Cenovus raises dividend, says federal carbon capture tax credit crucial

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Cenovus Energy Inc. will double shareholders’ dividends after the company boosted its third-quarter production off the back of high oil prices and an economic rebound from the pandemic-caused doldrums of 2020.

The Calgary-based company has also filed an application to the Toronto Stock Exchange to commence a buyback program of up to 146.5 million of the company’s common shares, or about 10 per cent of its public float.

Cenovus president and chief executive Alex Pourbaix told an investor call Wednesday that the company’s average oil output hit nearly 805,000 barrels a day in the third quarter, representing an increase of about five per cent over the previous quarter.

He said the jump was driven by record single-day and quarterly average production rates at Cenovus’s Foster Creek and Christina Lake oil sands facilities.

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Even as Cenovus boosts production, it plans to release its updated environmental, social and governance (ESG) targets at its investor day on Dec. 8, along with its plans to reach those goals.

Mr. Pourbaix told The Globe and Mail that he expects a large part of that work will focus on reducing methane emissions, replacing natural gas with hydrogen, and eventually incorporating small modular nuclear reactors into oil sands operations. He said replacing steam with solvents in steam-assisted gravity drainage (or SAG-D) projects could also “massively reduce GHG emissions” in the sector.

As world leaders gather in Glasgow this week for the United Nations climate change summit, COP26, Mr. Pourbaix doesn’t think discussions in the energy industry about reducing oil production emissions have taken on more urgency.

Instead, he contends the sector has been focused on it for years. He said that’s what led to the creation this year of the Oil Sands Pathways to Net Zero alliance, a group of producers that are working together to lower greenhouse gas emissions to net-zero by 2050.

On Wednesday, ConocoPhillips Canada became the sixth oil company to sign up. The alliance, which includes Canadian Natural Resources Ltd., Cenovus, Imperial Oil Ltd., MEG Energy Corp. and Suncor Energy Inc., now covers about 95 per cent of Canada’s oil sands production.

“All of the big oil sands players had already been pursuing their own carbon-reduction initiatives, in our case for 15 years,” Mr. Pourbaix said. But, he said, the industry can achieve more by sharing technology and collaborating on projects than if each company were to go it alone.

For now, the sector is focused on capturing more carbon from its operations, which Mr. Pourbaix called “one of the most obvious ways the upstream industry can decarbonize at scale.”

To that end, Cenovus has been in discussions with Ottawa over a new carbon capture, utilization and storage (CCUS or CCS) tax credit that the federal government announced in this year’s budget. CCUS is a process that captures carbon dioxide emissions from industrial sources and stores them, often in geological formations, so the emissions can’t enter the atmosphere.

Environmental groups have long expressed concern a reliance on carbon capture is a means for extending the use of fossil fuel production, and say the money would be better spent on other renewable forms of energy.

But Cenovus’s chief sustainability officer, Rhona DelFrari, told investors Wednesday that the tax credit will play a large role in making carbon capture projects economically viable for the fossil fuel sector.

“We know that CCS works, it’s been proven many times. But at the scale that we’re talking about, it’s never been done before,” she said.

“Any time in any industry when you’re going forward with something that’s at early stages, you have to de-risk that. And part of that is when government steps in to encourage these technologies that are for the benefit of all Canadians.”

Cenovus said it will raise its quarterly dividend to 3.5 cents a share from 1.75 cents.

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