Summary
Cenovus reported good 2025 results. Reserves are extensive, but the RRR is low. Production was slightly higher than expected and will increase in the future. The balance sheet is in need of reinforcement. Long-term debt needs to be reduced. Profit was slightly higher than expected. Cenovus is profitable but has a high PE. The shareholder returns in 2025 were high, but will be lower in 2026/2027 as the debt needs to be reduced The FCF should be adequate to repay the loans expiring 2028 and 2029. In my 80-oil and gas companies ranking Cenovus ranks just the top 25 at a neat 23rd position.
Reserves
• Proven reserves over the last seven year increased 20% from 5,103 M BoE to 6,135 M BoE. Most of the increases came from acquisitions.
• 2025 reserves (6,135 M BoE) were 8.3% above 2024 (5,103 M BoE). The additional reserves came from solely from the MEG Energy acquisition (679 M BoE).
• The Reserves Replacement Ratio (RRR) has been low. The RRR over the period 2019-2025 was a low 0.39 (industry average 0.95-1.00).
• 2025 RRR was also a meagre 0.39.
• 2025 reserves (6,135 M BOE) are equivalent to a long 17.2 years of 2026 production, making reserves bookings a bit irrelevant.
- Cenovus - reserves.jpg (121.85 KiB) Viewed 178 times
Production
• Cenovus upstream production has been relatively flat over the last five years, fluctuating in the 791-834 K BoE/d range.
• Q4 production (917.9 K BoE/d) was well above Q3 (832.9 K BoE/d), mostly due to 106 K BoE/d of MEG production being included after the 14th of November. Cenovus had a Q4 outlook of 910-920 K BoE/d. I had expected a Q4 production of 910 K BoE/d.
• 2025 production was 833.9 K BoE/d above with the 805-825 K BoE/d outlook which did not include the MEG acquisition. I had expected a 2025 production of 828 K BoE/d.
• Production in 2026 will jump with 106 K BoE/d from the MEG Energy acquisition.
• Cenovus reiterated its 2026 outlook of 945-985 K BoE/d. I expect for 2026 a production of 968 K BoE/d).
• Through the period 2026-2028 production will grow at Christina Lake north (+40 K BoE/d by 2028), Sunrise (+15-20 K BoE/d by 2028), Lloydminster (+30 K BoE/d by 2028), and the offshore West Rose project (+50 K BoE/d by 2028). Cenovus is targeting a production of 1,000 K BoE/d in 2028.
• Production after 2030 can grow to >1,000K BoE/d.
- Cenovus - productions.jpg (156.21 KiB) Viewed 178 times
Balance sheet
• Cenovus had a reasonably healthy balance sheet, but this was weakened following the closure of the MREG Energy acquisition in Q4.
• The Q4 equity ratio (=equity/balance sheet total) of 49.9% was well the 53.0% in Q3.
• Long-term debt at the end of Q4 (C$ 11,032 M) was C$ 3,876 M (+54%) above Q3 (C$ 7,156 M), mainly due to the C$ 4.1 B cash payments for MEG Energy and the inclusion of C$ 800 M of MEG Energy debt.
• The Q4 debt/EBITDA ratio on an annual basis is a too high 1.17, indicating that long-term debt needs to be reduced.
• Cenovus targets a long-term debt of < C$ 4.0 B and a DEBT/EBITDA of < 1.0.
• The balance sheet allows some returns to shareholders.
Profitability
• Cenovus is a profitable company.
• Q4 profits (eps = C$ 0.51) were well below Q3 (C$ 0.72), mainly due to lower oil prices. I had expected an eps of C$ 0.39.
• 2025 profits (eps=C$ 2.16) were above 2024 (eps=C$ 1.67), mainly due to additional income/expenses switching from negative to positive.
• Royalties were a normal 9.4%.
• For 2026 with WTI = US$ 60/bbl I expect an eps of C$ 1.74 The PE is a high 13.4
• In 2030 the eps can reach C$ 1.52 (PE=15.3).
• Cenovus is not very robust under low oil prices.
- Cenovus - profit.jpg (124.12 KiB) Viewed 178 times
• Cenovus is generating significant amounts of FCF, although less under lower oil prices.
• Over the period 2026-2030 Cenovus has to repay a C$ 2.2 B loan in 2028, and a C$ 2.7 B loan in 2029. There are no schedule repayments in 2026-2027 and in 2030.
• The FCF should be adequate to repay the debt.
Shareholder returns
• Cenovus paid in Q1 a C$ 0.18 quarterly dividend, and a C$ 0.20 quarterly dividend in Q2-Q4 for a 2025 total of C$ 0.78 (=return 3.3%).
• Q4 share buybacks were C$ 714 M, compared to C$ 918 M (Q3), C$ 308 M (Q2) and C$ 62 M (Q1). In total Cenovus bought back in 20254.7% of its shares.
• Total shareholder returns in 2025 were equivalent to a good 8.0%.
• Cenovus intends to return 50% of the FCF to shareholder as long as long-term debt is > C$ 4.0 B, and will increase this to 100% once the long-term debt falls below C$ 4.0 B.
• In 2026, with WTI= US$ 60/bbl, I assumed that the quarterly C$ 0.20 dividend will be maintained, but that share buybacks will be reduced as the FCF is required for the reduction of the long-term debt. I expect a total return in 2025 of 5.2%
• Shareholder returns can increase to 7.0-7.4% in 2030.
Conclusions
Cenovus reported good 2025 results. Reserves are extensive, but the RRR is low. Production was slightly higher than expected and will increase in the future. The balance sheet is in need of reinforcement. Long-term debt needs to be reduced. Profit was slightly higher than expected. Cenovus is profitable but has a high PE. The shareholder returns in 2025 were high, but will be lower in 2026/2027 as the debt needs to be reduced The FCF should be adequate to repay the loans expiring 2028 and 2029. In my 80-oil and gas companies ranking Cenovus ranks just the top 25 at a neat 23rd position.