Production cuts, policy challenges, and MEG bid speculation shape Cenovus' Q2 outlook and strategy
Cenovus Energy Inc. is urging the federal government to eliminate regulatory barriers it says are hindering major energy projects, while cutting its 2025 production forecast and remaining silent amid speculation of a potential bid for MEG Energy Corp.
During its second-quarter earnings call, BNN Bloomberg reported that Cenovus executive vice-president Jeff Lawson said the sector continues to face “a lot of regulatory hurdles.”
Lawson said the company is intrigued by the federal Building Canada Act, passed in June to accelerate permitting for “nation-building projects,” but believes further changes are still needed for major projects to move forward.
“We love the notion of new projects and strengthening the Canadian economy,” Lawson said in the call.
“At the same time, we need to take a step back and say, ‘What’s precluding us from proceeding with these things?’” Lawson said.
He pointed to ongoing obstacles including the tanker ban, emissions cap, methane regulations, and an industrial carbon tax that “isn’t competitive with other jurisdictions.”
The Oil Tanker Moratorium Act continues to draw criticism across the sector.
BNN Bloomberg reported that the act bans oil tankers carrying more than 12,500 metric tons of crude from stopping along segments of British Columbia’s coast.
Industry leaders have also urged Prime Minister Mark Carney to scrap the emissions cap and industrial carbon pricing altogether.
Lawson noted the government has been more engaged than previous administrations.
“I think the federal Liberal government has been the most constructive with us and our industry than we’ve seen in the course of the past decade,” he said. “They’re out here often, they’re visiting, and they’re really trying to make an effort, I think, to improve the Canadian economy.”
Meanwhile, Cenovus revised its full-year upstream production guidance to between 805,000 and 825,000 barrels of oil equivalent per day, down from the previous estimate of 805,000 to 845,000 boe/d.
The revision followed a casing failure at a Rush Lake injection well in Saskatchewan, which triggered a steam release and forced a temporary shutdown, as reported by BNN Bloomberg.
Second-quarter upstream production fell to 765,900 boe/d from 800,800 boe/d a year earlier.
According to BNN Bloomberg, this was due to maintenance at offshore facilities, planned turnarounds, and wildfire-related disruptions in Alberta, including shutdowns at Christina Lake.
Cenovus reported net income of $851m, or 45 Canadian cents per share, for the three months ended June 30. That was down from $1bn, or 53 cents per share, a year earlier.
Analysts had expected earnings of 16 cents per share, according to LSEG Data & Analytics. Quarterly revenue dropped to $12.3bn from $14.6bn, while free funds flow declined to $355m from $1.21bn.
CEO Jon McKenzie said Cenovus is nearing completion of several growth and maintenance projects that should improve cash flow.
Total downstream throughput rose to 665,800 barrels per day, up from 622,700 bpd the previous year.
However, weaker Brent crude prices—affected by global demand softness, market volatility, and higher OPEC+ output—pressured earnings, as reported by BNN Bloomberg.
Cenovus has not confirmed whether it will move forward with a formal bid for MEG Energy, after the Financial Post reported the company was seeking financing for a potential offer.
MEG has declined to comment. The report follows MEG’s rejection of Strathcona Resources Ltd.’s unsolicited takeover attempt in May and its launch of a formal sales process in June.
A former MEG executive told the Financial Post that Cenovus is unlikely to make a formal bid without MEG’s board support.
Strathcona’s initial offer—$4.10 in cash plus 0.62 of a Strathcona share per MEG share—was worth $23.27 when announced in May. Its implied value rose to $25.77 per share by Tuesday’s close, according to the Financial Post.
Strathcona had accumulated nearly 10 percent of MEG’s shares on the open market prior to its formal bid.
Ninepoint Partners’ Eric Nuttall, whose firm holds shares in both companies, said he believes Cenovus “will” and “should” submit a competing bid.
“An asset like this with such massive synergies does not come around every day,” Nuttall said, adding that the question is “price.”
