Cenovus Energy Q4 2025 Earnings Call - MEG deal consolidates Christina Lake, powering record oil sands output and operational momentum

Conference Operator: Good morning, everyone. Thank you for standing by, and welcome to Cenovus Energy’s fourth quarter and full year 2025 results conference call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your touchtone telephone. As a reminder, this call is being recorded. I would now like to turn the meeting over to Mr. Patrick Read, Vice President, Investor Relations and Internal Audit. Please go ahead, Mr. Read.

Patrick Read, Vice President, Investor Relations and Internal Audit, Cenovus Energy: Thank you, operator. Good morning, everyone, and welcome to Cenovus’s 2025 year-end and fourth quarter results conference call. On the call this morning, our CEO, Jon McKenzie, and CFO, Kam Sandhar, will take you through our results. Then we’ll open the line for Jon, Kam, and other members of the Cenovus management team to take your questions. Before getting started, I’ll refer you to our 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. They also outline the risk factors and assumptions relevant to this discussion. Additional information is available in Cenovus’s annual MD&A and our most recent AIF and Form 40-F. As a reminder, all figures we reference on the call today will be in Canadian dollars, unless otherwise noted. You can view our results at cenovus.com.

For the question-and-answer portion of the call, please keep to one question with a maximum of one follow-up. You are welcome to rejoin the queue for any other follow-up questions you may have. We also ask that you hold off on any detailed modeling questions. You can follow up directly on those with our investor relations team after the call. I will now turn the call over to John. John, please go ahead.

Jon McKenzie, CEO, Cenovus Energy: Great, and thank you, Patrick, and good morning, everyone. I want to begin by recognizing our safety performance. Safety remains the cornerstone of everything we do at this company and every decision we make. At our Sunrise oil sands asset, our teams have now gone through two full calendar years and more than 1.8 million hours worked without a reportable incident. Now, this is particularly notable because 2025 represented the highest activity level at Sunrise in the past 6 years, with close to 950,000 hours worked as they completed two turnarounds and advanced the assets growth program. This outcome reflects our deep commitment to safety, even during periods of elevated activity. Personal safety for each of our employees and contractors remains a critical priority, which must underpin everything we do.

We are working to build on our strong performance and continuously improve to ensure that our people come home safely each and every day. So now to our results. 2025 was a very important year for Cenovus, in which we executed a long list of priorities across the company. Our performance in 2025 is a testament to the great people and assets we have at Cenovus. When I look at all the things that we accomplished this year, I couldn’t be more impressed by the way our people met the challenges we faced. We had a very ambitious agenda, and we collectively delivered against it. Operationally, our teams delivered exceptional performance, including setting multiple upstream production records across our assets and executing consecutive quarters of top quartile downstream reliability, and profitability.

Our upstream production of 834,000 BOE per day in 2025 was the highest ever for Cenovus and up 3% from 2024, excluding the impact of the MEG Energy acquisition. We also reduced total upstream non-fuel operating costs by approximately 4% from the year before. In the downstream, our refineries ran well through the year, with a combined utilization rate of 95% across the Canadian and U.S. segments. This included the impact of a major 59-day turnaround at Toledo, which was completed 11 days ahead of schedule. Now, at the same time, we lowered costs, delivering a reduction in operating costs of around $4 per barrel in the Canadian refining segment and $2 per barrel in our U.S.-operated refineries.

We recognize there’s more work to do as we continue to drive down costs and leverage our commercial capabilities to enhance our market capture. We also achieved major milestones across our growth projects in 2025. This included completing the Narrows Lake tieback to Christina Lake, a first of its kind, extended steam reach pipeline, completing the facilities work on the Foster Creek optimization project, which delivered production growth well ahead of schedule, and completing the construction and installation of the tie-ins on the West White Rose platform. These projects reflect an enormous amount of effort, determination, and ingenuity from all parts of our organization, that I couldn’t be more proud of what we’ve delivered. Now, 2025 also saw us complete two significant transactions.

Starting with MEG Energy, we have long recognized the quality of the resource and the synergy opportunity available if we consolidated the Christina Lake area. When MEG became available, we responded accordingly. The acquisition was successfully closed on November thirteenth, adding over 100,000 barrels a day of top-tier resource, located directly within our largest producing SAGD asset. The addition of MEG’s assets and people have strengthened our industry-leading heavy oil portfolio and solidified our position as the preeminent heavy oil producer, not just in the Western Canadian Sedimentary Basin, but globally. We also sold our interest in the WRB Refining joint venture at the end of the third quarter. As a result, we now have full operational, commercial, and strategic control of our downstream business, which remains a critical component to our heavy oil value chain.

Together, these transactions position the company for continued material value growth over the long term. So now turning to our fourth quarter results. Upstream production in the fourth quarter was 918,000 BOE per day, headlined by oil sands production of 727,000 BOE per day, both records for the company. Including the full benefit of the MEG acquisition, which closed in mid-November, we exited the year with production over 970,000 BOE per day in December, including nearly 786,000 BOE per day from the oil sands. We are encouraged by the recent performance and expect our operating momentum to continue into 2026 and beyond. At Christina Lake, production averaged 309,000 barrels a day in the fourth quarter.

That includes roughly 6 weeks of production from the newly acquired Christina Lake North asset, which achieved its highest-ever production rates of over 110,000 barrels a day in the quarter. The combined Christina Lake is the largest and highest quality thermal asset in the industry, with a reserve life measured in decades. The integrations of systems and people is largely complete, and we have delivered a majority of the expected corporate synergies already. Work is now progressing at pace to capture operational synergies. We have begun a delineation and seismic program at the Christina Lake North asset, which will allow us to optimize our go-forward development plans for this resource. Our technical groups have begun leveraging our scale and operating practices to deliver near-term production and cost savings.

We have also begun drilling a 42-well redevelopment program, which will support additional production volumes in 2026 and 2027. We are very comfortable in our ability to deliver CAD 150 million of annual synergies in 2026 and 2027 and over CAD 400 million of annual synergies by the end of 2028. We are delineating additional synergy opportunities as we fully integrate our future development plans for the broader Christina Lake region. Now, at Foster Creek, we achieved a production record of 220,000 barrels per day in the quarter, reflecting the impact of the Foster Creek Optimization Project. Incremental steam capacity of approximately 80,000 barrels a day was brought online in mid-2025, and in the fourth quarter, the water treatment and de-oiling facilities were commissioned and put into service.

With these milestones behind us and production largely ramped up, we have successfully delivered around 30,000 barrels a day of growth at Foster Creek, well ahead of schedule. Looking forward, new well pads associated with the optimization project will be brought online at Foster Creek this year, which will support increased production levels or support the increased production levels we have seen. We also continue to progress our enhanced sulfur recovery project that will reduce operating costs by about 50-75 cents per barrel when it comes online mid-year. At Sunrise, following the turnarounds executed in Q2 and Q3, production rose to over 60,000 barrels a day in the fourth quarter. The first of the new well pads from the east development area, incorporating Cenovus well pad design for the first time at Sunrise, is currently steaming and expected to start up in early 2026.

We will bring on a total of 3 well pads in this high-quality reservoir in 2026 and at least 1 more in 2027. This development will deliver the next phase of growth as we progress our plans to increase production to over 70,000 barrels a day by 2028. Now, with the work we completed earlier this year, we have also extended the turnaround cycle from 4 to 5 years at Sunrise. That means there is no major cycle-ending turnarounds at Sunrise until 2030, providing an extended runway while we grow volumes and optimize the asset. The Lloyd Thermals had an exceptional fourth quarter, partly as a result of the highly successful redevelopment well program that significantly exceeded our expectations.

In tandem with strong base well optimization, production averaged over 107,000 barrels per day in the quarter, more than 10,000 barrels higher than the previous quarter. This includes the impact of the sale of Vaughn at the beginning of December, and building off the success we had in 2025, we’ll be deploying an even larger redevelopment program in Lloydminster in 2026. Now, turning to the Atlantic. At West White Rose, we’re currently conducting systems integration testing, and we’re in the final phase of commissioning. Our teams have done a fantastic job of safely progressing the scope in spite of particularly challenging weather in the North Atlantic. We’ve seen an abnormally severe winter storm season, with waves as high as 17 meters and winds up to 170 kilometers per hour.

Through this, our people have continued to make steady progress. We have completed the welding and coding of the platform legs, and the main power generators are fully commissioned. We also opened the living quarters on the top side prior to year-end, transitioning staff from using a flotel vessel to fully manning the platform. Now, we’ve guided you to expect first oil in the second quarter. With weather disruptions we’ve seen, that timeline will be tight, but our people are determined and do incredible work as we push this forward at pace. Also, in the offshore, in conjunction with our partners in Asia, we successfully extended the gas sales agreements in China for both Liwan 34-2 and Liwan 29-1, subsequent to the quarter. The extensions will enable sales through the end of the field’s production periods in 2034 and 2040, respectively.

This increases sales volumes within our five-year plan and add nearly CAD 2 billion of incremental free cash flow to these assets over the life of the fields. Now, moving to the downstream. Fourth quarter results underpin the profitability and competitiveness of our assets in a relatively weak crack environment. In the quarter, the Canadian refining business ran at its highest rates of production through the year, with crude throughput of 113,000 barrels per day, or utilization rate of about 105%. In U.S. refining, our results in the fourth quarter reflect not only our operated, oh, sorry, reflect only our operated assets, as our interest in the WRB Refining was divested, effective September 30. Our U.S. refining business delivered crude throughput of 353,000 barrels per day, or approximately 97% utilization.

While the market crack spreads in Chicago area deteriorated significantly in early December, which is typical for this time of year, we’re able to capture a larger share of the margin available. Excluding the receipt of one-time pipeline settlement, our adjusted market capture was around 95% in the quarter. This reflects both seasonal product mix impacts related to our configuration, as well as our ability to capitalize on commercial opportunities we saw in the market during the quarter. Now, I’m gonna pause for a minute, and I will turn this over to Cam to walk through our financial results.

Cam Sandhar, CFO, Cenovus Energy: Thanks, John. Good morning, everyone. In the fourth quarter, we generated approximately CAD 2.8 billion of operating margin and CAD 2.7 billion of adjusted funds flow. Operating margin in the upstream was over CAD 2.6 billion, in line with the prior quarter, with record production in the oil sands, more than offsetting declining benchmark oil prices. Oil sands non-fuel operating costs decreased to CAD 839 a barrel in the fourth quarter, over CAD 1.25 lower than the prior quarter, due to higher production volumes and reduced maintenance activity. As John mentioned, our downstream business continued to demonstrate strong performance in the quarter. Downstream operating margin was CAD 149 million, despite deteriorating regional crack spreads in the U.S. towards the end of the year.

This included $138 million of inventory holding losses and $15 million of turnaround expenses, partially offset by a one-time pipeline settlement receipt. Excluding these impacts, downstream operating margin would have been approximately $235 million in the quarter. In the U.S., refining operating costs, excluding turnaround expenses, were $11.57 a barrel, reflecting higher fuel and electricity prices, planned maintenance activity, and modestly lower throughput quarter-over-quarter. The fourth quarter environment was particularly favorable to our configuration, with heavy crude differentials widening, diesel and jet fuel advantage relative to gasoline, and lower benchmark crude prices benefiting asphalt and other product margins. Our marketing teams were able to capitalize on market opportunities in the quarter, while at our Lima and Toledo refineries, we continued to leverage and enhance the interconnectivity of the sites.

On a sustained basis, we continue to guide to adjusted market capture around 70% at a $14 WCS heavy oil differential, with opportunities to improve this over time. Capital investment in the fourth quarter was nearly CAD 1.4 billion, resulting in full-year capital spending of CAD 4.9 billion. This spend supported sustaining activity across the business, along with investment in growth and optimization, including capital directed to our three major capital projects at Narrows Lake, Foster Creek, and West White Rose. As we look forward, growth spend in 2026 - in the 2026 plan is approximately CAD 300 million lower at the midpoint year-over-year. This growth spend includes commencing the drilling at West White Rose, advancing the Christina North expansion project, which will support growth of Christina Lake to around 400,000 barrels a day.

Net debt was approximately CAD 8.3 billion at the end of the fourth quarter, an increase of approximately CAD 3 billion due to the MEG transaction, partly offset by the receipt of CAD 1.9 billion of cash proceeds from the sale of WRB. Shareholder returns in the fourth quarter were CAD 1.1 billion, including CAD 714 million through share buybacks and CAD 380 million through dividends. After closing the MEG transaction, we’ve adjusted our framework to balance deleveraging and shareholder returns while we move towards our long-term net debt target of CAD 4 billion. When net debt reaches CAD 6 billion, we will aim to increase shareholder returns to around 75% of excess free funds flow. Also, in the fourth quarter, we recognized a current tax recovery of CAD 189 million, primarily driven by the integration of MEG’s business with Cenovus.

Full year 2025 current taxes were approximately CAD 780 million, well below our original guidance of CAD 1.2 billion-CAD 1.3 billion.

: ... Our cash tax guidance for 2026 remains unchanged at CAD 1 billion-CAD 1.3 billion at around a $60 WTI price. With the strong operational performance, meaningful progress towards capturing MEG synergies, and a robust balance sheet, we are well positioned to continue to deliver value from our opportunity-rich portfolio. I’ll now turn it back to John with some closing remarks.

Jon McKenzie, CEO, Cenovus Energy: Great, and thank you, Cam. 2025 was a great year for this company by any measure, and a testament to the dedication and determination of the people that we have in this organization, including those who most recently joined us from MEG. Our disciplined execution and focus on operational excellence enabled us to deliver significant milestones across the major projects this year, while setting numerous production records at all our oil sands assets. In our downstream business, we’ve continued to demonstrate the potential of the assets, as evidenced by consecutive quarters of top-tier reliability and meaningful cash flow contribution. Completing the strategic acquisition of MEG has materially extended our industry-leading, low, low-cost, long-life resource base.

Through the integration of our highly complementary assets and the focus on the ingenuity of our combined teams, we expect to create significant value from this business for years and decades to come. Anchored by our strong financial framework and balance sheet, and the many opportunities ahead of us, Cenovus is more resilient, competitive, and durable than ever before. With that, we’re happy to answer any questions you might have.

Conference Operator: Thank you. If you have a question at this time, please press the star one one on your touchtone telephone. We ask that you please limit yourself to one question and one follow-up. One moment for our questions. Our first question will come from the line of Dennis Fong from CIBC World Markets. Your line is open.

Dennis Fong, Analyst, CIBC World Markets: Hi, good morning.

Jon McKenzie, CEO, Cenovus Energy: Good morning, Dennis.

Dennis Fong, Analyst, CIBC World Markets: Good morning, Jon. Thanks for taking my questions, and first and foremost, congrats on a really strong quarter and year.

Jon McKenzie, CEO, Cenovus Energy: Thank you.

Dennis Fong, Analyst, CIBC World Markets: My first one here focuses really on the MEG assets that you’ve now taken over. I was hoping to find out what some of the next steps happen to be in terms of obviously turning the asset over to your teams, and then how are you looking at applying, we’ll call it Cenovus best practices and technical understanding on the asset to really drive stronger performance and realize the synergies that you outlined or more with the initial presentation?

Jon McKenzie, CEO, Cenovus Energy: Well, sure. So maybe I’ll take a crack at it, and then I’ll turn it over to Andrew Dahlin to give you some of the details on the production side. But I think we’ve had this asset now for, I guess it’s about three months now. And I’d say that, you know, particularly during the first six weeks since we acquired this, we’ve moved really, really quickly on getting after all the corporate synergies, that we had outlined in our investment case. So everything from, you know, the HR synergies through the commercial synergies, the finance synergies, getting the amalgamation done, to realize some of the, tax synergies, that was all done before year-end.

You know, we kind of look at that run rate of $150, and, you know, we’re very, very comfortable that the $120, that is sort of the corporate component of that, is very realizable and has largely been captured now. As we kind of move into 2026, we’re really focused on the operations proper. We have started a lot of work on delineating the reservoir in advance of doing our redevelopment program, which will kick off next month. Really looking at the well pad development and seeing where we can insert ourselves to impose some of our operating practices and well design on that.

And Andrew will give you a bit more detail, but we haven’t lost sight, Dennis, of the bigger picture and the view of how do we bring more synergy forward, and how do we go beyond the CAD 400 million that we had articulated in the business case? And we’re comfortable there’s a lot more there, and that’s what we’re working on now. But, Andrew, maybe you can talk a little bit about some of the things you’re doing in the field to get you know, additional production and synergy out of those operations.

: That’s right. Good morning, Manav. Yeah, it’s Andrew Dahlin speaking. Yeah, maybe just focusing on production itself. So the first thing we’re going after here in the first half of this year is the start of the redevelopment campaign. So the plan is to drill 40 redevelopment wells that ultimately get after a heated bitumen zone that sits below our current production wells. We will get production from our first redevs here in Q2 of this year. And I think as Jon has spoken to, that would benefit and see a production uplift both here in 2026 and into 2027. So that’s kind of the first production lever we’re pulling. Second one would be our development methodology.

So those of you that came to our teaching, you’ll know that our focus, or our sort of way of developing it is, the field is with wider well spacing and longer wells. So we are moving to implement that already here. Latter part of 2026, we’ll be steaming the first pad in 2027 and seeing a production ramp up and, and actually much lower development costs starting in 26 into 27. And then the team’s working really hard on facility debottlenecking and expansion. So there’s a debottlenecking program, actually, three MOCs taking place right as we speak, to be able to push more volume through the plant.

Then, of course, we have a facility expansion project that will see the facility expanded and production taken to an excess of 150,000 barrels a day by 2027, 2028.... So that was kind of the immediate production focus. And then on top of that, of course, if I look further out, we have things like boundary lands, or the boundary land that existed between ourselves and Meg. As John alluded to, we’re delineating that opportunity and then putting that into an optimized long-term development plan for the asset. So I’ll stop there.

Jon McKenzie, CEO, Cenovus Energy: So if I, if I were to sum it up, Dennis, I’d say there’s really no surprises in what we put out as our investment case on this, and, and I think we, we, you know, we’ll be bringing forward the coming quarters and months.

Dennis Fong, Analyst, CIBC World Markets: Fantastic. No, I, I really appreciate that, that, the depth of that context there, both, John and Andrew. Shifting my focus towards Lloyd for my second question. In your slide deck, you, you showcase, development, both from the, thermal as well as the, we’ll call it, conventional assets, towards over 145,000 barrels a day over the next couple of years. But I did, draw a little bit of notice to the use of solvent, enhanced oil recovery, techniques. Can you elaborate a little bit more on that opportunity and what that could mean for the field?

Jon McKenzie, CEO, Cenovus Energy: Yeah, so we’ve got a solvent project going on at what we call Spruce Lake North, which we think is an ideal reservoir for the application of solvent. And, you know, I think you know that we’ve been kind of leaders in this, in kind of developing that technology. So it’s not a, I’d say, a step change from our strategy, but it is something that we think is an opportunity for us, and this is kind of an ideal place to do this. I think, Andrew, maybe you can talk a little bit about the development of that and when we can expect to see that project come online.

: Yeah. No, happy to. So indeed, Spruce Lake project, we’ve taken FID on the project. Its spend is in the order of CAD 250 million. We’ll spend that here in 2026 and through into 2027, when the project will come on stream by now. Essentially, what we do is we inject condensate along with the steam, but less steam. And what it does is it lowers our SOR, it drives higher production, and it drives higher ultimate recovery. So we see an immediate benefit to Spruce Lake. And frankly, we see the future application of this in the rest of our oil sands assets and potentially also in some of our lower quality reservoirs.

We very much have a view of how we could deploy this technology into the next two-to-three decades. So that’s where we are on that note.

Dennis Fong, Analyst, CIBC World Markets: Thanks, Andrew. I’ll turn it back. Those are my two questions. Appreciate it.

Jon McKenzie, CEO, Cenovus Energy: Great. Thanks, Dennis.

Conference Operator: Thank you. One moment for our next question. Our next question will come from the line of Menno Hulshof from TD Cowen. Your line is open.

Menno Hulshof, Analyst, TD Cowen: Thanks, and good morning, everyone.

Jon McKenzie, CEO, Cenovus Energy: Morning, Mano.

Menno Hulshof, Analyst, TD Cowen: Good morning, John. I’ll start with maybe just on the downstream side of things. One big thing that jumped out for a lot of people in the quarter was the big uptick on a quarter-on-quarter basis for U.S. market capture. Yeah, just a big increase. And you did touch on this to some degree in your opening remarks, but can you just elaborate on what drove that? Because nobody was even close to that in the models, I don’t think. And maybe your expectation for market capture through the middle of the year, especially given limited planned turnaround activity.

Jon McKenzie, CEO, Cenovus Energy: Well, I’ll tell you what, I’m gonna turn it over to Eric to give you a view on that. Eric rarely smiles, but he is smiling this morning, so I think, you know, we’re really pleased and happy with the work that he and his team have done. But Eric, why don’t you talk a little bit about how you got the market capture you did?

Eric, Downstream Operations Leader, Cenovus Energy: Yeah. Thanks, John, and, and thanks, Mano, for the question. Yeah, really pleased with the performance. You know, I would say it’s, it’s a combination of a number of things. I think, certainly fundamentally, just having the reliability in place that gives you the ability to capture the market, when it presents itself. And so what we saw in the fourth quarter was, you know, some market opportunities where there were some supply disruptions in the region, and our reliability allowed us to capture that.

I think you put on top of that some of the real commercial optimization work that we’ve been doing between finding the synergies between Lima and Toledo using you know dock access to you know find new markets for our products just really helped underpin the improvement that we’ve been driving and you got to see that in the fourth quarter. You know the other nuance to market capture that I would highlight is there is seasonality to it. So what happens in the fourth quarter when you see you know the gasoline cracks start to fall off as you expect in Pad 2? Yeah there is some benefit to our portfolio where we have some GDD flexibility. It also helps relative to some of the other secondary products that we make.

So asphalts and some of those products are able to kind of price better relative to the crack, which shows a higher market capture. What I would say going forward is, you know, we’ll continue to guide to that 70%, but we do see seasonality in it. But I would continue to steer towards that 70%, at the $14 diff that we’ve talked about.

Menno Hulshof, Analyst, TD Cowen: Thanks, Eric. So we are starting to see a bit of an impact from the Pad 2 egress initiatives that you’ve talked about in the past?

Eric, Downstream Operations Leader, Cenovus Energy: Yes, absolutely. You know, we’ve-

Menno Hulshof, Analyst, TD Cowen: Okay.

Eric, Downstream Operations Leader, Cenovus Energy: We’ve seen some real good improvement around our ability to utilize the Toledo dock. We set an annual record in the volumes we’ve been able to move, and, you know, that just really helps us, you know, find new markets and, you know, be able to really get after some better opportunities for us. And, you know, we’ll continue to explore all sorts of options to continue to take advantage of that.

Menno Hulshof, Analyst, TD Cowen: Okay. Thank you. That’s helpful, and I’m gonna assume that’s part of the first question coming off if it’s not. But just on West White Rose, really good to see that the Q2 timeline is still intact, but can you just give us an update on the status of drilling? And what should we be modeling for an exit rate for 2026 if everything goes according to plan?

Jon McKenzie, CEO, Cenovus Energy: Yeah. No, you’re quite right, Manav. We’re still guiding to Q2. I did mention in my notes that it’s tight. So we had hoped to be drilling by this time. We are in the final stages right now of commissioning, and that will make the time frame, you know, again, tight for the end of Q2. But, Andrew, maybe you can talk a little bit about exactly where you are and how you’re seeing, you know, production through the end of the year.

Andrew Dahlin, Operations Executive, Cenovus Energy: Yeah. Hi, Manav. It’s Andrew speaking. Yeah, indeed. Maybe I’ll just sort of make sure that we all sort of level on where we are in terms of status of the project. So, you know, major construction is complete. The platform’s commissioned and habitable. All the subsurface work connecting the platform to the SeaRose is completed. And as Jon talked about, we’re in the final throes of commissioning and sit testing. So that’s where we are today, and then we move into drilling.

Jon McKenzie, CEO, Cenovus Energy: Yeah.

Andrew Dahlin, Operations Executive, Cenovus Energy: I think in terms of how do I look at it from a production and a CapEx for the year, we absolutely two guidance, you know, both for production. Production guidance was 20-25 thousand barrels a day, and I actually don’t have CapEx handy, but, but, but we’re also within that CapEx guidance. And so what you’ll naturally see is, as the first and the second well come on stream, you’ll see a base production from SeaRose and from Terra Nova, and that will continue through the year. I tell you that we’re seeing good uptime and availability and production from both of those facilities here in Q1. And then, obviously, in the second half of the year, you’ll get a production ramp-up as each new well comes on.

Jon McKenzie, CEO, Cenovus Energy: Yeah. So the final push is on, Mano, and we’ve increased the number of people on the platform, and we look to be drilling very, very shortly.

Menno Hulshof, Analyst, TD Cowen: Thanks to you both. I’ll turn it back.

Jon McKenzie, CEO, Cenovus Energy: Great. Thanks, Manav.

Conference Operator: One moment for our next question. Our next question will come from the line of Neil Mehta from Goldman Sachs. Your line is open.

Neil Mehta, Analyst, Goldman Sachs: Yeah, thanks so much. John, you addressed this in a couple different ways, but maybe you can dig a little deeper, which is, you’re getting to be a million barrel a day producer, and you’ve got a lot of growth here, coming in in the next couple of years. I think there’s a lot more questions about egress coming out of Canada, and apportionment is a factor, and you have a little bit less WRB as a hedge. And so just maybe you can address this concern head-on. Is Cenovus a lot more exposed to potential volatility in WCS, or do you feel confident in ability about your ability to navigate that potential risk?

Jon McKenzie, CEO, Cenovus Energy: Yeah, no, it’s something we obviously think about, Manav, or Neil. You know, since I came to this company, the two things that we obviously highlighted were egress and having a strong balance sheet. And when you kind of think about this company growing from a standing start to 1 million barrels a day over 20 years, those two things have really been front and center for us. So, you know, Jeff Murray, who’s our EVP of Commercial, he deals with this every day. But, Jeff, maybe talk about some of the egress options that we have and where we sit as a company in terms of our balances.

Andrew Dahlin, Operations Executive, Cenovus Energy: No, it sounds great, John. Neil, great question. You know, if we rewind the clock way back when to 2018, you know, we sold 80% of what we made in Alberta. Where we stand now is maybe 40% of the crude oil we make is sold in Alberta and exposed to that diff. So we’ve moved a very long way, as you point, also the growth on that front. So that’s a really big shift over the past 7-8 years. Probably more importantly is looking forward in the near term. We’ve been saying for a while, Trans Mountain is here, it’s working, it’s performing as expected, and you will see that through the stability of the Alberta diff as compared to global points, and that’s proven to be true.

We’ve also said we’re not going to rest on our laurels, and we and the industry at large haven’t. I think we’ve disclosed, you know, entering into opportunities for 150,000 barrels a day of export over the next two years under contract. And even more importantly than that, I would say Cenovus has been pressing hard across the industry for what’s next. Although the diff is in the right place, and stable, we know that we need to take action to continue that. And I think you can probably scour the market and find a number of publicly discussed projects, and we’re really quite supportive of all of them, both in philosophy, but also through contracting mechanisms, and we’ll continue to do that.

Jon McKenzie, CEO, Cenovus Energy: Yeah, I’d say, just adding to that, Neil, I would say that, you know, we probably see more proposed projects today than I’ve seen in the last 10 years, and more projects that are doable in a shorter timeframe than we’ve had in a long period of time. So, you know, as Jeff mentioned, heavy oil egress is a really important part of our strategy, and we are actively evaluating and looking at all of those options that are available to us, and you shouldn’t be surprised if we take action on some of those.

Neil Mehta, Analyst, Goldman Sachs: The follow-up is around return of capital versus growth. We’re probably in a firmer commodity price environment, John, than you and I would have thought a couple of months ago. Certainly geopolitics is part of that. But if we are-

Jon McKenzie, CEO, Cenovus Energy: Yep.

Neil Mehta, Analyst, Goldman Sachs: ... If we do go into a period of time where we’re above, let’s say, a mid-cycle price that you outline, does that dollar go back to deleveraging/return of capital, or could you accelerate the growth lever? How do you think about that?

Eric, Downstream Operations Leader, Cenovus Energy: We really don’t think about the commodity price of the day now. Like, we are kind of more value-oriented in terms of how we allocate capital over the long term. I think we’ve been pretty clear, you know, that in the short term, until we get down to CAD 6 billion of net debt, 50% of the free cash flow is gonna be used for deleveraging, and then we’ll return 50% to the shareholders in the form of buybacks. But Cam, maybe you have some more thoughts on that.

Cam Sandhar, CFO, Cenovus Energy: Yeah, Neil, I would just add, you know, I think when you look at our philosophy around just capital allocation, you know, the growth projects we’ve got in the portfolio, and I mentioned this in my remarks, you know, our growth spend actually has come down year-over-year when you look at the projects we’ve got. We’ve obviously finished or close to being done, things like Narrows, the Foster optimization, West White Rose. You know, we obviously added the FEP expansion. But when you look at the portfolio as a whole, you know, our growth spend is down year-over-year.

And one of the things we do try to do is we try to ensure that capital spend doesn’t really change with commodity prices, to John’s point, in that, you know, we can fully fund that growth plan with our dividend in probably a low $50 world. And so, you know, don’t expect us to make any sort of knee-jerk reactions to capital spending if commodity prices, you know, flex down $5-$10. And similarly, you’re not gonna see us move it in the other direction if oil prices go up. You know, when you look at the priorities we have today in terms of our excess free cash flow, you know, I don’t think anything has changed.

Neil, obviously, our philosophy has been that we’re gonna continue to be balanced on deleveraging and share repurchases with our excess cash, and that’s something we’ll continue to do. You know, I think, you know, I would say that obviously, the share price has continued to perform very well, but we’re nowhere near a price level that I would suggest is a level where we would move away from things like buybacks. You know, we’ve made a lot of improvements to the business, both on costs, on growth, and free cash flow improvements, and our business continues to get more and more resilient, and I think that affords us the opportunity to continue to buy back stock.

Manav Gupta, Analyst, UBS: Yeah, I think that’s the answer folks want to hear. Thanks, Cam.

Cam Sandhar, CFO, Cenovus Energy: Great. Thanks, Neil.

Eric, Downstream Operations Leader, Cenovus Energy: Thanks, Neil.

Conference Operator: Thank you. One moment for our next question. Our next question will come from the line of Travis Wood from NBCCM. Your line is open.

Dennis Fong, Analyst, CIBC World Markets2: Yeah, thanks. Good morning, guys. I wanted to-

Eric, Downstream Operations Leader, Cenovus Energy: Good morning, Travis.

Dennis Fong, Analyst, CIBC World Markets2: Yeah, good morning, John. Meno kind of stole my question there, but I wanted to, to dig into that a little bit more because I, I think it’s quite interesting in terms of the rate of change. So could you talk about some of those anomalies that you saw through Q4 in order to capture that adjusted 95%? And, and is the-- does the marketing and trading team have that ability to, to capture those go forward? And I guess i-in, in the same breath, how much does other refinery downtime have to do with that market capture? So if we see in the future, Whiting go down again, can we ramp up that market capture in, in those, one-off quarters with, with other refineries going into turnaround?

Eric, Downstream Operations Leader, Cenovus Energy: Yep. Yeah, again, great question, Travis. Appreciate the question. Yes, I think, maybe just working backwards, I think certainly with the reliability improvements we’ve been able to deliver in our portfolio, it positions us to be able to capture market opportunities when they present itself. And so anytime there’s a disruption in the market, you know, that reliability lets you take advantage of it. And that’s what we saw in the fourth quarter, and so you saw some strength in the crack, you know, really into early December before it started to fall off, as you would expect it to in the winter season.

And so, yeah, fully expect, you know, that, that is something we will continue to stay laser focused on, that when the market presents opportunities for us, we want to be able to take advantage of that. So, so that is absolutely core to what we want to be able to do. In, in terms of the market, you know, I, I think every, every refinery and every downstream has its own unique configuration, and I think when the market fundamentals favor that configuration, you see the opportunity to have a higher market capture. So for us, where we have a high, you know, heavy differential, you know—Sorry, where we have a higher heavy crude consumption, where we see that, that heavy diff, you know, that, that favors our portfolio.

You know, where you see the gas crack come off, we have some diesel, some distillate length, some, some diesel and jet length. You know, we’re able to take advantage of that by optimizing our, our cut points inside the refinery and really maximizing that, that, that distillate production. You know, Superior has significant asphalt production, right? When you see the asphalt market have some strength and, you know, carry that forward, that favors that portfolio. And so, you know, that really is that seasonality I spoke to earlier, that, you know, depending on what the market is favoring and how it, you know, and how it’s priced in, you know, that, that can, that can favor or that can work against you.

What we saw in the fourth quarter was really the opportunity, both from, you know, the market opportunities with some of the disruptions, as well as our configuration, you know, fitting better into what the crack available was for us.

Dennis Fong, Analyst, CIBC World Markets2: Okay. That, that’s a fantastic color. Switching gears for my second, just, in terms of forward contracting on the, the gas sales, does that include any kind of contracted pricing as well? Is there any material change to the pricing as we look out through 2026 and beyond?

Eric, Downstream Operations Leader, Cenovus Energy: Yeah, no, that’s a good question, Travis. So, you know, what we’ve done on 34-2 and 29-1-

Jon McKenzie, CEO, Cenovus Energy: ... It’s taken, you know, the last couple of years to really work on delineating those reservoirs. And what we’re finding is those reservoirs are getting bigger than what we had originally booked for reserves, not smaller. And that’s given us the opportunity to increase the gas sales, you know, right to the end of life of the PSCs, and that’s a big deal for us. And so the gas contracts themselves are roughly the same as what they are today, although, you know, slightly higher as well. So we’re very pleased with the pricing, very pleased with the volumes. As I mentioned in my notes, it gives us above, you know, CAD 2 billion of incremental free cash flow over the life of those fields.

So it’s a very significant piece of work and something that the team there has been working on for the last couple of years. So it’s good to see it come to fruition at year-end.

Manav Gupta, Analyst, UBS: Okay. Thanks for taking my questions, guys. I’ll turn it back.

Jon McKenzie, CEO, Cenovus Energy: Yeah.

Conference Operator: Thank you. One moment. One moment for our next question. Our next question will come from the line of Chris Niebert from RBC Capital Markets. Your line is open.

Jon McKenzie, CEO, Cenovus Energy: Morning, Chris.

Greg, Analyst, RBC Capital Markets: Hey, John, it’s, it’s Greg, so I think we may have got our wires crossed a little on our end.

Jon McKenzie, CEO, Cenovus Energy: Well, I apologize. You came, you came up as Chris Niebert, we were wondering who it really was.

Greg, Analyst, RBC Capital Markets: I did indeed, and yeah. So, listen, a couple of things. I want to come back to Neil’s question. So you finished the three-year plan, you know, the three-year growth plan and so forth. Is there another growth plan, albeit perhaps more modest in the offing right now? And then related to that, I wanted to go back to what Cam was talking about in terms of, you know, not really throttling your spending too much, but like, how generally should we... I hate to ask it this way, but how should we think about, say, your capital spend maybe over the next two, three years? And that obviously ties into, you know, the degree of balance sheet deleveraging, other things we look for.

Jon McKenzie, CEO, Cenovus Energy: Yeah. So, you know, what I would say, Greg, is that, you know, one of the things we don’t want to get into is big major projects again. So, you know, West White Rose is the last of the big major projects. But we have fairly low sustaining capital in and around sort of the $36-$37 level. And so we have plenty of capital available to us at growth projects that clear the bar at $45. But the growth that you’re going to see from us, you know, over the next couple of years, outside of the work that we’ve already delineated at the MEG asset, is really around, you know, brownfield development, debottlenecking, and those kind of things.

So we mentioned, you know, the Dilsat project that we’ve got going on at Spruce Lake, which is kind of another example of something that kind of adds 5,000-10,000 barrels a day, but, you know, isn’t, you know, probably doesn’t chin the bar in terms of major project status. But you’re going to continue to see those kind of things. So where we have opportunities, you know, to add production for, you know, $45 or sort of add production that has a return of and a return on capital of $45, you know, and we can kind of do in the 10,000, 15,000, 20,000 flowing barrel range, you’re going to continue to see those things come out of us.

I would, I would kind of, if I were you, I would kind of model us being close to that CAD 5 billion that we’ve talked about in the past as kind of being the ceiling for our capital spending, and then incorporate from that kind of 3%-5% growth.

Greg, Analyst, RBC Capital Markets: Okay. Okay, that’s helpful. Then that 5, let’s just assume another CAD 350 million. Like, I like the fact you guys are capitalizing your turnarounds, gives good transparency. So another, I’m splitting hairs here, John, but that would include turnarounds or wouldn’t include turnarounds?

Jon McKenzie, CEO, Cenovus Energy: That will include turnarounds.

Greg, Analyst, RBC Capital Markets: Okay, terrific. Travis’s question was good. I mean, kind of interested in—like, I love your, your Asian business, and it doesn’t get a whole lot of airtime.

Jon McKenzie, CEO, Cenovus Energy: Yeah.

Greg, Analyst, RBC Capital Markets: But what does that business look like, you know, over 2, 3, 4, 5 years? How much time are you spending there? Do you want to grow it? Do you want to harvest it? Are you going to sell it?

Jon McKenzie, CEO, Cenovus Energy: You know, I don’t think the way I think about that business, Greg, you’re quite right. It’s a really good business, and it spits out a lot of free cash flow. I think it’s averaged about CAD 1 billion a year for the last five years that we’ve owned it, on a free cash flow basis. And what we really like about it is it’s fixed-price gas, plus we get the value of the liquids on a Brent basis. You know, your operating costs are about $1 an M. The fiscal take is relatively modest, and there’s really not much of a requirement for sustaining capital.

So, you know, the way we kind of think about it is, is not, not, harvesting the asset, but definitely sweating the asset and staying true to the Block 29, 26, where we think we have a competitive advantage. But we kind of look at it under those terms. We evaluate the opportunities within the block. You know, we work well with the partner there that we have in, in CNOOC, and we’re, you know, really, grateful for that relationship, and, and it’s just an asset that we just continue to, you know, take free cash flow from and invest appropriately in.

Greg, Analyst, RBC Capital Markets: Good. Okay, understood. Thanks very much, and indeed, as others, it’s a good quarter and a really good year.

Jon McKenzie, CEO, Cenovus Energy: Great. Thanks, Greg. Much appreciated.

Conference Operator: Thank you. And as a reminder, to ask a question, that’s star one one. One moment for our next question. Our next question comes from the line of Manav Gupta from UBS. Your line is open.

Manav Gupta, Analyst, UBS: Good morning, guys. I just wanted to quickly focus a little bit on Agras. We know Enbridge has announced MLO One. On their call, they pre-

Dennis Fong, Analyst, CIBC World Markets3: ...are very close to announcing MLO two, could happen before year-end. And then they also threw out the prospect of an MLO three. And then there are a bunch of projects that ET and Enbridge are looking, where they could even reverse a Bakken pipeline, get more Canadian crude onto Dapper. So I’m just, I’m trying to understand, as all these egress projects are taking shape, place, does this give Cenovus a little more confidence that we are not going back to the days where WTI, WCS could be $25 or so? Those days are behind the Alberta oil sands. Can you talk a little bit about that?

Andrew Dahlin, Operations Executive, Cenovus Energy: Hi, Manav, it’s Jeff Murray. It sounds like between my last comment and this one, you scoured the world and found a number of the pipelines. There are more out there as well under development, and I’d point to a few other developments and other companies that are working away on things in the same sort of timeframe. The projects you referenced, I think, are all intended to be in service late 2027, 2028, 2029. There are projects that push 2029, 2030, 2031 as well. And I think, as John pointed out, there’s a number of these opportunities out there. Very few of them look like the big, challenging mega projects we saw of a decade ago, when there was a certain level of probability around those things. These things are smaller. They’re more easily permitted.

There is less development to be done, and I would say we’re well connected with all of them, broadly supportive of egress. The key will be, industry and Cenovus, being prepared to stand by and stand behind and take long-term contracts around these assets. And as John pointed out, don’t be surprised to see us do that. That is a way of saying we have impact and influence to drive the outcome you referenced, which is to continue to bring egress to market, to keep, the differential in Alberta where we see it now. And, it does feel fairly comforting that that is something we can, take action to drive for at least the next 5-10 years.

Jon McKenzie, CEO, Cenovus Energy: Yeah. I think, Manav, we don’t take any of this for granted. So we would never, you know, be of the view that we’re never going back to where we are. But our challenge as a company is to make sure that, you know, we take advantage of these opportunities as they arise. We’re kind of in a world right now where we’re opportunity-rich in terms of egress, and so we’re looking at everything. But we also understand that egress is something that’s very important to this company on a long-term basis. But with everything that’s out there today, it’s very positive for this company and this industry. And as I said before, you should look for us to lead this and take advantage of it.

Dennis Fong, Analyst, CIBC World Markets3: Thank you. I turn it over.

Jon McKenzie, CEO, Cenovus Energy: Great. Thank you.

Conference Operator: Thank you. Once again, that’s star one one for questions. One moment for any questions. There are no further questions registered at this time. I will now return the meeting over to Mr. Jon McKenzie.

Jon McKenzie, CEO, Cenovus Energy: Great, and thank you, operator. So this concludes our conference call. I’d just like to thank everybody for joining us. We definitely appreciate your interest in the company. So thank you very much and have a great day.

Conference Operator: This concludes today’s program. You may all disconnect. Thank you for participating in today’s conference, and have a great day.