Cenovus Hit By CEO Retirement, ConocoPhillips Deal Plans

Shares of Canadian oil company Cenovus Energy Inc (TO:CVE) fell 8.6% to eventually close at $7.12 on Jun 20. The decline followed the announcement of the retirement of the company’s CEO along with the much criticized deal with independent oil producer ConocoPhillips (NYSE:COP) .

Brian Ferguson – the current CEO of Cenovus – has led the company since 2009, after the company’s spun off from Encana Corporation (NYSE:ECA) . Ferguson’s decision to enter into the massive acquisition with ConocoPhillips has overleveraged the financials of the company, while his plans of dividend cuts have drawn much censure.

Though Ferguson will retire from his executive position on Oct 30, he will continue to serve as the company’s advisor till Mar 2018. The company however has not yet decided on a replacement but is likely to begin a global search for the new CEO soon.

Cenovus’ $13.3 billion acquisition deal has loaded the company with massive debt and crushed its share price. Shares of the company plummeted by more than 40% over the past three months post the announcement of the acquisition deal with ConocoPhillips. Amid such a backdrop, investors remain deeply skeptical about the stock.

In an endeavor to uplift investors’ sentiments, the company updated its strategic growth plans. Cenovus aims to focus on divestitures and undertake cost cut and downsizing initiatives. These initiatives are likely to reduce the company’s $12.7 billion debt.

The company announced plans to unload non-core assets worth around $5 billion which to finance the ConocoPhillips acquisition deal. Cenovus is likely to close all the divestment agreements for its legacy conventional portfolio by the end of this year. The assets include the company’s Pelican Lake and Suffield holdings along with Palliser asset in Alberta and the Weyburn project. Together, all these assets have a production capacity of 112,000 barrels of oil equivalent per day.

Cenovus also intends to undertake cost cutting initiatives in an attempt to strengthen its financials. It has aimed to reduce its additional cost by $1 billion over the next three years. The company is expected to achieve the savings partly by the rising efficiencies from redesigned drilling techniques and optimized workforce. It plans to cut its general and administration expenses by $375 million.

While the company’s current plans may help address the financial concerns of the ConocoPhillips acquisition deal, the overall outlook and direction of Cenovus looks bleak with the retirement of Ferguson – one of the few executives who had backed the deal. Further, with the weak crude price environment, it’s difficult to predict if the company will be able to achieve its growth plans with a cleaner balance sheet.

Zacks Rank and Key Pick

Headquartered in Alberta, Cenovus is a large integrated oil company. It produces oil and natural gas and is also involved in the transportation and refining of crude oil. The company, under Zacks categorized Oil and Gas Canadian Integrated industry, currently carries a Zacks Rank #3 (Hold).

Cenovus Energy Inc Price

A better-ranked player in the energy space includes Delek US Holdings, Inc. (NYSE:DK) which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Delek US Holdings delivered a positive average earnings surprise of 60.68% in the trailing four quarters.

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