate doing that that that opens up the opportunities how we could be helpful potentially.

Alex Pourbaix: If we're successful doing that, and if we can accelerate doing that opens up the opportunities how we could be helpful potentially with the ConocoPhillips share block. I don't know if anyone else has any comments.

With the continent with the Conoco share block I don't know if anyone else has any comments.

Jon McKenzie: No, Alex, I think you talked through all of it. I think, you know, one of the things we always knew is that how and when ConocoPhillips chose to come or chooses to come to market is really their prerogative, and they've got to do what they feel is in the best interest of their shareholders. You know, as Alex mentioned, we've had numerous conversations through the years with ConocoPhillips. At the end of the day, you know, we'll continue to take a disciplined approach to this and, as Alex said, look out for the best interests of our shareholders in all respects.

Alex Pourbaix: No, Alex, I think you talked through all of it. I think, you know, one of the things we always knew is that how and when ConocoPhillips chose to come or chooses to come to market is really their prerogative, and they've got to do what they feel is in the best interest of their shareholders. You know, as Alex mentioned, we've had numerous conversations through the years with ConocoPhillips. At the end of the day, you know, we'll continue to take a disciplined approach to this and, as Alex said, look out for the best interests of our shareholders in all respects.

All of it I think one of the things we always knew is how and when conoco chose to come true.

Chooses to come to market is really their prerogative.

And they've got to do what they feel is and the best interest of their shareholders.

Alex mentioned, we've had numerous conversations through the years with conoco.

But at the end of the day, we will continue to take a disciplined approach to this and.

As Alex said.

Look out for the best interest of our shareholders and all respects.

Terrific terrific guys. Thanks very much.

Greg Pardy: Terrific, guys. Thanks very much.

Thanks, Craig.

Alex Pourbaix: Thanks, Greg.

Okay.

Thank you. The next question comes from Neil Mehta with Goldman Sachs. Please go ahead.

Operator: Thank you. The next question comes from Neil Mehta at Goldman Sachs. Please go ahead.

Good morning. This is Charlie on for Neil Thanks for taking my questions.

[Analyst] (Goldman Sachs): Good morning. This is Carly on for Neil. Thanks for taking my questions. The first one was just kind of a status check on the Husky integration process. It seems like the synergies are progressing nicely here. You mentioned in the prepared remarks the synergies coming through that weren't initially identified. Are you able to provide any more color there and kind of frame the upside potential?

The first one what's your kind of the.

Got it checked on the Husky integration process and it seems like the synergies are progressing nicely here you mentioned in the prepared remarks, the synergies coming through that Werent. Initially identified are able to provide any more color there and kind of frame the upside potential.

John why don't why don't you take this one share so one of the things that we've really tried to signal through all of this is the.

Alex Pourbaix: Jon, why don't you take this one?

Jon McKenzie: Sure. You know, one of the things that we've really tried to signal through all of this is that, and we've said this many times, is the synergies that we identified and called out, the CAD 1.2 billion, were those synergies that we had very high confidence in achieving in a very short period of time. And I think if you look at our capital numbers in Q1 and you look at our guidance going forward, you know, the CAD 600 million of that CAD 1.2 billion on the capital, you know, obviously we're very, very confident in it, and we think, you know, the Street will get more confident in that as we prove that out.

And we've said this many many times and the synergies that we identified and called out the.

The $1 2 billion.

Where those synergies that we had very high confidence in achieving and a very short period of time and I think if you look at our capital numbers and Q1 and you look at our guidance going forward.

The $600 million of that one two on the capital.

Obviously, we're very very confident and tenant and we think.

The street will get more confident and that.

As we as we prove that out.

Of the $600 million of operating synergies of about $400 million of that relates to <unk>.

Jon McKenzie: Of the CAD 600 million of operating synergies, about CAD 400 million of that relates to staffing reductions, and we're currently about 70% of the way through that in Q1. The residual CAD 200 million, you know, we have a lot of confidence that will be realized in very short order. You know, the message, I think, to you is that, you know, the CAD 1.2 billion was a number that we were very confident getting in a very short period of time. Now, where we're turning our attention to are some of the integration opportunities that weren't part of that original synergy calculation. I'll give you know, a great example of this.

Staffing reductions and where were currently about 70 of the 70% of the way through that and the first quarter and the residual 200.

We have a lot of confidence that that will be realized and in very short order. So the message I think to you is that.

The one point too.

Was the number that we were.

And very very confident and getting in a very short period of time, and where we are turning our attention to.

Are some of the integration opportunities that werent part of that original synergy calculation and I'll give you a great example of this and we.

Jon McKenzie: We alluded to it in Alex's note, and we have alluded to it in the press release. If you look at Lloydminster, for example, you know, Lloydminster was an area that we wanted to get on top of very, very quickly, post acquisition. We want to do that for two reasons. One, we really like the asset. We think that small scale thermals in the Lloydminster area are gonna be, you know, very prolific economically for a long period of time, and we think we can add a lot of value to what's already there. The other reason we want to get on top of it very quickly is it had a reasonable capital program this year, about CAD 250 million, which we felt we could optimize.

We alluded to it and Alex is known and we are allowed.

The alluded to and in the press release, but if you look at Lloyd mentioned are for example.

Lloyd mentioned there was an area that we wanted to get on top of very very quickly.

Post.

Acquisition, we want to do that for two reasons, one we really like the asset we think that small scale thermals and the Lloyd and <unk> are going to be very prolific economically for a long period of time and we think we can add of.

A lot of value to what's already there the.

And the other reason we wanted to get on top of and very quickly as it had a reasonable capital program. This year of about $250 million, which we felt we could optimize so within the first 90 days. What we've done is we've reduced the capital program by about $50 million and we also got on top of the drilling program that was going on there pretty quickly so.

Jon McKenzie: Within the first 90 days, what we've done is we've reduced that capital program by about CAD 50 million, and we also got on top of the drilling program that was going on there pretty quickly. We've, you know, in, you know, that first 90 days, we've changed the drill spacing. We've got longer wells going in. We're completing those wells with our liners and using our completion techniques, and we're seeing productivity gains there. We also thought that there was a real opportunity on the operations side, which is very capital light, to reduce the subcools, reduce massive jobs, and to do things that increase our productivity on the existing fields. We think in a short period of time, what we've done is increase the production in Lloydminster to about 100,000 barrels a day.

<unk>.

In the first 90 days.

We've changed the drill spacing, we've got longer wells going and we're completing those wells with our liners and using our completion techniques and we're seeing productivity gains. There. We also thought that there was a real opportunity on the operation side, which is very capital light.

And to reduce the sub cools the.

<unk> mass of jobs and to do things that increase our productivity on the existing fields. So we think and a short period of time, what we've done is to increase the production in the Lloyd Minster to about 100000 barrels a day, we think thats sustainable and with a bit of upside.

Jon McKenzie: We think that's sustainable with a bit of upside, and very low capital, simply by bringing what we do best to the application in that field. We're very comfortable that there's more of this to come. We're very comfortable that other assets inside the portfolio are gonna provide this as well. This is kind of all above and beyond the CAD 1.2 billion that we originally identified.

And very low capital.

Simply by bringing what we do best to the application in the field. So we're very comfortable that theres more of this to come.

And we're very comfortable that other assets and inside the portfolio of going to provide this as well, but this is kind of all above and beyond the $1 $2 billion that we originally identified.

That's great appreciate that color.

[Analyst] (Goldman Sachs): That's great. Appreciate that color. The follow-up is just around RINs. It's been highly topical given where prices have gone. Just wanted to get a better sense of Cenovus' exposure to RINs at the US downstream and how you might be seeing that impacting margin captures this year.

The follow up is just around Rins, it's been fairly topical given where prices have gone. So just wanted to get a better sense of.

All of this has exposure to rent of the U S downstream and how you might be seeing that impacting margin capture and share.

Okay.

Jon McKenzie: Yeah. You know, it's our view, and I think it's widely held in industry, I think as well as with the regulator, that you know, the RIN is really embedded in the crack. And when you see, you know, the Chicago crack today, it's around $22, I believe last time you know, I looked. The RINs are really a pass through to the consumers of gasoline and diesel. So I think RINs have actually increased to about $8 over the last you know, 48 hours. So you know, the real realized crack that we receive is kind of that $22 less $8. But that's the way we think about it. It's a pass through to the consumer, and it's a straight up reduction from the crack.

And it's our view and I think it's widely held.

And industry and I think as well as with the regulator that the RIN is really embedded in the crack.

And when you see the Chicago crack today, it's around $22 I believe last time and I look.

And the rens are really of pass through to the consumers of gasoline and diesel. So I think of Rins of actually increased to about $8 over the loss of 48 hours. So the real realized crack that we received as kind of the 22, let's say.

But that's the way we think about it it's a pass through to the consumer and it too.

Straight up the reduction from the.

From the crack and and we really don't see the there is any kind of arbitrage on the blend we think of this.

Jon McKenzie: We really don't see that there is any kind of arbitrage on the blend. We think that this, you know, it's kind of pretty straightforward. That arbitrage has really been bid away.

And it's kind of pretty straightforward.

Arbitrage has really been.

Bid away.

Yeah.

Thanks for the color.

[Analyst] (Goldman Sachs): Thanks for the color.

Thank you.

Jon McKenzie: Thank you.

Your next question comes from Phil Gresh at J P. Morgan. Please go ahead.

Operator: Your next question comes from Phil Gresh at J.P. Morgan. Please go ahead.

Yes, hi, good morning.

Phil Gresh: Yes. Hi, good morning. Just a bit of a follow-up question to Greg around the debt reduction versus the ConocoPhillips shares. Just to clarify, I guess, are you saying that for the year of 2021, absent any asset sales, you think it makes more sense to just focus on getting the debt down to the CAD 10 billion number before you would participate in anything?

The.

A bit of a follow up question to Greg around.

The debt reduction versus the conoco.

Shares.

Just to clarify I guess.

Saying that for the year of 2021.

Absent any asset sales.

And I think it makes more sense and just focus on getting the debt down.

One to the $10 billion number before you would.

Participate and anything.

I mean, what we've always said and we.

Alex Pourbaix: I mean, what we've always said, and we always like to be consistent, is that, you know, it is an absolute priority for us to get to CAD 10 billion. We expect without any asset divestiture proceeds, we'll get there in H2 of this year at present strip. Asset sales could obviously accelerate that in a meaningful manner. Once we believe that we're at that point or heading to that point, then I would see share repurchases as one of the options that we would very much consider to returning value to shareholders.

And I always like to be consistent is that it.

It is an absolute priority for us to get to $10 billion.

We expect without any asset.

Divestiture proceeds will get there and the second half of this year at present strep and.

And asset sales could could could obviously accelerate that.

Two of meaningful manner and once once we're in that once we believe.

And that we're at that point or heading to that point, then I would see.

Share repurchases is one of the options that we would very much consider to returning value to shareholders.

Okay and.

Phil Gresh: Okay. If you were to succeed with an asset sale, there's usually, you know, time required between a deal and announcement, the announcement and getting cash in the door. You know, do you have the line of sight that an asset sale has been announced that of you deciding-

If you were to.

The <unk> with an asset sales are usually.

And the time required between the deal announcement the announcements.

Ken and cash in the door so.

Yeah of the line of sight that the net asset sale has been in essence the.

Yes.

Alex Pourbaix: We're getting pretty granular, Phil, but well, you know, we'll look at all those things and consider, you know, when we kind of feel we've met that target we talked about.

Every day.

We're getting pretty granular fill but.

Alex Pourbaix: We're getting pretty granular, Phil, but well, you know, we'll look at all those things and consider, you know, when we kind of feel we've met that target we talked about.

Well.

Well look we will look at all of those things and kind of consider.

And when.

And we kind of feel we've met that target we talked about.

Okay.

Phil Gresh: Okay. Fair enough. People are definitely working for them. I guess my last question would just be, with respect to the quarter, was there a material FIFO benefit on the refining side? I didn't see anything in the releases, but usually there's a moving factor there.

Fair enough people are definitely worth okay.

And for them.

And then I guess.

My last question would just be.

With respect to the.

And the quarter.

Was there a material FIFO benefit on the refining side and then.

See anything and the.

And the releases, but usually there is moving.

And <unk> factor there.

Yes, Phil it's Jeff Jeff here and.

Jeff Hart: Yeah. No, Phil, it's Jeff here. We did see some FIFO, but this ultimately ties into some of our inventory price risk management. As we source crude into the refineries or make export decisions, we will ensure that we inoculate ourselves or lock in that time spread and ensure that we get that economic result as we're sourcing the crude into the refineries or exporting out of Canada. We did see some FIFO in the actual refineries, but that shipment time really was. We manage that and make sure that we mitigate that through our risk management losses to prevent against FIFO losses as we see that.

We did we did see some FIFO, but this ultimately ties into some of our inventory price risk management and as we we source crude into the refineries or make export decisions. We will ensure that we knock inoculate ourselves or lock in that time spread and and ensure that we get.

And that economic result, as we're sourcing the crude into the refineries or exporting out of Canada. So we did see.

And some FIFO in the actual refineries, but that shipment time.

<unk> was we manage that and make sure that we mitigate that through our risk management losses to prevent against spiteful losses that we see as we see that so we did see some but not as not a substantive and and the cash flow impacts given that position.

Jeff Hart: We did see some, but not as substantive in the cash flow impacts given that position.

Okay, Alright, great. Thank you.

Phil Gresh: Okay. All right. Great. Thank you.

Operator: Thank you. Your next question comes from Manav Gupta from Credit Suisse. Please go ahead.

Thank you. Your next question comes from Manav Gupta from Credit Suisse. Please go ahead.

Hi, I'm wondering quickly focus on the Capex you came in below consensus and you also mentioned and the Mark Collin.

Manav Gupta: Hi. So I wanted to first quickly focus on the CapEx. You came in below consensus. You also mentioned in your remarks previous comments that you were able to lower the Lloyd CapEx a little. I'm just wondering if there is a possible downside to the annual CapEx number or if this is just a quarterly thing and next few quarters could be a little higher, so we should stick to the annual CapEx guidance for now.

Colin.

And able to lot of the light the capex the level. So I'm just wondering if any of the bulk of the downside to the annual capex number or the.

So this is just the quarterly thing and next few quarters could be and in Ohio. So you kind of stick to the annual Capex guidance right now.

Okay.

Yes, what I would tell you and now is that we are we're focused on cost control right around this business.

Jon McKenzie: Yeah. What I would tell you, Manav, is that we're focused on cost control right around this business. You know, Alex mentioned our desire to get down to CAD 10 billion of net debt quickly. We are being very judicious in the way that we spend our capital and the way that we operate our assets, you know, on the OpEx side as well. What I would also tell you is that you should be sticking with the CapEx guidance for the year. There is some phasing in the Q1 numbers, so you shouldn't take that as a run rate. Longer term in terms of sustaining capital, though we'll be under this year, you should still be using the CAD 2.4 billion as kind of your run rate for sustaining capital going forward.

Alex mentioned, our desire to get down to $10 billion of net debt quickly. So.

So we are being very judicious and the way that we spend our capital and the way that we operate our assets.

On the Opex side as well.

What I would also tell you is that you should be sticking with the capex guidance for the year. There is some phasing and the Q1 numbers. So you shouldn't take that as the run rate.

And longer term in terms of sustaining capital, but will be under the this year you should still be using the $2 $4 billion is kind of your <unk>.

Run rate for sustaining capital going forward.

Okay Perfect My quick follow up and then when you.

Manav Gupta: Okay, perfect. My quick follow-up here is, when we look at the netbacks, on your supplement, what we're seeing is Foster at CAD 25, Christina at CAD 28, and surprisingly, other oil sands at CAD 28. I'm assuming that's Tucker and Lloyd. Again, the way we were thinking about this is that Foster and Christina would be higher netback barrels than some of the other like Tucker and Lloyd. Was there something in this particular quarter? How should we think about the netbacks between those assets?

You look at the net backs.

And and whatnot.

And what they're seeing and the foster that clarifying question.

<unk> 28, and surprisingly other oil sands <unk>, so I'm, assuming that the tougher and light and again the leaning of thinking of our business that foster and <unk> would be higher netback battled.

Some of other.

Like Doppler and light, so well and Thats something in this particular quarter and how should we think about the net backs between both assets.

Yes, I think what you should think about is the quality differential of the crudes from the various places that we produce so kristina is the heavier higher Tan crudes and what we have and Lloyd mentioned of for example.

Jon McKenzie: Yeah, I think what you should think about is the quality differential of the crudes from the various places that we produce. You know, Christina is a heavier, higher TAN crude than what we have at Lloydminster, for example. We have higher operating costs in the Husky assets than we have in the legacy Cenovus assets. We'll bring down those operating costs in the Husky assets over time as we get the SORs down, and we optimize those assets. The other thing that really affects those netbacks, Manav, is the royalties. The Cenovus assets at Foster Creek and Christina Lake are post-payout, where the Husky assets are pre-payout. You'll notice very different royalty rates on those two things.

And we have higher operating costs and the husky assets than we have and the legacy.

And all of us assets and will bring down those operating costs and the husky assets over time, as we get the <unk> down and we optimize those assets.

But the other thing that really affects those net backs and average the royalties and the synovus assets of Foster Creek, and Christina Lake Our post payout, where the husky assets are pre payout so you'll notice very different royalty rates on those two things.

Manav Gupta: Okay. Thank you for taking my question.

Thank you for taking my questions.

Okay.

Your next question comes from Chris Schott of row of Citigroup. Please go ahead.

Operator: Your next question comes from Prashant Rao at Citigroup. Please go ahead.

Hi, Thanks for taking the question.

Prashant Rao: Hi. Thanks for taking the question. My first one's around the risk management program. You know, since we reported last, the outlook for oil prices improved. Downstream demand is, at least in North America, looking much healthier. So I was just wondering how at all, if at all, do you adjust your risk management program as we look out towards a hopefully more normal supply-demand environment? I'll leave it there, and then I have a follow-up. Thanks.

Prashanth Rao: Hi. Thanks for taking the question. My first one's around the risk management program. You know, since we reported last, the outlook for oil prices improved. Downstream demand is, at least in North America, looking much healthier. So I was just wondering how at all, if at all, do you adjust your risk management program as we look out towards a hopefully more normal supply-demand environment? I'll leave it there, and then I have a follow-up. Thanks.

The first one is around the risk management program.

Since we since you reported last the outlook for oil prices improved downstream demand is at least in North America is looking.

A much healthier and so I was just wondering how at all if at all of the can you adjust your risk management program as we look out towards the hopefully more normal supply demand environment.

And of.

And I'll leave it there and then I'm kind of a follow up thanks.

Yes.

Jon McKenzie: Yeah. It's Jon McKenzie. I'll take a crack at this, and then if Alex or Jeff wanna chime in, they can. Post-acquisition of Husky, this business carries around 40 million barrels of inventory at any given time. One of the things that we do on a daily basis is we make decisions as to whether we're gonna sell barrels into the spot market, or we're gonna put those barrels into a pipeline and take them to the US, usually PADD 2 or PADD 3. We're gonna take those barrels, and we're gonna put them into a tank because we're gonna forward sell them for a higher price.

It's John Mckenzie and I'll take a crack at this and then of Alex or Jeff one of chime in.

Can but post acquisition of Husky and this business carries around 40 million barrels of inventory.

And at any given time.

And one of the things that we do on a daily basis, as we make decisions as to whether we're going to sell barrels into the spot market or we're going to put those barrels into our pipeline and take them to the U S. Usually pad two pad three.

Or we're going to take those barrels and we're going to put them into the tank because we're going to forward sell them for a higher price.

Jon McKenzie: Typically on about 15 million barrels, what we'll do is we will price protect those if the decision that we're making is to put them into a tank or into a pipeline. What you'll see over time is that when WTI goes up, you can expect us to have hedging losses on those barrels. We still get the uptick in the decision we've made. We've simply locked in the economics, and WTI has moved up. When WTI goes down, you'll see us with hedging gains. You know, at the end of the day, all we're doing is locking in a better netback for our barrels by putting them in a pipe or putting them in a tank, and we're taking off the WTI price risk there. You should think about that as a continuing and ongoing program.

So typically on about 15 million barrels what we'll do is we will price protect those if the decision that we're making is to put them into a tanker into a pipeline.

And what you'll see over time is the when Ti goes up you can expect us to have hedging losses on those barrels we still get the uptick in the decision. We've made we've simply locked and the economics and Ti has moved.

Up and when Ti goes down and Youll see us with hedging gains.

At the end of the day, all we're doing is locking in a better netback for our barrels by putting the amount of pipe or putting them.

And the tank and where we're taking off the Adobe Ti price risk. There. So you should think about that as of continuing and ongoing program. That's what we call our inventory management through optimization program, what I would say is unique to this quarter.

Jon McKenzie: That's what we call our inventory management or optimization program. What I would say is unique to this quarter, which you won't see again, is unwinding of the Husky inventory management program, and there's about a CAD 95 million hedging loss associated with that. That's a one-time cost for this business, related to the acquisition of Husky.

And what you won't see again as the unwinding of the Husky inventory management program and there is about a $90 million to $95 million hedge.

Hedging loss associated with that that's a onetime cost for this business related to the acquisition of Husky.

Okay, and John just to clarify there.

Prashant Rao: Okay. Jon McKenzie, just to clarify there, so, you know, the integration value that Husky provides is sort of a natural hedge to some degree as well. That's kind of where I was going with the question. I think I got it from the way you talked about it there and highlighting the one time is also helpful. My follow-up is-

Prashanth Rao: Okay. Jon McKenzie, just to clarify there, so, you know, the integration value that Husky provides is sort of a natural hedge to some degree as well. That's kind of where I was going with the question. I think I got it from the way you talked about it there and highlighting the one time is also helpful. My follow-up is-

So the.

And the integration value the husky provides and sort of a natural hedge to some degree of as well. So that's kind of where I was going with the question, but I think I think I got it from the way you talked about it there and the pointing out and highlighting the onetime of is also helpful.

My follow up.

Okay, sorry, let me touch on that before you bring up your next question, because I think thats actually kind of important.

Jon McKenzie: L-l-

Prashant Rao: Yeah.

Prashanth Rao: Yeah.

Jon McKenzie: Sorry, let me touch on that before you bring up your next question, 'cause I think that's actually kind of important. You know, one of the things that we did do in the quarter is we moved a lot of our barrels on Husky Transportation to the US. We've optimized. If you have a look at our transportation and blending fees, you'll notice that they're down, because we were able to optimize that. Similarly, you know, you'll remember in Legacy Husky, we had quite an exposure to WCS at Hardisty. You know, in today's world, on a blended basis, that exposure is much smaller.

And one of the things that we did do and the quarter as we moved a lot of our barrels on Husky transportation.

To the U S and so we've optimized and if you have a look at our transportation and blending phase youll notice that they are down.

And because where we were able to optimize that and then similarly.

You'll remember and legacy Husky, we had quite an exposure to WC assets at Hardisty and and <unk>.

Today's world on a blended basis that exposure is much smaller so as the differentials and youll notice of widened to about $15 today.

Jon McKenzie: As the differentials, you know, you'll notice have widened to about $15 today, we have a much lower exposure to that differential than we would've had just 90 days ago.

We have a much lower exposure to that differential than we would've had just 90 days ago.

Prashant Rao: Okay. Thanks, Jon. I appreciate that. My follow-up, switching gears to sort of carbon pricing, broadly speaking. I know you've said before that there's a lot of, you know, the opportunities for you on, at least as a carbon price in Canada comes up, really in the upstream on, you know, carbon capture, CO2 injection. I just wanted to get a sense of how much, how we should think about capital, like sort of longer term that's deployed there. Are these sort of higher return projects with the size of the capital required versus the scale of the assets you have in the upstream?

Prashanth Rao: Okay. Thanks, Jon. I appreciate that. My follow-up, switching gears to sort of carbon pricing, broadly speaking. I know you've said before that there's a lot of, you know, the opportunities for you on, at least as a carbon price in Canada comes up, really in the upstream on, you know, carbon capture, CO2 injection. I just wanted to get a sense of how much, how we should think about capital, like sort of longer term that's deployed there. Are these sort of higher return projects with the size of the capital required versus the scale of the assets you have in the upstream?

Okay, Thanks, John and I appreciate that.

And my follow up switching gears to <unk>.

And sort of carbon pricing.

Broadly speaking.

And I wanted to I know, you've said before that and there's a lot of and the opportunities for you on the at least.

A carbon price and Canada comes off of really and the upstream on kind of carbon.

Carbon capture and injection I, just wanted to get a sense of.

How much.

How we should think about capital and the code of longer term. That's deployed there and are these sort of higher return projects with some of the size of the capital required versus the scale of the assets and you have and the upstream and sort of the follow up to that.

Prashant Rao: Sort of as a follow-up to that, or a follow-on, do you have any exposure to Canada's Clean Fuel Standard that looks like it's gonna go into effect or be enforced in 2022 and 2023? I'll leave it there. Thanks.

Prashanth Rao: Sort of as a follow-up to that, or a follow-on, do you have any exposure to Canada's Clean Fuel Standard that looks like it's gonna go into effect or be enforced in 2022 and 2023? I'll leave it there. Thanks.

Follow on is do you have any exposure to.

Canada of low carbon fuel standard that looks like it's going to go into the sector and.

<unk> and <unk>, 22, and 2000, and <unk> and I'll leave it there. Thanks.

Thanks for Sean I'll I'll take a shot at it and John May have a few comments, but.

Alex Pourbaix: Thanks, Prashant. I'll take a shot at it, and I, John may have a few comments. You know, I think the first thing I would say when you think about. Maybe I'll first talk about just carbon tax and the impact on our business, and then I'll talk about some of the opportunities and the capital associated with them. By then I'll probably have forgot your last comment. You're gonna have to remind me.

I think the first thing I would say when you think about maybe I'll first talk about just carbon tax and the impact on our business and then I'll talk about some of the opportunities and the.

And the capital associated with them and but then I'll probably of forgot your your last comment youre going to have to remind me but.

Prashant Rao: Fair enough.

Prashanth Rao: Fair enough.

Fair enough.

Alex Pourbaix: Yeah. No, you know, one observation I would have is that, you know, I think a lot of people probably overestimate the dollar per BOE equivalent impact on us when they hear things like CAD 170 a ton, you know, federal carbon tax. You know, in the present situation, you know, with the provincial tier compliance costs, because we are a best-in-class facility, the carbon costs are really quite low, and they make a very small component of our operating costs. Our modeling would really suggest that would continue to be true even if those carbon costs were ultimately to escalate up to that kind of ultimate CAD 700 or CAD 170 a ton.

No.

And one observation I would have as debt.

Think a lot of people probably overestimate the dollar per per BOE equivalent impact on us when that when they hear things like 170.

The dollar a ton fetter federal carbon tax but.

And in the present situation with the provincial tier compliance costs, because we are of best in class facility, we actually have the.

And carbon costs are really quite low and they make a very small component of our operating costs and and our modeling would really suggest that that would be continue to be true. Even if those carbon costs were ultimately to escalate up to that kind of ultimate.

700, or $170 $70 a ton.

So thats kind of the impact of of the carbon tax in terms of.

Alex Pourbaix: That's kind of the impact of the carbon tax. In terms of, you know, sort of, our aspirations and plans to move to decarbonize, particularly the upstream side of the company, I would say, you know, there's a number of things we're doing. You know, there's a whole range of things. You know, you've heard Jon talk about the success we've had at Lloyd just in the few months. A number of the things that we're doing, not only do they improve production, they also improve SOR, and so they significantly improve our carbon intensity or GHG intensity per barrel. We think there is far further to go in that regard of improving our carbon footprint.

Sort of our aspirations to and plans to move to Decarbonize, the particularly the upstream side of the company I would say.

And Theres a number of things we're doing there is a whole range of things and you've heard John talk about the success we've had at Lloyd.

And in the few months and a number of the things that we're doing not only do they improve production. They also improve SLR and so they significantly improve our carbon intensity <unk> intensity per barrel and we think there is far far further to go.

In that regard of improving our carbon footprint and then.

Alex Pourbaix: You know, as you probably would've seen, the Canadian government came out with announcing a number of initiatives, including a tax credit for carbon capture utilization and storage. You know, in some of those would be at the higher end. I would suggest, and this would be the same for our industry in Canada as pretty much any industry worldwide, you know, the cost of implementing carbon capture and storage, you know, those are gonna be quite material. You know, the cost is not so much in the transportation and putting it down into the ground. I mean, that's all pretty well known.

And you probably would have seen the Canadian government came out with.

With announcing a number of initiatives, including a.

The tax credit for carbon capture utilization and storage.

So and some of those those would be at the higher and and I would suggest and this would be the same for our industry and Canada is pretty much any industry worldwide.

And the cost of implementing carbon capture and.

Storage those are going to be quite quite material and the cost the cost does not so much and the transportation and.

And putting it down and into the ground I mean, that's all pretty well known the larger cost for the upstream industry or and actually capturing and creating a relatively pure stream of of Cotwo and then pressurizing net and all.

Alex Pourbaix: The larger costs for the upstream industry are in actually capturing and creating a relatively pure stream of CO2 and then pressurizing it. You know, and there's a range of those costs, but if, you know, if Canada wants to get there, the costs are going to be material. I think what you've seen with the Canadian government's announcement is an acknowledgement that if we're gonna get there, it's gonna take everybody working together to get there. The cost ultimately has to be something that is manageable, bearable, and keeps our industry competitive. You know, we are looking, we have quite a number of initiatives going on and have had for the, you know, far beyond the time that I've been here.

And there is a range of of those costs, but if the if Canada wants to get there the costs are going to be material and I think what you've seen with the Canadian government's announcement is an acknowledgment that if we're going to get there it's going to take everybody working together to get there and the cost ultimately.

<unk> has to be something that is manageable and variable and.

And keeps our industry competitive and the so.

So we are looking we have quite a number of initiatives going on and have had for for the far beyond the time that I've been here, but you look at things, whether it's our solvent pilots that we're advancing that would be another option to decarbonize.

Alex Pourbaix: You look at things, whether it's, you know, our solvent pilots that we're advancing, that would be another option to decarbonize, that would be more economic. EOR technologies obviously would require less subsidy or support than pure carbon capture and sequestration. There is an entire menu of opportunities. I wish I could be more specific because they really do run a gamut of capital costs and efficiencies.

There would be more economic.

Our technologies, obviously would require less subsidy of support that and carbon than pure carbon capture and sequestration. So there is there is an entire menu of opportunities and I wish it could be more specific because they really do run of gamut of of capital.

Cost and.

And efficiencies but.

Alex Pourbaix: you know, I as I said, we're well advanced on kind of all elements of those, from everything from the really short term to operational performance, improving some of our worst-performing assets, and then to, you know, what I would call kind of the medium-term options like, solvent and then ultimately moving to the larger scale and more capital intensive like carbon capture. That's kinda how we look at it.

As I said, we're well advanced on kind of all elements of those from everything from the really short term to operational performance.

The improving some of our worst performing assets.

And then two what I would call kind of the medium term options like.

Solvent and then ultimately moving to the larger scale of more capital intensive like carbon capture and and.

That's kind of how we look at it.

Okay. Thanks.

Prashant Rao: Okay, thanks. Yeah, that last part of that was just wanted to check quickly on the Clean Fuel Standard, that looked like it's ongoing.

Prashanth Rao: Okay, thanks. Yeah, that last part of that was just wanted to check quickly on the Clean Fuel Standard, that looked like it's ongoing.

And that last part of that once the system.

Sort of just wanted to check quickly on the <unk>.

Canadian low carbon fuel standard.

Oh, yes.

Alex Pourbaix: Oh, yeah. That is correct.

I knew I was going to forget something.

Prashant Rao: Yeah.

Prashanth Rao: Yeah.

Alex Pourbaix: I knew I was gonna forget something.

Yeah.

Prashant Rao: Yeah, no problem.

Prashanth Rao: Yeah, no problem.

Yes.

Alex Pourbaix: Yeah, the government made a decision several months ago that the gaseous industrial fuels would not be part of the Clean Fuel Standard. So, particularly, you know, the SAGD in our situation, because it does not apply to gaseous industrial fuels, does not particularly impact us. Now, it does impact us on the downstream side, and obviously on the downstream side, we'll be passing those costs through to ultimate consumers.

And the government made it.

Made a decision several months ago that.

The gas he is industrial fuels would not be part of the low carbon fuel standard so, particularly the.

Sag D and our situation because it does not apply to gaseous industrial and industrial fuels does not particularly impact US now it does impact us on the downstream side and obviously on the downstream side will be passing those costs through to ultimate consumers.

Prashant Rao: Okay. Thanks very much for the time and the answers. Appreciate it.

Prashanth Rao: Okay. Thanks very much for the time and the answers. Appreciate it.

Okay. Thank you very much for the time and the answer and I appreciate it.

Yeah, and nowhere as prashant.

Alex Pourbaix: Yeah, no worries.

Thank you as a reminder, should you have any questions. Please press star one.

Operator: Thank you. As a reminder, should you have any questions, please press star one. Next question from Chris Tillett at Barclays. Please go ahead.

Next question from Chris Tillett of Barclays. Please go ahead.

Hey, guys. Good morning, Thanks for taking my question.

Chris Tillett: Hey, guys. Good morning. Thanks for taking my question. I guess just first quickly, for me on the balance sheet, appreciate all the commentary so far. I just want to be absolutely clear. Is it fair to characterize the approach at this point as, you know, you're aiming to get to CAD 10 billion sort of as quickly as is prudent, and then the march to CAD 8 billion, we should expect, you know, capital allocation in that window to be a little bit more balanced between, you know, balance sheet, shareholder returns, CapEx, et cetera?

I guess just first quickly.

And for me on the balance sheet appreciate all of the commentary so far.

But just the absolutely clear and is it fair to characterize the approach at this point as you are aiming to get to 10 billion and sort of as quickly as is prudent and then the March to $8 billion, we should expect.

Capital allocation and.

And that window to be a little bit more balanced between.

The balance sheet shareholder returns.

The capex et cetera.

Yeah Yeah.

Alex Pourbaix: Yeah. Yeah. I think that's basically correct. You know, the thing I would say, and this is something I know Jon and I have said quite a bit, but you know, living through the past year as we have done has probably made, I think, both of us you know, we're balance sheet hawks from the start, and I know Jeff is also. I think living through the past year has really taught us the advantages and the benefits of running with an underlevered balance sheet. You know, for today, you know, we have these targets out there of CAD 10 billion and CAD 8 billion. Ultimately, I think none of our investors should be terribly surprised to see that CAD 8 billion ultimately trend to a lower number.

And that's basic I think Thats basically correct.

The thing I would say and this is something I know, John and I have said quite a bit but.

Living living through the past year as we have done is probably made I think both of US were balance sheet Hawks from from the start and I know, Jeff is also but I think living through the past year has really taught us the advantages and the benefits of running with and under Levered balance sheet.

And for today, we have these targets out there of $10 billion and $8 billion, but ultimately I think none of our investors should be terribly surprised to see that 8 billion and ultimately trend to a lower number but we think we've got plenty of work ahead of us with the two targets we have in front of us right now.

Alex Pourbaix: We think we got plenty work ahead of us, with the two targets we have in front of us right now.

Got it okay.

Chris Tillett: Got it. Okay. That's helpful. Thank you.

That's helpful.

Right.

Alex Pourbaix: Yeah. Chris, you're absolutely right. Sorry, Chris, you're absolutely right, though. Sub ten, you know, we've always said there's room for a more balanced approach on capital allocation between shareholder returns and marginal investment in the business as well as debt reduction.

Sorry, Chris you're absolutely right the sub 10.

We've always said there's room for a more balanced approach on capital allocation between shareholder returns and.

And marginal investment and the business as well as debt reduction.

Okay understood and thanks for that clarification, and I guess and then.

Chris Tillett: Okay, understood. Thanks for that clarification, I guess. Then just to follow up from a previous question, you know, I know that you guys don't want to say too much about asset sales at this point, but would just be curious to know, how would you from a broad perspective, how you would characterize, the market today? You know, we've seen a number of upstream assets change hands over the last 6 to 9 months, you know, yourselves included in that list. I would say, you know, it seems things downstream and midstream seem to be a little bit slower. Just curious in terms of kind of how you would characterize everything, overall.

And just a follow up from a previous question.

I know that you guys don't want to say too much about asset sales at this point, but we would just be curious to know how.

How would you from a broad perspective, how you would characterize.

The market today.

We've seen a number of upstream assets change hands over the last six to nine months.

Yourselves included and that lift.

I would say it seems things downstream and midstream seem to be a little bit slower so.

Just curious in terms of kind of how you would characterize everything.

Raul.

Yes.

Alex Pourbaix: Yeah, it certainly, you know, I think the upstream market has materially improved even in the time since we announced the deal. You know, I know our corporate development people are getting a lot of inbounds and I think financing, you know, although still a little challenged, seems to be coming back into the sector. It feels like we've had a significant improvement particularly on the upstream side, which is frankly, you know, largely where we're kind of focused in our divestiture efforts.

Certainly I think the upstream market has materially improved.

Even in the time since we announced the deal.

And I know our corporate development people are getting a lot of inbounds and and.

And I think financing.

Of those still a little challenged seems to be coming back into the sector. So so it feels like we've had a significant improvement.

And particularly on the upstream side, which is frankly, largely where we're kind of focused and our and our divestiture.

The efforts.

Okay.

Chris Tillett: Okay. That's helpful. That's it for me, guys. Thank you.

That's helpful. That's it for me guys. Thank you.

Alex Pourbaix: Thanks, Chris. Take care.

Thanks, Chris take care.

Your next question comes from Chris <unk> at Calgary Herald. Please go ahead.

Operator: Your next question comes from Chris Varcoe at Calgary Herald. Please go ahead.

Hi, Alex and a lot of talk this week of both the shutdown of potential shutdown next week of line five I'm just wondering whether you of any concern about that how that would impact your company more broadly the industry or oil prices Alberta.

Chris Varcoe: Hi, Alex. A lot of talk this week about the shutdown or potential shutdown next week of Line 5. I'm just wondering whether you have any concern about that, how that would impact either your company, more broadly, the industry, or oil prices in Alberta.

Yeah, Yeah, Yeah, I mean, it's.

Alex Pourbaix: Yeah. I mean, it's a good question, Chris. You know, I think that if this were to proceed, people will very quickly find out the importance that oil and gas, propane, butane still have in the economy of both Canada and the US. You know, this is a pipeline that has operated safely for decades and is in the process of being replaced by what will almost certainly be the safest pipeline, perhaps ever built in North America. You know, I would actually view this as just an incredibly bad decision if the governor were to go ahead and shut down that pipeline.

It's a good it's a good question Chris.

Yes.

Inc that the.

This is it.

And if people. If this word of proceed people will very quickly find out the importance that oil and gas propane and butane still.

Still have in the in the economy of both Canada and the U S.

This is a pipeline that has operated safely for decades and is in the process of being replaced by what will almost certainly be the safest pipeline.

Perhaps ever ever built and in North America.

So.

I would actually view this as just an incredibly.

Bad decision.

If.

The governor of where to go ahead, and and shut down that pipeline I think all you're going to be doing and youre not going to be improving safety. What you are going to be doing is damaging the economies of of that area of both Canada and the U S.

Alex Pourbaix: I think all you're going to be doing is you're not going to be improving safety. What you are going to be doing is damaging the economies of that area of both Canada and the US.

Is there any specific impact that you have looked at for your company and and.

Chris Varcoe: Is there any specific impact that you have looked at for your company and, in terms of getting barrels, down into central Canada? Have you done any analysis at all on the potential impact of a bottleneck in Western Canada on Canadian oil prices, coming out of Alberta?

In terms of getting barrels a day.

Down down into the Central Canada and have you done any analysis at all on the potential impact of a bottleneck in the western Canada on Canadian oil prices the cut.

And out of Alberta.

I mean.

Alex Pourbaix: I mean, I think in our case, given our highly integrated nature, Chris, and the location of our assets, we would not perceive this to be an unmanageable problem for Cenovus. I do think it, if it were to proceed, you can see how it could potentially have some knock-on effects pushing back into the basin. As I said, thankfully, with our integrated portfolio and with our firm pipeline commitments out of the province, we feel this is manageable for us.

And in our and our case, given our highly integrated nature, Chris and.

And the location of our assets, we would not perceive this to be an unmanageable problem for synovus I do think it.

If it were to proceed it you can see how it could potentially have some knock on effects pushing back into the basin, but as I said thankfully with our integrated.

The portfolio and with our firm pipeline commitments out of out of the province, we feel were.

The manageable for us.

Thank you.

Chris Varcoe: Thank you.

Alex Pourbaix: Thanks, Chris.

Yes.

Thanks, Chris.

Thank you. Your last question comes from Robert Tuttle at Bloomberg News. Please go ahead.

Operator: Thank you. Your last question comes from Robert Tuttle at Bloomberg News. Please go ahead.

Robert Tuttle: Yeah, I was wondering about your retail divestiture of retail outlets. Do you have any progress on that? I think you put it on hold earlier.

I was wondering about your retail divestiture of retail.

Yes, Brian.

Thank you for the whole earlier.

Yes, it hit yes, we put it on hold of the.

Alex Pourbaix: Yeah, we put it on hold. You know, the Husky, you know, the predecessor owner of that business was engaged in a process. We put it on hold, and it would be. You know, I've talked in the past about having a going through a process with all of our assets to determine what is core, you know, and what is not core or alternatively, what may have more value in other people's hands. The retail business is, you know, we're engaged in that process with the retail business, but I'm not gonna comment on specific assets at this time. We're, as I said earlier, you know, we'll announce decisions when decisions are made.

The husky the predecessor owner of that business.

And engaged in a process, we put it on hold and it would be.

<unk> talked in the past about having a going through a process with all of our assets to determine what is core and what is what is non core or alternatively, what might may have more value and other people's hands. So the retail businesses were engaged and that process with the with the retail business.

But I'm not going to comment on specific.

The assets at this time, we will.

And as I said earlier.

We'll announce decisions when decisions are made.

Okay. Thank you.

Robert Tuttle: Okay, thank you.

Alex Pourbaix: No worries.

And <unk>.

Thank you that concludes today's Q&A session and I will now turn it back over for closing comments.

Operator: Thank you. That concludes today's Q&A session. I will now turn it back over for closing comments.

Okay.

Well.

Alex Pourbaix: Well, thanks, everybody, for taking the time to listen in to our inaugural Q1 analyst call. We really appreciate your interest in the company, and everyone, have a good rest of your day. Thank you.

Thanks, everybody for taking the time to listen into our inaugural.

Q1 analyst call, we really appreciate your interest and the company and everyone.

Have a good rest of your day. Thank you.

Yeah.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines. Enjoy the rest of your day.

All of the rest of the day.

And then all of them.

Alex Pourbaix: Is that all the?

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