Cenovus Swings from a loss to a profit in Q2 (with Q2 prices)

Cenovus surprised investors in 2020 when it made a huge investment and acquired Husky Energy.Cenovus made a large gamble on having synergies from the combination and increasing oil prices.Now the outcome of the takeover is becoming clearer as Q2 results are in Synergies are greater than expected and so are Q2 oil prices.In Q2 2020 net loss was $235 million and in Q2 2021 net earnings were $224 million.Both production and prices were up-Q2 2020 had 400,000 barrels of oil and natural gas liquids/day plus 906MMCF/day compared to 392MMCF/day in 2020.The average price for oil in Q2 2020 was $40/barrel versus $60- $70/barrel in Q2 2021.

    Synergies and Oil Prices  

    Cenovus management says in the quarterly report that "total integration costs for the Husky transaction are still expected to be in the range of $500 million to $550 million".And it says that "the company remains on pace to realize at least $1 billion in synergies in 2021 and to reach it's go forward annual run-rate of $1.2 billion in synergies by the end of this year".The other part of the equation for the increase in adjusted cash flow is higher oil prices.In Q2 2020 the average oil price was about $40 per barrel and now the average price is between $60 and $70 per barrel (see the chart below).This was a very fortuitous time for Cenovus to acquire Husky Energy. 

    Annual Guidance  

    After the acquisition of  Husky Energy, Cenovus had $13.3 billion of debt on it's books.And this blog estimates that the debt/adjusted cash flow ratio was about 3.5 - 4 times.After selling off some upstream assets for $215 million and using  the proceeds from adjusted cash flow debt has been pared down to about $12 billion Cenovus management tells investors that their debt target for 2021 is $10 billion..So  the debt/adjusted cash flow will be about 1.5 - 2 times at year end.This is a tremenduous improvement in the security of the stock for it's shareholders.

   The Q2  production  of oil and liquids was 765,000 barrels/day and CVE gives guidance for 2021 production of 750,000-790,000 barrels/day.However this blog estimates that e.p.s will only be $.60- $.75 per share partially because of the interest rate expenses.These financial indicators prepare the way for Cenovus' share price to be in the $12.75-$13.00 range by October when the next quarter's results are released.       

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