Cenovus unveils capital spending plan, confirms up to 2,150 layoffs still targeted

Most of the hundreds of layoffs expected in the wake of Cenovus Energy Inc.'s takeover of rival Husky Energy Inc. have already been completed barely four weeks after the deal's close but more cuts are coming this year and next, its CEO said Thursday.

"Bringing two companies together also inevitably means overlap and redundancies in a number of areas and roles across our business," said Alex Pourbaix on a conference call to discuss the newly merged company's 2021 budget.

"We wanted to move quickly and respectfully to address this. Since Jan. 1, we have completed a significant portion of our planned workforce reductions, although there will be additional adjustments over the rest of the year and into 2022 as we continue our integration work."

Cenovus said in October it would cut 20 to 25 per cent of the combined employee and contractor workforce of about 8,600 people, equating to between 1,720 and 2,150 workers, a number Pourbaix said Thursday is still valid without being more specific.

Capital spending

The company unveiled a capital spending budget of between $2.3 billion and $2.7 billion for 2021, including $2.1 billion in sustaining capital. It declared its top priority will be debt reduction.

The sustaining capital is lower than the expected $2.4 billion in part because it plans to hold off on spending on the Tucker, Sunrise and Cold Lake oilsands operations formerly owned by Husky while development plans are revised to reduce costs, said chief operating officer Jon McKenzie on the call.

McKenzie was the chief financial officer at Husky until April 2018 when he left for Cenovus.

"We have squeezed the upstream again this year and we continue to spend at a rate that is probably not indicative of where we need to go long-term," he said, noting that Cenovus will also spend less than expected at its core Foster Creek-Christina Lake oilsands complex this year.

The other major capital spending item is about $550 million related to the rebuild of Husky's Superior Refinery in Wisconsin, which was damaged in an explosion and fire in April 2018.

Cenovus said it had revised the total repair cost to about US$950 million, up $200 million from Husky's last estimate, and now expects it to restart in the first quarter of 2023, later than Husky's last estimate of the second half of 2022. Most of the cost of getting it back on line is expected to be covered by insurance.

Cost savings

The budget number doesn't include between $500 million and $550 million of one-time integration costs for severance, consultation and legal fees, integration of IT systems, transfer of licensed seismic data and other change of control costs, it said.

It expects to achieve about $1 billion of its targeted $1.2 billion in cost-saving synergies this year, with about $400 million in corporate and operating cost savings and $600 million in lower capital spending.

Cenovus' stock was little changed in Toronto. Analyst reports noted there were few surprises in the budget.

"Overall, the budget further reinforces the merits of the recent combination and highlights the longer-term FCF (free cash flow) generating capacity of the combined assets," said National Bank analyst Travis Wood in a report.

Biden administration

Cenovus said total upstream production in 2021 is expected to be about 755,000 barrels of oil equivalent per day, while its refinery throughput is forecast to be about 525,000 barrels per day.

Asked about the decision by U.S. President Joe Biden to cancel the Keystone XL pipeline, Pourbaix said it was a "tragedy" for the industry but won't affect his company's ability to get barrels to market, which has been improved with the merger.

He added that Biden's focus on fighting climate change, which includes pausing oil and gas leasing on federal land, targeting subsidies for those industries and introducing new regulations, is probably good for the Canadian oilpatch.

Pourbaix reiterated that Cenovus intends to use sales of non-core assets to help reach its balance sheet rebuilding goals but declined to list those properties.