Cenovus Energy(CVE) - 2022 Q4 - Annual Report

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (UNAUDITED) This section presents Cenovus Energy Inc.'s net earnings performance for Q4 and full-year 2022, highlighting a significant turnaround from prior-year losses Consolidated Statements of Earnings (Loss) Summary Cenovus Energy Inc. achieved significant full-year net earnings growth in 2022, turning a prior-year loss into substantial profit Key Consolidated Statements of Earnings (Loss) Data for Q4 and Full-Year 2022 | Metric (Millions of CAD) | Q4 2022 | Q4 2021 | Full-Year 2022 | Full-Year 2021 | | :----------------------- | :------ | :------ | :------------- | :------------- | | Revenue | | | | | | Total Sales | 14,938 | 14,541 | 71,765 | 48,811 | | Less: Royalties | 875 | 815 | 4,868 | 2,454 | | Net Earnings (Loss) | 784 | (408) | 6,450 | 587 | | Net Earnings Per Share (CAD) | | | | | | Basic | 0.40 | (0.21) | 3.29 | 0.27 | | Diluted | 0.39 | (0.21) | 3.20 | 0.27 | - Net earnings for Q4 2022 were CAD 784 million, a turnaround from a CAD 408 million loss in the same period of 2021[3] - Full-year 2022 net earnings significantly increased to CAD 6,450 million from CAD 587 million in 2021[3] CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) This section details Cenovus Energy Inc.'s comprehensive income for Q4 and full-year 2022, showing substantial growth driven by net earnings and foreign currency adjustments Consolidated Statements of Comprehensive Income (Loss) Summary Cenovus Energy Inc. reported significant comprehensive income growth in 2022, primarily due to increased net earnings and favorable foreign currency translation adjustments Key Consolidated Statements of Comprehensive Income (Loss) Data for Q4 and Full-Year 2022 | Metric (Millions of CAD) | Q4 2022 | Q4 2021 | Full-Year 2022 | Full-Year 2021 | | :----------------------- | :------ | :------ | :------------- | :------------- | | Net Earnings (Loss) | 784 | (408) | 6,450 | 587 | | Other Comprehensive Income (Loss), Net of Tax | (170) | (36) | 786 | (91) | | Comprehensive Income (Loss) | 614 | (444) | 7,236 | 496 | - Q4 2022 comprehensive income was CAD 614 million, a significant improvement from a CAD 444 million loss in Q4 2021[5] - Full-year 2022 comprehensive income significantly increased to CAD 7,236 million from CAD 496 million in 2021, primarily due to foreign currency translation adjustments shifting from a CAD 713 million loss to a CAD 713 million gain[5] CONSOLIDATED BALANCE SHEETS (UNAUDITED) This section provides Cenovus Energy Inc.'s financial position as of December 31, 2022, indicating improved financial health with increased assets and equity, and reduced liabilities Consolidated Balance Sheets Summary As of December 31, 2022, Cenovus Energy Inc. improved its financial position with increased total assets and shareholders' equity, alongside reduced total liabilities Key Consolidated Balance Sheet Data as of December 31, 2022 | Metric (Millions of CAD) | December 31, 2022 | December 31, 2021 | | :----------------------- | :---------------- | :---------------- | | Assets | | | | Current Assets | 12,430 | 11,988 | | Non-Current Assets | 43,439 | 42,116 | | Total Assets | 55,869 | 54,104 | | Liabilities | | | | Current Liabilities | 8,021 | 7,305 | | Non-Current Liabilities | 20,259 | 23,191 | | Total Liabilities | 28,280 | 30,496 | | Shareholders' Equity | 27,576 | 23,596 | | Non-Controlling Interests | 13 | 12 | | Total Liabilities and Equity | 55,869 | 54,104 | - As of December 31, 2022, total assets increased to CAD 55,869 million, a 3.26% increase from 2021[7] - Total liabilities decreased to CAD 28,280 million, a 7.27% decrease from 2021, primarily due to a reduction in long-term debt[7] - Shareholders' equity increased to CAD 27,576 million, a 16.87% increase from 2021[7] CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) This section outlines changes in Cenovus Energy Inc.'s shareholder equity during 2022, reflecting growth primarily from net earnings despite share repurchases Consolidated Statements of Equity Summary Cenovus Energy Inc. saw significant shareholder equity growth in 2022, driven by increased net earnings and improved accumulated other comprehensive income, despite share repurchases Key Consolidated Statements of Equity Data for 2022 | Metric (Millions of CAD) | December 31, 2022 | December 31, 2021 | | :----------------------- | :---------------- | :---------------- | | Common Shares | 16,320 | 17,016 | | Preferred Shares | 519 | 519 | | Warrants | 184 | 215 | | Share Capital Premium | 2,691 | 4,284 | | Retained Earnings | 6,392 | 878 | | Accumulated Other Comprehensive Income (Loss) | 1,470 | 684 | | Total Shareholders' Equity | 27,576 | 23,596 | - Full-year 2022 net earnings of CAD 6,450 million significantly exceeded CAD 587 million in 2021, serving as a primary driver for equity growth[8] - Accumulated Other Comprehensive Income (AOCI) increased from CAD 684 million in 2021 to CAD 1,470 million in 2022, primarily due to positive foreign currency translation adjustments[8] - The company repurchased CAD 2,530 million of common shares through its Normal Course Issuer Bids (NCIBs), leading to a reduction in common shares and share capital premium[8] CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) This section summarizes Cenovus Energy Inc.'s cash flow activities for Q4 and full-year 2022, showing strong operating cash flow offset by increased investing and financing outflows Consolidated Statements of Cash Flows Summary Cenovus Energy Inc. generated strong operating cash flow in 2022, though increased investing and financing outflows led to a lower net increase in cash and cash equivalents Key Consolidated Statements of Cash Flows Data for Q4 and Full-Year 2022 | Metric (Millions of CAD) | Q4 2022 | Q4 2021 | Full-Year 2022 | Full-Year 2021 | | :----------------------- | :------ | :------ | :------------- | :------------- | | Cash Flow from Operating Activities | 2,970 | 2,184 | 11,403 | 5,919 | | Cash Flow from Investing Activities | (1,170) | (395) | (2,314) | (942) | | Cash Flow from Financing Activities | (750) | (916) | (7,676) | (2,507) | | Foreign Exchange Impact | (20) | (10) | 238 | 25 | | Net Increase (Decrease) in Cash and Cash Equivalents | 1,030 | 863 | 1,651 | 2,495 | | Cash and Cash Equivalents, End of Period | 4,524 | 2,873 | 4,524 | 2,873 | - Full-year 2022 cash flow from operating activities significantly increased to CAD 11,403 million from CAD 5,919 million in 2021, primarily driven by higher net earnings[9] - Full-year 2022 cash outflow from investing activities increased to CAD 2,314 million, mainly due to higher capital investments and acquisition activities[9] - Full-year 2022 cash outflow from financing activities increased to CAD 7,676 million, primarily due to long-term debt repayments and common share repurchases[9] NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) This section provides detailed disclosures and explanations for Cenovus Energy Inc.'s interim financial statements, covering business operations, accounting policies, acquisitions, and various financial items 1. Description of Business and Segmented Disclosures Cenovus Energy Inc. is an integrated energy company with upstream and downstream operations across Canada, the U.S., and Asia Pacific, with segment reporting adjustments in 2022 - Cenovus Energy Inc. is an integrated energy company involved in oil and natural gas production in Canada and Asia Pacific, along with upgrading, refining, and marketing operations in Canada and the U.S[10] - The company's operating segments include Upstream (Oil Sands, Conventional, Offshore), Downstream (Canadian Manufacturing, U.S. Manufacturing), and Corporate and Eliminations[10][11] - In September 2022, the company divested most of its retail fuels business and integrated the remaining commercial fuels and historical retail fuels businesses into the Canadian Manufacturing segment, with comparative period data restated[10][27] Full-Year 2022 Operating Performance by Segment | Segment (Millions of CAD) | Total Sales | Royalties | Operating Margin | | :------------------------ | :---------- | :-------- | :--------------- | | Upstream | | | | | Oil Sands | 34,775 | 4,493 | 8,979 | | Conventional | 4,332 | 298 | 1,235 | | Offshore | 2,020 | 77 | 1,610 | | Downstream | | | | | Canadian Manufacturing | 7,792 | — | 699 | | U.S. Manufacturing | 30,310 | — | 1,740 | | Corporate and Eliminations | (7,464) | — | (1,270) | | Consolidated Total | 71,765 | 4,868 | 11,824 | Full-Year 2022 Revenue by Product | Product (Millions of CAD) | Full-Year 2022 | | :------------------------ | :------------- | | Upstream | | | Crude Oil | 29,834 | | NGLs | 2,346 | | Natural Gas | 3,690 | | Other | 389 | | Downstream | | | Synthetic Crude Oil | 2,360 | | Asphalt | 620 | | Other Products and Services | 4,812 | | Gasoline | 14,116 | | Diesel and Distillates | 11,453 | | Other Products | 4,741 | | Corporate and Eliminations | (7,464) | | Consolidated Total | 66,897 | Full-Year 2022 Revenue by Geographic Location | Geographic Location (Millions of CAD) | Full-Year 2022 | | :------------------------------------ | :------------- | | Canada | 33,222 | | United States | 32,313 | | China | 1,362 | | Consolidated Total | 66,897 | Non-Current Assets by Geographic Location as of December 31, 2022 | Geographic Location (Millions of CAD) | 2022 | | :------------------------------------ | :----- | | Canada | 35,194 | | United States | 4,824 | | China | 2,064 | | Indonesia | 365 | | Consolidated Total | 42,447 | Full-Year 2022 Capital Expenditures by Segment | Segment (Millions of CAD) | Full-Year 2022 | | :------------------------ | :------------- | | Upstream | | | Oil Sands | 1,792 | | Conventional | 344 | | Offshore | 310 | | Downstream | | | Canadian Manufacturing | 117 | | U.S. Manufacturing | 1,059 | | Corporate and Eliminations | 86 | | Total Capital Investment | 3,708 | | Acquisitions | | | Oil Sands | 1,609 | | Conventional | 12 | | Total Capital Expenditures | 5,329 | 2. Basis of Preparation and Statement of Compliance These interim consolidated financial statements adhere to IFRS, maintaining consistency with 2021 annual policies, and were approved by the Board on February 15, 2023 - These interim consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and follow the same accounting policies and methods as the 2021 annual consolidated financial statements[26] - All amounts are presented in Canadian dollars unless otherwise stated[26] - These interim consolidated financial statements were approved by the Board of Directors on February 15, 2023[26] 3. Accounting Policies, Critical Accounting Judgments and Key Sources of Estimation Uncertainty This section references 2021 accounting policies and details 2022 comparative adjustments for Lloydminster blending costs and retail fuels integration, with no impact on net earnings or cash flows - Accounting policies, critical accounting judgments, and key sources of estimation uncertainty are available in the company's 2021 annual consolidated financial statements[27] - On June 30, 2022, the company adjusted the accounting for blending costs at its Lloydminster thermal and conventional heavy oil assets, reclassifying costs between purchased products and transportation and blending, with no impact on net earnings, financial position, or cash flows[27] - In September 2022, the company divested most of its retail fuels business and integrated the remaining commercial fuels and historical retail fuels businesses into the Canadian Manufacturing segment, with comparative period data restated and no impact on net earnings, financial position, or cash flows[27] 4. Acquisitions Cenovus Energy Inc. acquired full ownership of Sunrise Oil Sands in 2022, recognizing revaluation gains, and announced an agreement to acquire the remaining BP-Husky Refining LLC interest - On August 31, 2022, Cenovus completed the acquisition of the remaining 50% interest in the Sunrise Oil Sands Partnership (SOSP), gaining full ownership, with consideration including CAD 600 million in cash and the company's 35% interest in the Bay du Nord project[31][35] - The company remeasured its Bay du Nord project interest to fair value, recognizing a CAD 40 million non-cash revaluation gain[35] - The company remeasured its existing interest in SOSP to fair value, recognizing a CAD 599 million (CAD 457 million after-tax) non-cash revaluation gain[37] - On August 8, 2022, Cenovus announced an agreement with BP to acquire the remaining 50% interest in BP-Husky Refining LLC (Toledo Acquisition), expected to close by the end of February 2023[39] Sunrise Acquisition Identifiable Assets and Liabilities | Item (Millions of CAD) | August 31, 2022 | | :--------------------- | :-------------- | | Cash | 9 | | Accounts Receivable and Accrued Revenue | 164 | | Inventory | 88 | | Property, Plant and Equipment | 3,218 | | Accounts Payable and Accrued Liabilities | (313) | | Income Taxes Payable | (39) | | Decommissioning Liabilities | (48) | | Deferred Income Tax Liabilities | (486) | | Total Identifiable Net Assets | 2,593 | Sunrise Acquisition Total Consideration | Item (Millions of CAD) | August 31, 2022 | | :--------------------- | :-------------- | | Cash, Net of Settlement Adjustments | 394 | | Bay Du Nord | 40 | | Contingent Payments | 600 | | Total Consideration | 1,034 | 5. General and Administrative Cenovus Energy Inc.'s general and administrative expenses slightly decreased in 2022, with increased stock-based compensation offsetting lower salaries and other incentive benefits General and Administrative Expenses for Q4 and Full-Year 2022 | Item (Millions of CAD) | Q4 2022 | Q4 2021 | Full-Year 2022 | Full-Year 2021 | | :--------------------- | :------ | :------ | :------------- | :------------- | | Salaries and Benefits | 56 | 63 | 204 | 264 | | Administrative and Other | 84 | 66 | 297 | 225 | | Stock-Based Compensation Expense (Recovery) | 180 | 62 | 373 | 159 | | Other Incentive Benefits Expense (Recovery) | — | 167 | (9) | 201 | | Total | 320 | 358 | 865 | 849 | - Full-year 2022 stock-based compensation expense increased by 134.59% to CAD 373 million from CAD 159 million in 2021[42] - Full-year 2022 general and administrative expenses totaled CAD 865 million, a slight increase compared to CAD 849 million in 2021[42] 6. Finance Costs Cenovus Energy Inc. experienced a decrease in finance costs in 2022, driven by reduced interest expenses on short-term borrowings and long-term debt Finance Costs for Q4 and Full-Year 2022 | Item (Millions of CAD) | Q4 2022 | Q4 2021 | Full-Year 2022 | Full-Year 2021 | | :--------------------- | :------ | :------ | :------------- | :------------- | | Interest Expense on Short-Term Borrowings and Long-Term Debt | 97 | 133 | 478 | 557 | | Net Premium (Discount) on Long-Term Debt Redemption | — | 6 | (29) | 121 | | Interest Expense on Lease Liabilities | 40 | 42 | 163 | 171 | | Accretion of Decommissioning Liabilities | 44 | 56 | 176 | 199 | | Other | 10 | 9 | 37 | 34 | | Total | 191 | 246 | 825 | 1,082 | | Interest Capitalized | (2) | — | (5) | — | | Net Finance Costs | 189 | 246 | 820 | 1,082 | - Full-year 2022 net finance costs were CAD 820 million, a 24.21% decrease from CAD 1,082 million in 2021[43] - Interest expense on short-term borrowings and long-term debt decreased from CAD 557 million in full-year 2021 to CAD 478 million in full-year 2022[43] 7. Integration and Transaction Costs Cenovus Energy Inc. saw a significant reduction in integration and transaction costs in 2022, driven by lower merger-related expenses and acquisition-related costs - Full-year 2022 integration costs were CAD 90 million, significantly lower than CAD 349 million in full-year 2021[44] - Full-year 2022 transaction costs were CAD 16 million, primarily related to the Sunrise acquisition and the pending Toledo acquisition[44] 8. Foreign Exchange (Gain) Loss, Net Cenovus Energy Inc. reported a net foreign exchange gain in Q4 2022, but a full-year net loss, reversing the prior year's trend Foreign Exchange (Gain) Loss, Net for Q4 and Full-Year 2022 | Item (Millions of CAD) | Q4 2022 | Q4 2021 | Full-Year 2022 | Full-Year 2021 | | :--------------------- | :------ | :------ | :------------- | :------------- | | Foreign Exchange (Gain) Loss, Net | (63) | (81) | 343 | (174) | - A net foreign exchange gain of CAD 63 million was realized in Q4 2022, compared to a CAD 81 million gain in Q4 2021[45] - Full-year 2022 saw a net foreign exchange loss of CAD 343 million, a significant shift from a CAD 174 million net gain in full-year 2021, highlighting the impact of currency fluctuations on performance[45] 9. Divestitures Cenovus Energy Inc. completed multiple asset divestitures in 2022, generating CAD 1,155 million in net proceeds and recognizing various pre-tax gains and losses - On January 31, 2022, the company divested its Tucker assets in the Oil Sands segment, generating CAD 730 million in net proceeds and a CAD 165 million pre-tax gain[46] - On February 28, 2022, the company divested its Wembley assets in the Conventional segment, generating CAD 221 million in net proceeds and a CAD 76 million pre-tax gain[46] - On September 13, 2022, the company divested 337 historical retail fuels business stations, generating CAD 404 million in net cash proceeds and a CAD 74 million pre-tax loss[46] - On May 31, 2022, the company transferred a 12.5% interest in the White Rose project, receiving CAD 50 million and recognizing a CAD 62 million pre-tax gain[46] - On June 8, 2022, the company divested its investment in Headwater Exploration Inc., generating CAD 110 million in proceeds with no gain or loss recognized[46] 10. Impairment Charges and Reversals Cenovus Energy Inc. recognized CAD 1.5 billion in Downstream CGU impairments for Toledo and Superior in 2022, offset by CAD 1.2 billion in reversals for other CGUs, with no Upstream impairments - As of December 31, 2022, the company identified impairment indicators for the Toledo and Superior CGUs, recognizing CAD 1.5 billion in impairment charges, recorded as additional depreciation, depletion, and amortization in the U.S. Manufacturing segment[56] - Concurrently, the company reversed CAD 1.2 billion in impairment charges for the Borger, Wood River, and Lima CGUs, primarily due to increased forward crack spreads leading to improved refined product margins[56] - As of December 31, 2022, impairment tests on CGUs with goodwill did not identify any impairment[48] - As of December 31, 2021, the company reversed CAD 378 million in impairment losses for the Conventional segment's Clearwater, Elmworth-Wapiti, and Kaybob-Edson CGUs, primarily due to improved forward commodity prices[52] Forward Prices for Crude Oil, NGLs, and Natural Gas as of December 31, 2022 | Commodity | 2023 | 2024 | 2025 | 2026 | 2027 | Annual Growth Thereafter | | :------------------------- | :----- | :----- | :----- | :----- | :----- | :----------------------- | | WTI (USD/bbl) | 80.33 | 78.50 | 76.95 | 77.61 | 79.16 | 2.00 % | | WCS (CAD/bbl) | 76.54 | 77.75 | 77.55 | 80.07 | 81.89 | 2.00 % | | Edmonton Condensate (CAD/bbl) | 106.22 | 101.35 | 98.94 | 100.19 | 101.74 | 2.00 % | | Alberta Natural Gas (CAD/Mcf) | 4.23 | 4.40 | 4.21 | 4.27 | 4.34 | 2.00 % | U.S. Manufacturing Segment Impairment Sensitivity Analysis as of December 31, 2022 | Factor Change | Impairment Increase (Millions of CAD) | Impairment Decrease (Millions of CAD) | | :------------------------ | :------------------------------------ | :------------------------------------ | | 1% Increase in Discount Rate | 69 | (65) | | 5% Decrease in Forward Price Estimates | 268 | (268) | 11. Other (Income) Loss, Net Cenovus Energy Inc. reported CAD 328 million in insurance recoveries and CAD 65 million in site rehabilitation funding in 2022, positively impacting other income - In full-year 2022, the company recorded CAD 328 million in insurance recoveries related to the 2018 Superior Refinery and Atlantic region incidents (full-year 2021: CAD 120 million)[66] - In full-year 2022, the company received CAD 65 million in funding under the Alberta Site Rehabilitation Program (full-year 2021: CAD 42 million)[66] 12. Income Taxes Cenovus Energy Inc. experienced increased income tax expense in 2022, driven by higher current taxes in Canada and the Asia Pacific region Income Tax Expense for Q4 and Full-Year 2022 | Item (Millions of CAD) | Q4 2022 | Q4 2021 | Full-Year 2022 | | :--------------------- | :------ | :------ | :------------- | | Current Tax | | | | | Canada | 128 | 32 | 1,252 | | United States | 8 | — | 104 | | Asia Pacific | 89 | 56 | 262 | | Other International | 11 | — | 21 | | Total Current Tax Expense (Recovery) | 236 | 88 | 1,639 | | Deferred Tax Expense (Recovery) | 17 | 171 | 642 | | Total | 253 | 259 | 2,281 | - Full-year 2022 income tax expense was CAD 2,281 million, a significant increase from CAD 728 million in full-year 2021[67] - Current tax expense in Canada increased from CAD 32 million in full-year 2021 to CAD 1,252 million in full-year 2022[67] 13. Per Share Amounts Cenovus Energy Inc. significantly improved basic and diluted net earnings per share in 2022, increasing common share dividends while maintaining preferred share dividends Net Earnings Per Share for Q4 and Full-Year 2022 | Metric (CAD) | Q4 2022 | Q4 2021 | Full-Year 2022 | Full-Year 2021 | | :----------------------- | :------ | :------ | :------------- | :------------- | | Basic Net Earnings Per Share | 0.40 | (0.21) | 3.29 | 0.27 | | Diluted Net Earnings Per Share | 0.39 | (0.21) | 3.20 | 0.27 | Full-Year 2022 Common Share Dividends | Dividend Type | 2022 Per Share (CAD) | 2022 Amount (Millions of CAD) | 2021 Per Share (CAD) | 2021 Amount (Millions of CAD) | | :----------------------- | :------------------- | :---------------------------- | :------------------- | :---------------------------- | | Base Dividend | 0.350 | 682 | 0.088 | 176 | | Variable Dividend | 0.114 | 219 | — | — | | Total Common Share Dividends | 0.464 | 901 | 0.088 | 176 | - Full-year 2022 basic net earnings per share significantly increased to CAD 3.29 from CAD 0.27 in 2021[68] - Full-year 2022 total common share dividends, including base and variable dividends, amounted to CAD 901 million, significantly higher than CAD 176 million in 2021[69] - Full-year 2022 total preferred share dividends were CAD 35 million, largely consistent with CAD 34 million in 2021[70] 14. Exploration and Evaluation Assets, Net Cenovus Energy Inc.'s net exploration and evaluation assets decreased in 2022, mainly due to write-downs and foreign exchange impacts, despite new investments Changes in Net Exploration and Evaluation Assets for 2022 | Item (Millions of CAD) | Total | | :--------------------- | :---- | | Balance as of December 31, 2021 | 720 | | Additions | 37 | | Write-downs | (64) | | Changes in Decommissioning Liabilities | (12) | | Foreign Exchange Changes and Other | 4 | | Balance as of December 31, 2022 | 685 | - In full-year 2022, the company wrote down CAD 64 million in exploration and evaluation assets[71] - In full-year 2022, CAD 64 million of previously capitalized exploration and evaluation costs for the Oil Sands and Offshore segments were recognized as exploration expense[72] 15. Property, Plant and Equipment, Net Cenovus Energy Inc.'s net property, plant, and equipment increased in 2022, primarily due to acquisitions and new investments, despite impairment and depreciation Changes in Net Property, Plant and Equipment for 2022 | Item (Millions of CAD) | December 31, 2022 | | :--------------------- | :---------------- | | Cost | | | Balance as of December 31, 2021 | 50,901 | | Acquisitions | 3,230 | | Additions | 3,671 | | Divestitures | (557) | | Balance as of December 31, 2022 | 57,739 | | Accumulated Depreciation, Depletion and Amortization | | | Balance as of December 31, 2021 | 16,676 | | Depreciation, Depletion and Amortization | 4,067 | | Impairment Charges | 1,499 | | Impairment Reversals | (1,233) | | Balance as of December 31, 2022 | 21,240 | | Carrying Value | | | Balance as of December 31, 2021 | 34,225 | | Balance as of December 31, 2022 | 36,499 | - In full-year 2022, the carrying value of property, plant and equipment increased by 6.65% from CAD 34,225 million to CAD 36,499 million[73] - Acquisitions contributed CAD 3,230 million to cost increases, with new additions totaling CAD 3,671 million[73] - CAD 1,499 million in impairment charges were recognized in 2022, while CAD 1,233 million in impairments were reversed[73] 16. Right-of-Use Assets, Net Cenovus Energy Inc.'s net right-of-use assets decreased in 2022, mainly due to depreciation and foreign exchange impacts, despite new and modified leases Changes in Net Right-of-Use Assets for 2022 | Item (Millions of CAD) | Total | | :--------------------- | :---- | | Cost | | | Balance as of December 31, 2021 | 2,656 | | Additions | 25 | | Modifications | 83 | | Remeasurements | 7 | | Terminations | (10) | | Foreign Exchange Changes and Other | (74) | | Balance as of December 31, 2022 | 2,687 | | Accumulated Depreciation | | | Balance as of December 31, 2021 | 646 | | Depreciation | 297 | | Terminations | (6) | | Foreign Exchange Changes and Other | (95) | | Balance as of December 31, 2022 | 842 | | Carrying Value | | | Balance as of December 31, 2021 | 2,010 | | Balance as of December 31, 2022 | 1,845 | - In full-year 2022, the carrying value of right-of-use assets decreased by 8.11% from CAD 2,010 million to CAD 1,845 million[75] - Depreciation expense for 2022 was CAD 297 million[75] 17. Joint Arrangements Cenovus Energy Inc. is involved in various joint arrangements, including U.S. refining and Indonesian/Canadian midstream ventures, with financial details disclosed and a pending acquisition of BP-Husky Refining LLC - The company holds a 50% interest in BP-Husky Refining LLC (Toledo Refinery) and WRB Refining LP (Wood River and Borger Refineries) within its U.S. Manufacturing segment[77][78] - The company holds a 40% interest in Husky-CNOOC Madura Ltd. (HCML), engaged in offshore natural gas and NGLs exploration and production in Indonesia[79] - The company holds a 35% interest in Husky Midstream Limited Partnership (HMLP), which operates Canadian midstream assets[81] HCML Joint Venture Financial Information | Metric (Millions of CAD) | Full-Year 2022 | | :----------------------- | :------------- | | Revenue | 383 | | Expenses | 350 | | Net Earnings (Loss) | 33 | | Net Assets, End of Period | 720 | - In full-year 2022, the company received CAD 42 million in distributions from HCML and made CAD 54 million in contributions[80] - In full-year 2022, HMLP reported CAD 190 million in net earnings, with the company receiving CAD 23 million in distributions and making CAD 31 million in contributions to HMLP[81] 18. Other Assets Cenovus Energy Inc.'s other assets decreased in 2022, mainly due to intangible asset write-downs and the sale of the Headwater investment Other Assets Composition as of December 31, 2022 | Item (Millions of CAD) | 2022 | 2021 | | :--------------------- | :--- | :--- | | Intangible Assets | 19 | 78 | | Private Equity Investments | 55 | 53 | | Other Equity Investments | — | 77 | | Net Investment in Finance Leases | 62 | 60 | | Long-Term Receivables and Prepayments | 120 | 77 | | Precious Metals | 86 | 85 | | Other | — | 1 | | Total | 342 | 431 | - In full-year 2022, CAD 49 million of previously capitalized intangible asset costs were recognized as depreciation, depletion, and amortization in the Oil Sands segment[82] - On June 8, 2022, the company divested its investment in Headwater, generating CAD 110 million in proceeds[82] 19. Goodwill Cenovus Energy Inc.'s goodwill carrying value decreased in 2022 due to disposals and reclassifications, with no impairment identified Changes in Goodwill Carrying Value for 2022 | Item (Millions of CAD) | 2022 | | :--------------------- | :---- | | Carrying Value, Beginning of Year | 3,473 | | Disposed of or Reclassified to Assets Held for Sale | (550) | | Carrying Value, End of Year | 2,923 | - As of December 31, 2022, goodwill carrying value was CAD 2,923 million, primarily allocated to Cash Generating Units such as Primrose (Foster Creek), Christina Lake, and Lloydminster Thermal[83] - As of December 31, 2022, the company identified no goodwill impairment[83] 20. Debt and Capital Structure Cenovus Energy Inc. significantly reduced net and total debt in 2022, improving its capital structure and financial flexibility through debt repayments and borrowing management Short-Term Borrowings as of December 31, 2022 | Item (Millions of CAD) | 2022 | 2021 | | :--------------------- | :--- | :--- | | WRB Uncommitted Demand Facilities | 115 | 79 | | Total Principal Amount of Debt | 115 | 79 | Long-Term Debt as of December 31, 2022 | Item (Millions of CAD) | 2022 | 2021 | | :--------------------- | :---- | :----- | | U.S. Dollar Denominated Unsecured Notes | 6,537 | 9,363 | | Canadian Dollar Denominated Unsecured Notes | 2,000 | 2,750 | | Total Principal Amount of Debt | 8,537 | 12,113 | | Premium (Discount), Net, and Transaction Costs | 154 | 272 | | Total Long-Term Debt | 8,691 | 12,385 | - On November 10, 2022, Cenovus amended its existing committed credit facility, reducing the capacity by CAD 500 million to CAD 5.5 billion and extending the maturity date[85] Net Debt and Capitalization Ratios as of December 31, 2022 | Metric (Millions of CAD) | 2022 | 2021 | | :----------------------- | :----- | :----- | | Total Debt | 8,806 | 12,464 | | Less: Cash and Cash Equivalents | (4,524)| (2,873)| | Net Debt | 4,282 | 9,591 | | Shareholders' Equity | 27,576 | 23,596 | | Total Capitalization | 31,858 | 33,187 | | Net Debt/Capitalization | 13 % | 29 % | Net Debt to Adjusted EBITDA Ratio as of December 31, 2022 | Metric (Millions of CAD) | 2022 | 2021 | | :----------------------- | :----- | :----- | | Net Debt | 4,282 | 9,591 | | Adjusted EBITDA | 13,227 | 8,086 | | Net Debt/Adjusted EBITDA | 0.3x | 1.2x | Net Debt to Adjusted Funds Flow Ratio as of December 31, 2022 | Metric (Millions of CAD) | 2022 | 2021 | | :----------------------- | :----- | :----- | | Net Debt | 4,282 | 9,591 | | Adjusted Funds Flow | 10,978 | 7,248 | | Net Debt/Adjusted Funds Flow | 0.4x | 1.3x | 21. Lease Liabilities Cenovus Energy Inc.'s lease liabilities decreased in 2022, mainly due to lease payments, despite new and modified leases Changes in Lease Liabilities for 2022 | Item (Millions of CAD) | Total | | :--------------------- | :---- | | Balance as of December 31, 2021 | 2,957 | | Additions | 25 | | Interest Expense | 163 | | Lease Payments | (465) | | Modifications | 83 | | Remeasurements | 7 | | Terminations | (5) | | Foreign Exchange Changes and Other | 71 | | Balance as of December 31, 2022 | 2,836 | | Less: Current Portion | 308 | | Long-Term Portion | 2,528 | - In full-year 2022, total lease liabilities decreased by 4.1% from CAD 2,957 million to CAD 2,836 million[92] - The company has lease liabilities related to office space, transportation and storage assets, commercial fuels assets, and other refining and field equipment[92] 22. Contingent Payments Cenovus Energy Inc.'s contingent payments include CAD 419 million for the Sunrise acquisition as of December 31, 2022, while FCCL Partnership payments concluded in 2022 - For the Sunrise acquisition, if the average WCS crude oil price exceeds CAD 52.00 per barrel, the company will make quarterly variable payments to BP Canada over eight quarters, up to a cumulative maximum of CAD 600 million[93] - As of December 31, 2022, the fair value of this variable payment was estimated at CAD 419 million[94][113] - CAD 92 million was paid in January 2023[93] - Contingent payments related to the FCCL Partnership concluded on May 17, 2022, with the final payment completed in July 2022[94][114] 23. Decommissioning Liabilities Cenovus Energy Inc.'s decommissioning liabilities decreased in 2022, mainly due to settlements and foreign exchange impacts, despite new additions and accretion Changes in Decommissioning Liabilities for 2022 | Item (Millions of CAD) | Total | | :--------------------- | :---- | | Balance as of December 31, 2021 | 3,906 | | Additions | 22 | | Acquisitions | 48 | | Settlements | (215) | | Divestitures | (89) | | Foreign Exchange Changes and Other | 693 | | Remeasurements | (980) | | Accretion | 176 | | Balance as of December 31, 2022 | 3,559 | - In full-year 2022, total decommissioning liabilities decreased by 8.88% from CAD 3,906 million to CAD 3,559 million[96] - As of December 31, 2022, the credit-adjusted risk-free rate used to discount obligations was 6.1% (2021: 4.4%), assuming an inflation rate of 2% (2021: 2%)[95] - As of December 31, 2022, the company held CAD 209 million in restricted cash to fund decommissioning liabilities for offshore China[95] 24. Other Liabilities Cenovus Energy Inc.'s other liabilities increased in 2022, driven by long-term employee incentives and other items, despite decreases in pension and West White Rose provisions Other Liabilities Composition as of December 31, 2022 | Item (Millions of CAD) | 2022 | 2021 | | :--------------------- | :--- | :--- | | Pension and Other Post-Retirement Benefit Plans | 201 | 288 | | West White Rose Expansion Project Provision | 204 | 259 | | Onerous and Unfavorable Contract Provisions | 95 | 99 | | Long-Term Employee Incentives | 245 | 74 | | Drilling Provisions | 31 | 56 | | Deferred Revenue | 45 | 41 | | Other | 221 | 112 | | Total | 1,042| 929 | - Full-year 2022 long-term employee incentives increased by 231.08% from CAD 74 million in 2021 to CAD 245 million[97] - Full-year 2022 total other liabilities increased by 12.16% from CAD 929 million to CAD 1,042 million[97] 25. Share Capital and Warrants Cenovus Energy Inc. significantly reduced outstanding common shares in 2022 through CAD 2.5 billion in NCIBs, while issuing stock options and warrants and maintaining stable preferred shares Common Share Issuances and Outstanding Shares for 2022 | Item (Thousands of Shares) | 2022 Number | 2022 Amount (Millions of CAD) | 2021 Number | 2021 Amount (Millions of CAD) | | :------------------------- | :---------- | :---------------------------- | :---------- | :---------------------------- | | Shares Outstanding, Beginning of Year | 2,001,211 | 17,016 | 1,228,870 | 11,040 | | Warrants Exercised | 9,399 | 93 | 314 | 3 | | Stock Option Plan Issuances | 11,069 | 170 | 535 | 7 | | NCIBs Repurchased | (112,489) | (959) | (17,026) | (145) | | Shares Outstanding, End of Year | 1,909,190 | 16,320 | 2,001,211 | 17,016 | - In full-year 2022, the company repurchased and canceled 112 million common shares through NCIBs, totaling CAD 2.5 billion at an average repurchase price of CAD 22.49 per share[99] - As of December 31, 2022, 36 million preferred shares were outstanding, with a carrying value of CAD 519 million[100] - As of December 31, 2022, 55,720 thousand warrants were outstanding, with a carrying value of CAD 184 million and an exercise price of CAD 6.54 per share[102] 26. Accumulated Other Comprehensive Income (Loss) Cenovus Energy Inc.'s Accumulated Other Comprehensive Income (AOCI) significantly increased in 2022, driven by positive foreign currency translation adjustments Changes in Accumulated Other Comprehensive Income (Loss) for 2022 | Item (Millions of CAD) | Pension and Other Post-Retirement Benefits | Private Equity Instruments | Foreign Currency Translation Adjustments | Total | | :--------------------- | :----------------------------------------- | :------------------------- | :--------------------------------------- | :---- | | Balance as of December 31, 2021 | 28 | 27 | 629 | 684 | | Other Comprehensive Income (Loss) Before Tax | 96 | 2 | 713 | 811 | | Income Tax Expense (Recovery) | (25) | — | — | (25) | | Balance as of December 31, 2022 | 99 | 29 | 1,342 | 1,470 | - In full-year 2022, AOCI increased by 114.91% from CAD 684 million in 2021 to CAD 1,470 million[103] - Foreign currency translation adjustments increased from CAD 629 million in 2021 to CAD 1,342 million in 2022, serving as the primary driver for AOCI growth[103] 27. Stock-Based Compensation Plans Cenovus Energy Inc. reported significantly increased stock-based compensation in 2022, driven by PSUs and RSUs, across various stock-based compensation plans Stock-Based Compensation Plan Units as of December 31, 2022 | Plan Type | Units Outstanding (Thousands) | Units Exercisable (Thousands) | | :-------------------------------- | :---------------------------- | :---------------------------- | | Stock Options with Net Settlement Rights | 14,349 | 6,673 | | Cenovus Replacement Stock Options | 3,467 | 2,079 | | Performance Share Units (PSUs) | 8,678 | — | | Restricted Share Units (RSUs) | 6,655 | — | | Deferred Share Units (DSUs) | 1,506 | 1,506 | Stock-Based Compensation Expense for Q4 and Full-Year 2022 | Plan Type | Q4 2022 | Q4 2021 | Full-Year 2022 | | :-------------------------------- | :------ | :------ | :------------- | | Stock Options with Net Settlement Rights | 3 | 3 | 15 | | Cenovus Replacement Stock Options | 17 | 9 | 53 | | Performance Share Units (PSUs) | 117 | 26 | 183 | | Restricted Share Units (RSUs) | 35 | 20 | 100 | | Deferred Share Units (DSUs) | 8 | 4 | 22 | | Total Stock-Based Compensation Expense (Recovery) | 180 | 62 | 373 | - Full-year 2022 total stock-based compensation expense significantly increased to CAD 373 million from CAD 159 million in full-year 2021[106][42] - In full-year 2022, 10,563 thousand stock options with net settlement rights were exercised via net cash payment, and 6,042 thousand Cenovus replacement stock options were net cash settled[105] 28. Related Party Transactions Cenovus Energy Inc. engages in various related party transactions with HMLP, encompassing management services, construction costs, and pipeline and transportation fees - Cenovus holds a 35% equity interest in HMLP and provides management services as the operator of its assets[107] - In full-year 2022, the company charged HMLP CAD 188 million for construction costs and management services (full-year 2021: CAD 243 million)[107] - In full-year 2022, the company incurred CAD 263 million in fees for using HMLP's pipeline systems and transportation and storage services (full-year 2021: CAD 284 million)[107] 29. Financial Instruments Cenovus Energy Inc. discloses fair values for non-derivative financial instruments and risk management positions, including commodity and foreign exchange swaps, and their impact on earnings - As of December 31, 2022, the company's long-term debt had a carrying value of CAD 8.7 billion and a fair value of CAD 7.8 billion (2021: carrying value CAD 12.4 billion, fair value CAD 13.7 billion)[108] Summary of Risk Management Positions as of December 31, 2022 | Item (Millions of CAD) | 2022 Risk Assets | 2022 Risk Liabilities | 2022 Net | | :--------------------- | :--------------- | :-------------------- | :------- | | Crude Oil, Natural Gas, Condensate and Refined Products | 2 | 40 | (38) | | Power Swap Contracts | 1 | 7 | (6) | | Renewable Energy Contracts | 90 | — | 90 | | Foreign Exchange Rate Contracts | — | — | — | | Total | 93 | 47 | 46 | - The variable payment (Level 3) related to the Sunrise acquisition is presented at fair value, estimated at CAD 419 million as of December 31, 2022[113] Impact of Risk Management Positions on Earnings for Q4 and Full-Year 2022 | Item (Millions of CAD) | Q4 2022 | Q4 2021 | Full-Year 2022 | Full-Year 2021 | | :--------------------- | :------ | :------ | :------------- | :------------- | | Realized (Gain) Loss | 134 | 268 | 1,762 | 993 | | Unrealized (Gain) Loss | (38) | (224) | (126) | 2 | | Risk Management (Gain) Loss | 96 | 44 | 1,636 | 995 | 30. Risk Management Cenovus Energy Inc. manages market, credit, and liquidity risks through financial positions, swap contracts, and renewable energy contracts to protect cash flows and optimize its portfolio - The company faces market risks including commodity prices, foreign exchange rates, interest rates, and commodity power prices, as well as credit and liquidity risks[116] - The company manages these risks through financial positions, interest rate swap contracts, foreign exchange contracts, power swaps, and renewable energy contracts[117] - As of December 31, 2022, the fair value of risk management positions was a net asset of CAD 46 million[118][119] Risk Management Position Sensitivity Analysis as of December 31, 2022 | Risk Factor | Sensitivity Range | Increase (Millions of CAD) | Decrease (Millions of CAD) | | :------------------------ | :---------------------------------------- | :------------------------- | :------------------------- | | Crude Oil Commodity Prices | WTI, Condensate and Related Hedges ±USD 10.00/bbl | 1 | (1) | | WCS and Condensate Differentials | Production-Linked Differential Hedges ±USD 2.50/bbl | 13 | (13) | | Power Commodity Prices | Power Hedges ±CAD 20.00/MWh | 113 | (113) | | USD to CAD Exchange Rate | USD to CAD Exchange Rate ±0.05 | 14 | (17) | 31. Supplementary Cash Flow Information Cenovus Energy Inc.'s working capital slightly decreased in 2022, with non-cash changes positively impacting operating cash flow, and a reconciliation of financing liabilities provided Working Capital as of December 31, 2022 | Item (Millions of CAD) | 2022 | 2021 | | :--------------------- | :----- | :----- | | Total Current Assets | 12,430 | 11,988 | | Total Current Liabilities | 8,021 | 7,305 | | Working Capital | 4,409 | 4,683 | Full-Year 2022 Non-Cash Working Capital Changes | Item (Millions of CAD) | Full-Year 2022 | | :--------------------- | :------------- | | Accounts Receivable and Accrued Revenue | 838 | | Inventory | (143) | | Accounts Payable and Accrued Liabilities | (524) | | Income Taxes Payable | 1,000 | | Total Non-Cash Working Capital Changes | 1,113 | | Non-Cash Working Capital Changes from Operating Activities | 575 | | Non-Cash Working Capital Changes from Investing Activities | 538 | - In full-year 2022, non-cash working capital changes from operating activities amounted to CAD 575 million, positively contributing to cash flow from operating activities[125] 32. Commitments and Contingencies Cenovus Energy Inc. reported over CAD 32 billion in commitments for 2022, mainly for transportation and product purchases, with limited legal and tax matters deemed immaterial Future Committed Payments as of December 31, 2022 | Commitment Type (Millions of CAD) | Within 1 Year | 2-3 Years | 4-5 Years | Thereafter | Total | | :-------------------------------- | :------------ | :-------- | :-------- | :--------- | :----- | | Transportation and Storage | 1,747 | 3,553 | 2,776 | 14,365 | 21,081 | | Product Purchases | 1,626 | 2,431 | 1,844 | 3,457 | 9,358 | | Real Estate | 48 | 100 | 104 | 604 | 856 | | Funding Equity Accounted Associates | 92 | 201 | 187 | 143 | 623 | | Other Long-Term Commitments | 381 | 165 | 139 | 395 | 1,080 | | Total Payments | 3,894 | 6,450 | 5,050 | 18,964 | 32,998 | - As of December 31, 2022, the company's commitments with HMLP included CAD 2.2 billion in long-term transportation and storage commitments[127] - As of December 31, 2022, total outstanding letters of credit amounted to CAD 490 million[127] - The company is involved in limited legal proceedings and income tax matters, which management believes will not materially impact the interim consolidated financial statements[129][130]