Cenovus Energy(CVE) - 2023 Q4 - Annual Report

Interim Consolidated Financial Statements (Unaudited) Consolidated Statements of Earnings (Loss) Cenovus reported 2023 net earnings of $4.1 billion on $52.2 billion revenue, a decrease from 2022 Consolidated Earnings Summary | For the periods ended December 31, ($ millions, except per share amounts) | Three Months 2023 | Three Months 2022 | Twelve Months 2023 | Twelve Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues (Net of Royalties) | 13,134 | 14,063 | 52,204 | 66,897 | | Expenses | 12,160 | 13,026 | 47,164 | 58,166 | | Earnings Before Income Tax | 974 | 1,037 | 5,040 | 8,731 | | Net Earnings (Loss) | 743 | 784 | 4,109 | 6,450 | | Basic Net Earnings Per Share ($) | 0.39 | 0.40 | 2.15 | 3.29 | | Diluted Net Earnings Per Share ($) | 0.39 | 0.39 | 2.12 | 3.20 | Consolidated Statements of Comprehensive Income (Loss) Full year 2023 comprehensive income was $3.8 billion, down from $7.2 billion in 2022 due to lower net earnings Consolidated Comprehensive Income Summary | For the periods ended December 31, ($ millions) | Three Months 2023 | Three Months 2022 | Twelve Months 2023 | Twelve Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Earnings (Loss) | 743 | 784 | 4,109 | 6,450 | | Other Comprehensive Income (Loss), Net of Tax | (246) | (170) | (262) | 786 | | Foreign Currency Translation Adjustment | (243) | (183) | (274) | 713 | | Comprehensive Income (Loss) | 497 | 614 | 3,847 | 7,236 | Consolidated Balance Sheets Total assets decreased to $53.9 billion in 2023, while liabilities reduced, increasing shareholders' equity Balance Sheet Summary | As at December 31, ($ millions) | 2023 | 2022 | | :--- | :--- | :--- | | Total Current Assets | 9,708 | 12,430 | | Cash and Cash Equivalents | 2,227 | 4,524 | | Total Assets | 53,915 | 55,869 | | Total Current Liabilities | 6,210 | 8,021 | | Long-Term Debt | 7,108 | 8,691 | | Total Liabilities | 25,203 | 28,280 | | Shareholders' Equity | 28,698 | 27,576 | | Total Liabilities and Equity | 53,915 | 55,869 | Consolidated Statements of Equity Shareholders' equity grew to $28.7 billion in 2023, driven by net earnings, despite share repurchases and dividends Changes in Shareholders' Equity (2023) | ($ millions) | Amount | | :--- | :--- | | As at December 31, 2022 | 27,576 | | Net Earnings | 4,109 | | Other Comprehensive Loss, Net of Tax | (262) | | Purchase of Common Shares Under NCIB | (1,061) | | Warrants Purchased and Cancelled | (713) | | Base Dividends on Common Shares | (990) | | As at December 31, 2023 | 28,698 | Consolidated Statements of Cash Flows Cash from operating activities decreased to $7.4 billion in 2023, leading to a net $2.3 billion decrease in cash Cash Flow Summary | For the twelve months ended December 31, ($ millions) | 2023 | 2022 | | :--- | :--- | :--- | | Cash From Operating Activities | 7,388 | 11,403 | | Cash Used in Investing Activities | (5,295) | (2,314) | | Cash Used in Financing Activities | (4,313) | (7,676) | | Increase (Decrease) in Cash and Cash Equivalents | (2,297) | 1,651 | | Cash and Cash Equivalents, End of Period | 2,227 | 4,524 | Notes to the Interim Consolidated Financial Statements This section details business segments, accounting policies, acquisitions, debt, and financial instruments for 2023 Note 1: Description of Business and Segmented Disclosures Cenovus operates Upstream and Downstream segments, with 2023 income of $6.0 billion and $0.5 billion - Cenovus's operations are divided into five reportable segments: Oil Sands, Conventional, and Offshore (Upstream), and Canadian Refining and U.S. Refining (Downstream)[11] Segment Income (Loss) for Twelve Months Ended Dec 31 ($ millions) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Upstream Total | 6,017 | 8,075 | | Oil Sands | 5,136 | 6,267 | | Conventional | 210 | 851 | | Offshore | 671 | 957 | | Downstream Total | 498 | 1,573 | | Canadian Refining | 490 | 491 | | U.S. Refining | 8 | 1,082 | Total Capital Expenditures for Twelve Months Ended Dec 31 ($ millions) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Total Upstream | 3,476 | 2,446 | | Total Downstream | 747 | 1,176 | | Acquisitions | 427 | 1,621 | | Total Capital Expenditures | 4,725 | 5,329 | Total Assets by Segment as at Dec 31 ($ millions) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Oil Sands | 31,673 | 32,248 | | Conventional | 2,429 | 2,410 | | Offshore | 3,511 | 3,339 | | Canadian Refining | 2,960 | 3,172 | | U.S. Refining | 8,660 | 8,324 | | Consolidated Total Assets | 53,915 | 55,869 | Note 3: Acquisitions Cenovus acquired the remaining 50% of Toledo refinery for US$378 million, recognizing a $34 million revaluation loss - Cenovus acquired the remaining 50% of the Toledo refinery from bp on February 28, 2023, for US$378 million (C$514 million), including working capital[25] - A non-cash revaluation loss of $34 million ($23 million after tax) was recognized on the re-measurement of the company's pre-existing 50% interest in Toledo to its fair value at the acquisition date[28] - The acquired business contributed $4.1 billion in revenues and a net loss of $85 million from the acquisition date to December 31, 2023[30] Note 6: Impairment Charges and Reversals No impairment charges or reversals in 2023, unlike 2022's significant U.S. Refining adjustments - No impairment indicators were identified for Upstream CGUs in 2023, and goodwill testing resulted in no impairments[33] - As at December 31, 2023, there were no indicators of impairment or impairment reversals for the Company's downstream CGUs[36] - In 2022, the company recorded a $1.5 billion impairment charge for the Toledo and Superior CGUs and reversed impairment charges of $1.2 billion for the Borger, Wood River, and Lima CGUs[37] Note 8: Per Share Amounts Basic EPS was $2.15 and diluted EPS $2.12 in 2023, with $990 million in common share dividends paid Earnings Per Share (EPS) | For the twelve months ended Dec 31, ($) | 2023 | 2022 | | :--- | :--- | :--- | | Basic EPS | 2.15 | 3.29 | | Diluted EPS | 2.12 | 3.20 | Common Share Dividends Declared and Paid | For the twelve months ended Dec 31, | 2023 Per Share ($) | 2023 Amount ($M) | 2022 Per Share ($) | 2022 Amount ($M) | | :--- | :--- | :--- | :--- | :--- | | Base Dividends | 0.525 | 990 | 0.350 | 682 | | Variable Dividends | — | — | 0.114 | 219 | | Total | 0.525 | 990 | 0.464 | 901 | - On February 14, 2024, the Board of Directors declared a Q1 2024 base dividend of $0.140 per common share[44] Note 14: Debt and Capital Structure Total debt reduced to $7.3 billion in 2023, improving Net Debt to Adjusted EBITDA to 0.5 times Debt and Capitalization Summary | As at December 31, ($ millions) | 2023 | 2022 | | :--- | :--- | :--- | | Total Debt | 7,287 | 8,806 | | Less: Cash and Cash Equivalents | (2,227) | (4,524) | | Net Debt | 5,060 | 4,282 | | Shareholders' Equity | 28,698 | 27,576 | | Capitalization | 33,758 | 31,858 | | Adjusted EBITDA (trailing 12-months) | 10,201 | 13,227 | | Net Debt to Adjusted EBITDA (times) | 0.5 | 0.3 | | Net Debt to Capitalization (percent) | 15 | 13 | - The company has a committed credit facility consisting of a $1.8 billion tranche maturing in 2025 and a $3.7 billion tranche maturing in 2026[58] - For the twelve months ended December 31, 2023, the Company purchased US$1.0 billion of its outstanding unsecured notes[59] Note 18: Share Capital and Warrants Cenovus repurchased 43.6 million shares and 45.5 million warrants, totaling $1.8 billion in returns - Under its NCIB, the company purchased and cancelled 43.6 million common shares in 2023 at a volume weighted average price of $24.32 per share, for a total of $1.1 billion[72] - On June 14, 2023, Cenovus purchased and cancelled 45.5 million warrants for a total of $711 million[76] Issued and Outstanding Securities (Year-End) | Security (thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Common Shares | 1,871,868 | 1,909,190 | | Warrants | 7,625 | 55,720 | Note 23: Risk Management Cenovus manages market, credit, and liquidity risks using derivatives, with 83% of receivables investment-grade - The company is exposed to market risk (commodity prices, FX, interest rates), credit risk, and liquidity risk, which it manages through various strategies including the use of derivative contracts[90] Net Fair Value of Risk Management Positions (as at Dec 31, 2023) | Position Type | Fair Value Asset (Liability) ($M) | | :--- | :--- | | Futures Contracts Related to Blending | 12 | | Power Swap Contracts | 2 | | Renewable Power Contracts | 18 | | Other Financial Positions | (20) | | Total Fair Value | 12 | - Credit risk is mitigated by policy; as of December 31, 2023, 83% of accounts receivable were with investment-grade counterparties[91] Note 25: Commitments and Contingencies Total future commitments reached $28.8 billion, primarily $24.7 billion for transportation and storage Future Commitments as at December 31, 2023 ($ millions) | Commitment Type | Total | | :--- | :--- | | Transportation and Storage | 24,667 | | Product Purchases | 617 | | Real Estate | 898 | | Obligation to Fund HCML | 513 | | Other Long-Term Commitments | 2,101 | | Total Commitments | 28,796 | - Transportation commitments include $13.0 billion for projects subject to regulatory approval or approved but not yet in service[98] Note 26: Prior Period Revisions 2022 comparative figures were revised for consistent accounting, with no impact on net earnings or financial position - Adjustments were made to 2022 comparative data to ensure consistent treatment of inter-segment sales and cost eliminations[102] - The revisions resulted in reclassifications among Gross Sales, Purchased Product, Transportation and Blending, and Operating expenses but had no impact on net earnings or financial position[102][103]