Q4 2023 Cenovus Energy Inc Earnings Call

John Mckenzie: The December crack averaged $7.65 U.S. per barrel, and at times gasoline cracks were negative, which caused us to respond by economically optimizing throughput. This not only drove lower U.S. refining operating margin in the fourth quarter but also lower throughput and contributed to a significant FIFO headwind in U.S. refining of about $450 million as we processed higher-priced crudes that were purchased in prior periods. The wheat crack environment has persisted through the month of January with an average Chicago 3-2-1 benchmark of about $5.50 U.S. per barrel, but recently, the Chicago refining crack environment has improved.

John Mckenzie: Cracks have risen into the low teens and the high 20s, and with seasonal impacts easing and product inventories rebalancing, as well as refineries entering the turnaround season, we anticipate seeing more normalized cracks going forward. We expect to continuously improve our operating and financial performance in this business as we produce refined products into this pricing tailwind. Now to our corporate and financial performance. In the fourth quarter, Cenovus delivered approximately $2.1 billion of adjusted funds flow. As mentioned, the upstream business was impacted by lower realized prices with a wider WTI WCS differential, and the downstream business was impacted by lower refined product pricing in the U.S. and a negative FIFO impact. Through our base dividends, share buybacks, and final payment of the Common Share Warrant obligation, we distributed over $700 million directly to our shareholders in the fourth quarter. In addition, the company's net debt was approximately $5.1 billion at the end of the fourth quarter, a reduction of more than $900 million from the third quarter, which reflects a working capital release as well as the application of free cash.

John Mckenzie: We remain focused on achieving our $4 billion net debt target and delivering 100% of excess refunds to our shareholders once this milestone is met. So looking back at 2023, there are some important achievements I'd like to highlight. We delivered safe and reliable upstream performance throughout the year while responding to the significant wildfire activity in our conventional areas in the spring and summer and safely executed a major turnaround at Foster Creek in the second quarter. We successfully delivered our capital spending guidance for 2023 with total investments of $4.3 billion and achieved several key project milestones as planned. We materially progressed construction of the West White Roast project, which, as I mentioned, is now about 75% complete, and reached a major milestone in the second quarter with the completion of the conical slip form on the gravity-based structure.

John Mckenzie: At Christina Lake, we achieved approximately 45% completion of our Narrows Lake tieback pipeline on time and on budget. This will allow us to bring our high quality, low SOR resource back to the Christina Lake processing facility. We further integrated our heavy oil production and refining capabilities through the acquisition of the remaining 50% of the Toledo refinery, and we safely returned that refinery to full operations in June. We brought Superior online, and combined with Toledo, we added approximately 130,000 barrels a day of refining capacity, much of that heavy oil refining capacity. We reduced our long-term debt by almost $1.6 billion, with $1 billion of that being repurchased debt. We also strengthened our credit ratings during the year with a credit rating upgrade from Fitch Ratings to BBB Stable and a change in our Moody's Outlook from Stable to Positive. We generated nearly $9 billion of adjusted funds flow in the year.

John Mckenzie: This enabled us to deliver around $2.8 billion to shareholders through our base dividend, the purchase of common shares, and the purchase and cancellation of about 46 million Cenovus warrants. We end 2023 on a strong note operationally and will continue to build on this through the year. 2024 will be focused on achieving our $4 billion net debt target, progressing our high return growth projects in the upstream, and continuing to improve the profitability of the downstream business while running it safely and reliably. Ultimately, as part of our capital allocation framework, we look forward to shifting to 100% of excess free cash flow going back to shareholders.

John Mckenzie: We are well positioned as a company. The achievements I just spoke about set us up well for 2024 and will continue to generate value for years to come. On March 5th, we'll be hosting an Investor Day, and I welcome you to attend to hear more about our strategy and detailed five-year plans at that time. And with that, I'll stop, and we're happy to take your questions. Hi, good morning, and thanks for taking my questions. Maybe starting with the downtrend this year. Oh, yeah. Good morning.

Dennis: Maybe starting with the downstream here, do you mind discussing some of the opportunities that you're currently working on to help improve cost structure, improve runtime, and margin from the downstream business, especially now that you have a running and own and operate those three refineries in the US? Sure, so I'll let Keith answer the question, but as you know, Dennis... Toledo and Lima are sister refineries in their pipelines, interconnected, which does give us some opportunities to improve the integration of those two refineries and the overall synergy that we hope to capture when we bought that refinery. Superior, there's lots of opportunities that we think in the future we'll be able to take advantage of the focus today really. Although it's bringing that refinery to full capacity and running that in a reliable way. But maybe, Keith, you could talk a little bit about what you're seeing in terms of opportunities in the refining sector. Yeah, thanks.

Keith: Thanks for the question, Dennis. You know, I think in our guidance, you'll see a noticeable step up in our utilization in the downstream US downstream in 2024 versus 2023. And 2023 was really a year of restarting the refineries, and 2024 is a year of running the refineries. We were pretty happy with, you may remember, the little bit of cold snap in January that we had.

Keith: The refiners ran through that reasonably well. So, you know, we're really focused on now running these well and capturing the margin out of the back end of them. And, you know, reliability improvements will persist and continue. But, you know, in general, the kit is running well. You know, obviously, in January, cracks were still pretty weak, as John alluded to in his opening remarks, but we saw that change in February, and the kit ramped up to max throughput and did it reliably.

Keith: So, you know, we're pretty happy with what we're seeing. We'll continue to focus on ensuring long-term reliability of these assets and, you know, full integration. With over 110,000 barrels a day of increased heavy conversion capacity in this kit now that it's running, we have lots of opportunity and optionality to move our barrels down into this PATU network and capture the margins out of the back. Great, I appreciate that call

Dennis: My second question here is, maybe shifting views a little bit. It seems like there was obviously significant progress made on lowering outstanding leverage. I guess that progress, as you alluded to in the prepared remarks, was driven a little bit by the changes or the unwinding of working capital. As we think about this going forward, can we, or can you provide maybe a little bit of a structure or an idea as to what maybe a normalized rate of net debt paydown might be, and are there any one-time items we should watch out for in the next couple of quarters? Morning, Dennis. It's Cam.

Cam: So, you know, a couple of things I would highlight. Yes, you did notice we had a working capital release through the fourth quarter, and that was really a combination of, I would say, slightly lower absolute levels of inventory and also the change that you saw in pricing. You know, when you think about, I guess, anything unusual coming, I think we've articulated this previously, I think the only change that's really I would highlight is that we're obviously continuing to wait for a line fill on TMX. We've had a small portion called, but we still have an amount that we still owe them to fill that line at the timing that they start up that line, so you should expect probably about a million barrels of increment as a result of that, so that will likely happen here between now and the middle of this year. So other than that, I would say you shouldn't expect anything else material.

Cam: Generally speaking, the trajectory you saw in the debt in the fourth quarter is really strong. I think given the pricing environment we see today, both on the upstream and the downstream, improving out of January into February, I think you're going to continue to see us make progress on the debt through this year. Dennis, I'd just add to that. I think we've been pretty clear with the value chains that we've built, whether it be condensate or the value chains that we've built to move our Heavy Oil out of Hardesty and into our refineries. You should expect us to be carrying somewhere around 45 to 50 million barrels in inventory. And we're always going to be optimizing that over time, and with the refineries running more stably and predictably, there's an opportunity maybe to optimize that some more and take a few more barrels out of inventory. The other thing that we do pretty consistently is we run that value chain for the optimum cash flow.

John Herrlin: And where we have opportunities to store barrels and sell them in future periods at higher prices, we'll do that as well. But what you should count on us for is kind of that 45 to 50 million barrels, as Cam mentioned. There will be about a million barrels coming into that related to the startup of TMX, but we're always going to be optimizing that depending on the pricing scenarios that we see going forward and the opportunities that this value chain gives us. I really appreciate the additional call there, John. I'll turn it back.

Menno Hochschild: Thank you. The next question comes from Menno Hochschild at TD Securities. Please go ahead. Good morning, everyone.

Menno Hochschild: And thanks for taking my question. I'm just going to start with a quick follow-up on Superior and Toledo. You already answered quite a bit of it.

Menno Hochschild: But can you just guide us on what current utilization for the two refineries looks like today? And then, John, you talked about potentially seeing a bigger ramp up in Superior and Q2. Like, what are the risks that you see in successfully being able to ramp up Superior within that timeframe?

John Herrlin: Yeah, I'm going to let Keith answer the first question last, and I'll start with your last question, and I'm sure Keith will have some thoughts there too. You know, Superior has been a bit of a fist fight for us in starting a refinery that hasn't run in five years, and rebuilding it, you know, has been a bit of an issue. And anytime you take a new set of equipment and a refinery that hasn't run for that length of time through its first winter, you do find some deficiencies, and sure enough, we found some deficiencies, but there's nothing mechanically processed or technically wrong with this refinery.

John Herrlin: It's just taken us a bit longer to get to where we wanted to go. You know, I'd also kind of point to the strategy of why we have these two refineries, and it's important to remember that when we get Superior up to nameplate capacity in that 49,000 barrels a day range, it's going to consume about 35,000 barrels a day of heavy crude, and we can get that from Hardesty to Superior for about $4 U.S. With no take-or-pay commitment on Enbridge, you know It's not only going to make profits on its own, but it really does give us egress from Hardesty to Superior. Similarly, on Toledo, of the 150,000 to 160,000 barrels of daily throughput capacity, about 90,000 to 95,000 of that is heavy oil, and we can get our oil from Hardesty to Toledo for about $6 US a barrel.

John Herrlin: So these are really important assets for us, not just on a standalone basis but on an integrated basis. So getting them up to full rates and demonstrating the full strategic value that we've seen for some time is really important to us, but maybe I'll turn it over to Keith, and he can talk to you more about the syntax of the path forward with those two assets. I think your question probably relates to the 76% utilization in the US downstream in the fourth quarter. You know, in that period of time, we had a pretty large turnaround at Borger Refinery, and the operator had a little bit of a challenge starting that refinery back up. It's now back up and running at full rates.

Keith: Toledo ran well through there, but you will recall in December we saw cracks diminish in Pad 2 in the Chicago region, and we took the opportunity to optimize the kit and run it down. Heading into this quarter, though, we are back up north of 90% utilization across the kit, including Toledo and Superior. Superior, though, you should expect through the first several months of this year to run more in the 65 to 70% utilization range. All of the equipment is running, and to John's point about the heavy oil integration, we're able to run, you know, kind of that 30,000 barrels a day of heavy, but we're just running off a bunch of intermediates that we built during startup and shutdowns over the past six months. That limits kind of getting full utilization as we run those intermediates through the processes and fill out those process units.

Keith: So the kit's running, but you won't see that top line utilization number go up until the second quarter. Terrific. I appreciate all of the detail, and I'll follow up with a question on solvent.

Menno Hochschild: Assisted SAG-D. We've seen quite a bit of news flow of late, with Imperial being the first to bring a commercial SAG-D project online a couple of months ago. And I believe CNQ is talking about commercial activity towards mid year. And I'm just going over past presentations.

Menno Hochschild: I believe it was at your last investor day that you talked about solvent assisted pilot activity within the five year plan. So, and you may want to hold back on this for investor day, but if not, where does SACID rank on the excitement scale right now? What's getting done in the background?

Keith: And would you be willing to fine-tune the timeline for commercial development? Thank you. Hey Mano, yeah, it's Keith again.

Keith: You know, the way we look at SA-SAG-D for Cenovus is that we're pretty gifted with very thick, clean reservoirs that allow for the actual recovery process to use SAG-D and be very effective and very efficient. You know, over the years, probably dating back 15 years, we've piloted all kinds of solvent recovery technologies. So I would say those are, in our mind, commercialized, and they are waiting for the resources and opportunity to deploy them. But right now, you know, we have the resources and capability to utilize our steam most effectively and most economically to drive the highest shareholder return. So that's kind of where we're focused, but we do have that technology in our back pocket should we see an opportunity to deploy it in the future. Terrific. Thanks, Keith. I'll turn it back.

Greg Party: Thank you. As a reminder for analysts, should you have any questions, please press star 1. The next question comes from Greg Party at RBC Capital Markets. Please go ahead. Yeah, thanks. Good morning.

Greg Party: So lots of emphasis on the downstream, which makes sense. John, the upstreams had good momentum. I'm just wondering if you can give us a little bit of an OPS update there, including, you know, maybe where current production rates are roughly where production rates are. Sure, I'll get Keith to give you the detail on a property-by-property basis.

John Herrlin: You know, we entered this year again, as I mentioned, with kind of the second highest production quarter that we've ever had, but December was probably the second highest production month that we've ever had, as a company. Now, all that needs to be tempered, you know, as you go into the summer months and we have a turnaround schedule that's all part of the guidance that we've given you. And as I mentioned, we expect Q4 to be even bigger next year than it was this year, particularly as we kind of bring on more well pads right across the business. But I feel really good about how we've paced and staged the capital right across the upstream to ensure that those rates that we put into our guidance are very achievable. We've seen some really good rates at places like Lloyd Minster, where we hit some of the daily production records in December and early January.

Keith: So, you know, it's kind of right across the business, and I think it really sets us up well for the growth projects and integration of those growth projects starting in 2025 with the Narrows Lake tieback. But, Keith, maybe you want to run through the portfolio and talk about where we are on the individual assets. Yeah, sure, John.

Keith: You know, thanks for the question, Greg. It's actually been pretty impressive watching the ramp up in the back half of 2023 and into 2024 with, as John indicated, kind of the second best quarter ever in Q4. That performance has persisted into January. And, you know, I'd also like to commend the teams. We went through minus 45 degrees Celsius weather in January, and the winterization programs we have across the asset base allowed us to weather through that without any hiccups.

Keith: So, really happy to see, you know, we have put in some new well pads at Foster and Christina, and we're starting to see the success of those well pads with strong production starting into January and continuing that will continue through the quarter. As John indicated at the Lloyd Thermals, you know, we're actually above our expectations a little bit there as some of the redrills and redevelopments that we've done in the region, as well as implementing some of our subsurface technologies, has allowed us to increase production in the Lloyd Thermals. I am pretty happy with the combination of the Lloyd Thermals and conventional heavy oil.

Greg Party: You may recall that on the East Coast, we do have life extension happening on our CROs. So, the boat has come off station, and it's in the dry dock going through that life extension project, and that'll persist out to the back end of Q3. I'm happy to note, though, that Terranova came back on station in the middle of last year and started production in November, and we're starting to see production from Terranova ramp up. And then our Asian business has been very strong for us as well, and that has continued into the new year. And then when I look back at conventional, you know, it's been performing well and, similarly to our oil sands assets, weathered through the real cold snap as well.

Greg Party: So all in all, you know, across the portfolio and the upstream, really happy with the performance in Q4 and that's continuing early into Q1 of 2024. Okay, terrific. And completely, maybe just shifting over to financials, because in your opening remarks, you pretty much answered the question, which is, i.e., hitting that elusive $4 billion net debt target. I'm curious, maybe it's a question for Cam, just is there any more, maybe a bit more precision around that? Is it possible to get there by mid-year, or would that be jinxing it?

John Herrlin: And then kind of related to that, is the upstream portfolio sufficiently streamlined? Or, you know, are there still aspects of the portfolio that could be, you know, i.e., non-core asset sales and so on? Or are we pretty much there?

John Herrlin: I'm going to answer the last question for Cam. We are very happy with the portfolio, Greg. This is probably the first quarter.

John Herrlin: You know, we've had full access to all our assets. You know, I tell you, they're all investable, they all fit within our strategy, and they're all things that, you know..., are part of our plan going forward. So we're very happy with the portfolio that we have. Hey Greg, it's Cam.

Cam: So, you know, I think you're looking for a hard date on the debt target. To be honest, a soft date will be fine. Yeah, a soft date will be fine.

Cam: It'll be hard to give that. So, a couple of things I would highlight. Look, we're continuing to see a lot of volatility in commodity prices. So, obviously, even with differentials widening out in Q4 and then now starting to see a bit of a narrowing into the first quarter and going into the back half of the year. And then, you know, obviously, cracks have improved.

Cam: So I would say the pricing environment we're in is quite constructive. I think we're really focused on the things that are in our control and, you know, as you heard Keith and John talk about operationally, I think things are going really well. So I think the goal is to get there as quickly as we can.

Cam: It's a number one priority for us as an organization, so I think when you look at the actions we're taking around the business, whether it's controlling our costs to working capital and then, obviously, running the assets, I think the goal is to try to get there in a reasonable time frame. So the focus of the whole organization is to get to that debt target, I would say in this price environment.

Cam: You know, I'm optimistic we can get there in a reasonable time frame. Whether that's in Q2 or Q4, it's really going to depend on commodity prices. No, I think it's a good answer.

Greg Party: Thanks very much. Thanks, Greg. Thank you. The next question comes from John Royal from J.P. Morgan. Please go ahead. Hi, good morning.

John Herrlin: Thanks for taking my question. I had another one on downstream. I was just hoping for some details on, I think you had mentioned in the release an unplanned, some unplanned downtime at Lima and how impactful that was on 4Q results. And then you also mentioned in the release what sounded like maybe some economic downtime you took in downstream. Could you just give a little detail around that, and did that continue into the early part of 1Q before cracks improved? Yeah, I'll speak to Lyman, and then Keith can answer your question more broadly. The only unplanned downtime that we had in Lima was a short outage that we had on the Isocracker.

John Herrlin: And as you know, John, the Isocracker is your biggest diesel-making unit, and when diesel is really your only product, it's making money in the crack environment that we saw in late November, early December, or all through December, really, it does impact financial results. Now, that all being said, that was dealt with quickly, and the Lyme refinery today is at full rates, operating very, very well. Keith, maybe you can just touch on any other aspects. Yeah, thanks for the question, John. So, you know, you will recall cracks really collapsed in the December time period.

Keith: So we did reduce the rates on kind of our lighter oil refinery, which is Lima, a little bit into December, as well as some of our non-operated refineries took some economic run cuts. That did persist into January, but you also probably are well aware that on February 1, we saw cracks really improve, and we quickly ramped up all of our assets to get the full rates to capture money in that market. I think it was about a $15 to $20 move on the crack, which incented us to go to full rates, where we continue to operate.

Keith: And, you know, looking forward, we're anticipating, you know, we're starting to get into driving season, and I believe there are some forecasted outages in the pad as well that should help sustain those cracks for the foreseeable future. Okay, great. Thank you. That's, that's very helpful. And then just sticking with the downstream, when I look at this year's guidance for maintenance, is 30 to 35 KBD of maintenance a good level to think about going forward? Or is there some extra maintenance involved?

John Herrlin: You know, given you had some restarts last year, just trying to think about sort of how to model kind of the earnings power and refining and, and just the maintenance impacts there. Yeah, you know, they're sometimes a little bit lumpy with major turnarounds, but I think, in general, John, that's a pretty good number to model. But you know, you can probably follow up with our IR folks off the call, and they can give a little bit more detail. Thank you. Great, thanks, John. Thank you. The next question comes from Neil Mehta at Goldman Sachs. Please go ahead. Hey, this is Nicolette Flusser. Sorry about that.

Neil Mehta: Lots of earnings calls going on today. But on for Neil, and thank you for taking our question. I guess the first question will be on downstream. No, there's been a lot, but ours is a bit longer term in nature, which is, you know, assuming we get kind of all the assets up and running, and maybe it's 2024 and beyond, are there any sort of initiatives we should be on the lookout for, either on the cost side, which you see as low-hanging fruit in the downstream and US, in particular, Yeah, there's nothing that we have that we need to address that relates to, you know, vessel retirement or regulatory obligation of any kind of consequence.

John Herrlin: So our focus today, you know, is continuing to run these assets well, integrate them with the upstream, and drive the value from this integrated value chain that we've put together. So don't think going forward that there are, you know, big lumps of capital that are coming your way to address, you know, those kind of big two issues that I talked about. Where we do have some capital that we've allocated to the downstream, it's more for projects that are economical in nature and allow us to expand margins and increase our heavy oil capacity throughput, but they're relatively modest. So what you can expect from us as a company over the next couple years is we're going to continue on the investments that we have in the upstream, and we've talked about those at Superior, Foster Creek, Christina Lake, and All right. Thank you. Very helpful.

Neil Mehta: And then, not to get ahead of ourselves, but just curious, are there any themes we should be on the lookout for? I know it's going to be a longer-term view at the upcoming March Investor Day, but any updates we should be looking out for, whether it's on pathways or low carbon? I know you're going to talk a lot about these upstream projects that you've been investing in, but also if there's anything on the capital return side of things we should be looking out for, any early thoughts would be very helpful. Well, you know, one of the things I think is that we've been pretty consistent on what our strategy is since... You know, Alex and I arrived here in 2018, so please don't believe that Investor Day is going to mark any kind of a left-hand turn from what's been really important to this company for the last five, six years, which is, you know, steady operations, driving to an under-levered balance sheet, getting to 100% shareholder returns So what we're really going to do at Investor Day is reinforce the strategy and the trajectory that we've been on but give you a lot more detail as to what the next five years are going to look like. All right. That's very helpful. Thank you so much.

Jason Bouvier: Thank you. The next question comes from Jason Bouvier at Scotiabank. Please go ahead. Thanks, and good morning, everyone. Quick question on the preferreds.

Jason Bouvier: My understanding is they become redeemable later this year. And in the first half of next year, assuming you guys hit your net debt target in the back half of this year, are those next on the plate? Or would you look for your shareholder returns to come through, like share buybacks or dividends? Hey, Jason, it's Cam.

Cam: So you're right, we do have some of our prep shares coming to maturity at the end of this year and some in 2024, or sorry, 2025. So we'll look at all those things as we as we do, whether it's our debt portfolio, our buyback program, and the press. So, you know, I think we're always evaluating what the right economic decision is for the company and what the capital structure looks like. So we'll know differently than any of those other decisions.

Cam: We'll look at those as they come to maturity. Great, thank you. Thank you. As a final reminder for analysts, should you have any questions, please press star 1 now. The next question comes from Manav Gupta at UPS. Please go ahead. Good morning, guys. I have a quick macro question first.

Manav Gupta: Every now and then, we hear that TMX has cleared the last hurdle and the line is already set to come on, and then there's another hurdle. Like, is there any update you guys have? You're much closer to it. When do you think TMX hits the mechanical completion, and failure, and when do those diffs start actually coming in?

Drew: Manav, what you hear is what we hear as well, so we've heard all of the starts and stops and starts again, but Drew, you're very close to this, why don't you answer where we are on TMX and our latest thinking there? Sure, yeah, thanks, Manav. Yeah, to John's point, it's, you know, it's sometimes daily and weekly here, and I think we're getting so close to being at the point where we can utilize a very important piece of infrastructure for the Western Canadian Basin, so we're all very, very excited to see that come on. Maybe just to back up, when we looked at our 2024 budget, and when we planned when we would see this and what we would take into account, we always kind of anticipated mid-year, and so I still think that's very reasonable, and I think we talked about this on the last call, even when it does come on and we, you know, get it full and it starts to operate, it's going to be a little bumpy probably out of the gate, so we've taken a lot of that into account in our guidance when we've looked at it, but, you know, we still see and believe that it will come on here sometime in mid to late Q2.

Drew: We expect the line fill call for the remaining volumes to come here in the next number of weeks and early Q2, but again, we also expect it to be a little bumpy as it kind of comes off the start-up, so we're still planning for mid-year, and we're looking forward to it like everyone else. Perfect. A quick follow-up here is you're pursuing growth at Foster, you're pursuing growth at Christina, and some other projects you talked about. When we look at, you know, it's like 26 and 27.

John Herrlin: What would be a good way of thinking about the oil sands production level? Just trying to understand the ballpark; how should we model 26 and 27 for the oil sands volume? Sure. So the way you should think about our growth projects is that we've been investing since 2023 in our growth projects, and that investment cycle kind of ends in 2025. So the money that we're spending last year, this year, and next year really facilitates the growth that you're going to see in 2025 and beyond. As I mentioned in my call notes, the first project to come on line will be the Christina Lake Narrows Tieback, and that'll add kind of 20 to 30,000 barrels a day starting in 2025, but more maturing in 2026.

John Herrlin: You'll see the foster expansion come on in the 2026 timeframe with full rates in 2027. You should see a continued growth in Sunrise production as we continue to bring on four well packages over the next two, three years, and we believe, again, that we can take that asset beyond the nameplate capacity of 65,000 barrels a day. You know, today we're kind of in the 45 to 50 range.

John Herrlin: So in those kind of timeframes, that's where you'll see the growth in our oil sands production, and it's really facilitated by having extra and incremental egress that we get from our refineries as well as TMX and having that under-levered balance sheet that we've been coveting for so long. The other project, Manav, and I think you're aware of this, is our West White Rose project, and we expect to see first oil there in 2026. Perfect. Thank you so much for all this, and I look forward to meeting you in person in about three weeks.

Manav Gupta: We look forward to it as well. Take care. Thank you. At this time, if any member of the media would like to ask a question, please press star 1. The next question comes from Lloyd Byrne at Jefferies. Please go ahead.

Lloyd Byrne: Hey, thanks, guys, for doing this. I have a bit of a philosophical question, and maybe you want to address it on the annual stay coming up. But the market's kind of gotten stuck on the $4 billion number at $45 oil. And your debt is already below a lot of your peers, depending on how you want to look at it.

John Herrlin: And then the second is your cost of equity is really high relative versus, obviously, your cost of debt. And so given the fact you have a lot of projects coming on Sunrise, Narrows, Foster Creek, West Wright Rose, it looks like your EBITDA is going to be $5 billion out and $26 or $45 anyway. So I guess my question is, would you ever consider accelerating the buyback at this point? Yeah, I'll take a crack at this, then I'm going to turn it over to Cam. But, you know, I would, I think we've been really clear on what our financial framework was, is and how we think about, uh... capital structure capital allocation shareholder returns and the like and and we are absolutely of the view that companies like us that produce heavy oil in the Mid-Continent uh... need to run under levered balance sheets and we need to have uh... a balance sheet that's sustainable at the bottom of the cycle which we define as forty five dollars we believe that's the price where growth in hydrocarbons uh... stop so you know for us achieving that four billion dollars is is kind of job one uh... and getting to a hundred percent shareholder returns beyond that is uh... you know something that we're absolutely looking forward to and uh... something that we've been coveting for a long period of time as we go forward through time we're always evaluating uh... you know the right level of debt for the company to have we believe that one times EBITDA at forty five dollars is that right level of debt but don't look for us to stray from our financial framework and try and be overly opportunistic by uh... buying back stock in today's market at the expense of uh... getting the balance sheet to that level, Yeah, and Lloyd, it's Cam. I would just add a couple things.

John Herrlin: I think number one is, look, this debt target is not a short-term target. This is something we've been wanting to strive for, to get to for a long period of time. We've been on this de-leveraging journey now for the better part of five years, I would say, you know, even going back to 2018. And, you know, I think the goal is, let's have it, we want a capital structure that allows us to have a resilient balance sheet, and gives us optionality to be opportunistic in times when others may not be able to.

Cam: And, you know, I think I would also highlight that we're in a period of time right now where our capital is a little bit elevated, just given that we have some big projects and commitments that we have ongoing, whether it's West White Rose or the oil sands growth. So I think that debt target is really important to us. We're not going to deviate from it.

Cam: And to John's point, we'll reassess it as the growth kind of comes through the business as we get into 2020, 2025, and 2026. Great, that makes sense. And your sustainable EBITDA is going up, too, so. I have one more question.

Lloyd Byrne: How about exports out of PAD2 going forward? I mean, last time I think I saw you guys, we were talking about potentially looking into different options going forward. Do you think there's an opportunity to get more product out so this doesn't happen, and the kind of margins you saw this year don't happen again in the future? Yeah, Lloyd. It's Drew.

Drew: Yeah, you are correct that that is a nice market to go into. Pat One is a nice market, and we've got about 20,000 barrels a day of takeaway capacity there to get into the premium market. We're also using some storage and selling our products in later months. Right now, if I just think about summer versus winter gas spreads, and you know we are doing that right now because of the ARB that's there. It is on our radar; there are some things we are looking at to be able to access our refined products into better markets that are a little more structured and probably have a little bit more global consistency to be a little more We're seeing that volatility in pad 2 right now, and we've talked about it today, and we're seeing it in our results, so it is it is part of some of our strategy and our thinking, and you know, it's something that we're working on. Great job, guys! Thanks. Thanks, Lloyd.

Lloyd Byrne: Thank you. The next question comes from Chris Barco at the Calgary Herald. Please go ahead. Good morning, Chris. Good morning, John.

Chris Barco: In November, the Alberta government announced its Carbon Capture Incentive Program, which I believe is a 12% grant for CCUS projects. And that obviously comes after Ottawa announced its investment tax credit for CCUS projects. Now that those pieces are in place, what does Cenovus need to see in order to progress the CCUS foundational project? Or maybe, looking at it another way, what is still lacking? Hey Chris, it's Rona.

Rona: So, we're still, I mean, there's still a lot of details that have to be ironed out with both the investment tax credit federally and the ASIP in the province. These are really good steps towards what needs to happen for decarbonization to progress. But, I mean, the ITC was announced a long time ago, and it's still not finalized.

Rona: Things like the carbon credits for difference that were announced by the federal government a long time ago, we still don't have any details on those. And so, you know, all along, we've been saying that we continue to work with both governments and those discussions are ongoing and have been for a long time. But this is really, this is very complex, and it can't just be figured out overnight. And so, it just takes a little bit longer than I think a lot of people would like it to.

Rona: But, I think you have to look at that as being somewhat of a positive thing that this needs to be right because these are multi-billion dollar decarbonization projects for our sector and for other sectors as well, and they take a lot of thoughtful discussion in order for them to progress. The thing that's really positive is that the industry and the Alberta government and the federal government all have a shared goal of decarbonizing because it's good for the province, it's good for Canada, and it's good for our sector. But we need to make sure that we have the right fiscal support in place because, around the world, these decarbonization projects do not go ahead without significant investment from governments. And so, that's what we continue to have discussions with. In the meantime, with the Pathways CCS project, there's a ton of work that's been ongoing, and we're getting ready over the next few months to submit the regulatory application for the pipeline and for the pore space. So, that's really, really positive. Lots of engineering work has gone into that. Lots of consultation with communities.

Rona: And we're continuing to work on a whole bunch of other projects. So, feasibility studies for the capture, as it's been announced, NOVUS is working on a feasibility study for small modular reactors. There's solvent work going ahead. There's other companies looking at fuel switching.

Rona: So, tons of work is going forward, and we're still working with governments on the details of what the funding support will be. And just to follow up, in December, the federal government announced its framework for the emissions cap for the industry, which looks at, I believe it's a 35-38% reduction by 2030. Do you think this is a doable target?

Chris Barco: And I'm wondering, just separately, does the emission cap impact the desire of Pathways to invest in CCUS? Yeah, you know, one of the things we've seen, Chris, is a real increase in the complexity, density, and velocity of proposed regulations coming out of Ottawa. And our view on all of this is, you know, it's largely unnecessary, and that the right incentives already exist, assuming that we can get a framework together for financial support that incentivizes investment in this base, and not just for decarbonization but for the business as a whole. So our view on these things is that they're unnecessarily complex, and they cloud the issue of trying to get to a place where we have some certainty as to what the... Financial Incentive Framework is going to look like that allows us to invest not just in the business but in the decarbonization of this business as well. Thank you. Thanks, Chris. Thank you. The last question comes from Robert Tuttle at Bloomberg News. Please go ahead.

Robert Tuttle: Yeah, happy morning. Just following up on that, you guys have your own target for 2030 on emissions cuts. My understanding is you need to start ordering the pipes or the pipeline, various components, like right now.

Robert Tuttle: Are you going to reach your own target, do you think, or is that compromised? So our internal target, Robert, is a 2035 target. I think what you're referring to is the 2030 target that was put out by the federal government as well as the Pathways Group.

Robert Tuttle: There's no doubt that to reach the 2030 targets of what's doable, we need to move on that today. But we can't move on those targets until we get the certainty from the levels of government that we're currently negotiating with that allow for certainty and investment in these kinds of projects. As Rona mentioned, these are multi-billion dollar projects, multi-year projects, and they can't happen if they leave the industry uncompetitive with the peer group.

Robert Tuttle: So once that certainty is established, and we're working with the federal and provincial governments right now to try and get there, we'll move forward. But there's no doubt that to kind of achieve the 2030 targets that have been floated, this needs to happen sooner rather than later. Have you been given a timeline or anything by the government on when they'll be able to give you certainty on things like the credits for difference and the other supports you need?

Rona: I mean, have they indicated anything? Hey, it's Rona again, Robert. I mean, everybody, there's commitment from the government to move this forward as well because, again, as I mentioned, everybody has the same shared outcome we're trying to achieve. But I think it's hard to guess when you're having discussions that are complex like this. It's hard to put an exact date on it.

Robert Tuttle: But I think everybody wants to get this going because we wanna see these decarbonization projects underway and that's what the governments want, and that's what our sector wants. Okay, thank you. Thanks, Robert. Thank you. This concludes today's question and answer session. I will now turn the call back over to Mr. McKenzie for closing comments. Great, well, I'd just like to thank everybody for their interest in the company and attending the call and wish everybody... a great rest of your day, and we look forward to seeing you on March 5th. Thank you very much. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines. Thanks for watching!