Cenovus receives Baa1 rating upgrade from Moody’s with stable outlook

Published 27/03/2025, 14:30
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Investing.com -- Moody’s Ratings has upgraded the senior unsecured ratings of Cenovus Energy Inc (NYSE:CVE). to Baa1 from Baa2. The outlook for the company has been revised to stable, moving away from its previous positive status.

The rating upgrade, announced on March 26, 2025, reflects Cenovus’s dedication to a conservative financial strategy and a history of strong upstream operations. The company’s production is projected to grow steadily through 2027. Whitney Leavens, a Moody’s Ratings analyst, acknowledged Cenovus’s ability to maintain a minimal debt burden and robust E&P cash margins in comparison to its peers.

The Baa1 rating for Cenovus is backed by several factors. These include a significant, long-lasting, and cost-effective production and reserve base, underpinned by steady organic growth. The company’s conservative financial policy, which supports solid metrics and operational resilience, also played a key role. Further, the company’s diversified operations across multiple basins, including favorably priced contracts for offshore natural gas production in Asia, and an integrated business model that partially mitigates upstream price volatility were considered.

However, the rating also takes into account challenges such as the geographic concentration of upstream operations in Western Canada, which exposes the company to regional developments. Other challenges include high concentration in non-upgraded bitumen, weak downstream profitability compared to peers, and regulatory and carbon transition challenges.

Cenovus maintains excellent liquidity, with sources totaling around C$10 billion in comparison to uses of about C$190 million. As of the end of 2024, the company had approximately $3 billion in cash and equivalents, and full availability under its $5.5 billion revolving credit facilities (C$2.2 billion expiring in June 2027 and C$3.3 billion expiring in June 2028). The company is expected to generate about C$2 billion in free cash flow through 2025 under medium term price assumptions. Cenovus has about C$190 million in notes maturing in July 2025 and no significant maturities until 2027. It is expected that Cenovus will maintain a robust cushion in compliance with its debt to capitalization maintenance covenant of 65%.

The stable outlook is based on the expectation that Cenovus will continue to maintain low debt levels and strong cash generation, supported by strong production growth and some improvement in downstream performance.

Moody’s stated that an upgrade could be possible if Cenovus can generate RCF/debt of 75% in a $55/bbl WTI price environment while maintaining LFCR of at least 2x. This would also require a strong track record of downstream operating performance, lower breakeven costs, and a more conservative financial policy. Conversely, a downgrade could occur if RCF/debt falls below 35% or LFCR is sustained below 1.5x or debt to production grows toward US$20,000/bbl.

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