Cenovus Energy Inc. (CVE)

Research evidence excerpt

Cenovus Energy Inc. (CVE)

operating costs to ~C$10.50-C$11.50/b. In the U.S.,

the company delivered average crude throughput of ~350 kbd, or ~96% utilization, with

support from favorable market conditions, low Midwest inventories, robust crack

spreads, and wider heavy oil differentials. Adjusted U.S. market capture fell to ~67%,

however, as rising Midwest gasoline prices, a price lag in asphalt and secondary

products, and temporary light crude dislocations pushed feedstock costs higher. We

maintain a bullish outlook on refining margins and expect consistent operations ahead

as the company prepares to execute planned turnaround at the Lima Refinery integrated

unit this fall.

Capital Allocation. Management keeps full-year capital spend guidance of C$5.0-C$5.3

bn unchanged, including C$1.2-C$1.4 bn of growth capital for projects at Christina Lake

North, Sunrise, Lloydminster, and West White Rose. Management expects spending to

rise in 2H26 as the company accelerates project execution and ramps up maintenance

activity for the planned Lima turnaround. We highlight a ~C$2.7 bn reduction in net debt

from 1Q26 to ~C$5.4 bn, due primarily to record adjusted funds flow generation and a

~C$700 mn non-cash working capital release. In addition, we note the company

returned ~C$1.4 bn to shareholders during the quarter, including ~C$1 bn in share

repurchases and C$411 mn in dividends. With net debt below C$6 bn, management now

expects to return ~75% of excess free funds flow to shareholders, while maintaining a

long-term net debt target of C$4 bn. We continue to estimate ~C$6.5/C$7.5 bn of total

capital returns in 2027/2028 at $75/b Brent, implying a ~9%/10% yield.

Valuation & Key Risks.

We are Buy-rated on CVE, and our 12-month DCF/SOTP-based price target is now