Apr 13, 2021
[2 min Read]
Cenovus Energy Inc. ($CVE) is an integrated oil and natural gas company headquartered in Calgary, Alberta. The company was formed in 2009 when Encana Corporation split into two distinct companies, with Cenovus becoming focused on oil sands assets.
$CVE announced the acquisition of Husky Energy in late-October 2020, which created the third largest Canadian oil and natural gas producer. As a result, this transaction should be highly accretive and lead to substantial synergies, increased scale, more stable cash generation and reduced group leverage.
0.7 P/B Ratio
$36 US WTI Breakeven. We are at $60 US WTI with the expectation that oil will surge this summer.
Annual synergies $1.2B
Cenovus will now have the biggest refining capacity in Canada, second biggest upgrader.
Oil production will be almost on par with Suncor. Going from around 450,000 BOE/d to over 750,000 BOE/d
Cenovus is looking at $4billion USD in free funds flow
Cenovus has mentioned share buybacks and increase dividend.
I worked for Goldman Sachs as their primary Midstream Oil & Gas researcher. They used a couple companies who would run commodity strip pricing on various companies to see how it would affect free cash flow and asset valuation. Cenovus having B/E at $36/BBL provides tremendous upside based on oil price forecasts for the summer.
HFI Research Targets - Estimated $CVE will be worth $30+ (+208%) if WTI hits over $65/BBL
Consensus 'Buy" Rating with potential of ~43% upside
Insiders never sell! They just keep buying! Very bullish.
IMF Oil Breakeven Global Pricing - The world is struggling with breakevens and need higher pricing
The play is on Biden & his ability to open up the economy. The idea is that once the economy opens up, Cenovus is going to be sending a LOT of oil down to the US at much higher crude pricing which will allow for extreme cash flow. Even if this doesn't completely come to fruition, the play should generate some sort of opportunity for profit as I think this company is well positioned to grow on asset synergy alone.
For options, I am looking at picking up CVE $10c 6/18 which has a B/A $0.10/$0.15 so you can drive a car through it currently. Also, even further OTM $12c 9/17 which shows a spread of $0.10/$0.25 so can fit the Evergreen through that spread.
If you want to double down, buy shares at anything below $8 and hold through EOY.