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Cenovus (CVE) Hikes Q4 Dividend & Lowers 2019 Capital Budget

Zacks Equity Research

Cenovus Energy Inc. CVE announced that it has lowered its guidance for 2019 capital budget and raised its fourth-quarter 2019 dividend payout.     

The company now expects its capital spending through 2019 in the band of C$1.1-C$1.2 billion. The midpoint of the guidance suggests a reduction of C$150 million from the midpoint of the prior projected band.

Cenovus also announced fourth-quarter 2019 dividend of 6.25 cents, which calls for a sequential increase of 25%. The new dividend is likely to be paid on Dec 31, to common shareholders of record as of Dec 13. Notably, while presenting its five-year business plan, the company boasted about its strong financials and added that it will be able to raise annual dividends by 5% to 10% even if West Texas Intermediate (WTI) crude trades at a low level of $45 per barrel.

Importantly, Cenovus projects production of oil equivalent volumes growth of 2% to 3% per year. In fact, the company is expecting its total daily oil equivalent production volumes to increase to 550,000 barrels by 2024-end. To boost volumes, the company plans to keep its yearly capital budget below C$1.9 billion. This reflects that the upstream operations of energy players are getting more efficient. In the United States as well, explorers are employing significantly lesser oil rigs in the shale plays, especially the Permian, to ramp up crude production volumes. Hence, it will be wise for investors to keep an eye on Permian drillers like Pioneer Natural Resources Company PXD, Diamondback Energy Inc. FANG and Concho Resources CXO.

The integrated energy company added that its operations, as a whole, are strong enough to generate significant fund flow that will help it lower debt burden and return cash to stockholders through dividend growth and share repurchases. Notably, Cenovus expects to generate cumulative free fund flow of C$11 billion through 2024. The company added that it will be able to reach its target of reducing long-term net debt to $5 billion over the next 12 to 18 months.

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