As Cenovus stock price slumps, CEO doubles down on acquisition

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Cenovus Energy Inc. is struggling with a relentlessly falling stock price as its chief executive prepares to make his case once again for the company's recent $17.7-billion takeover of oil sands assets.

Shares of the Calgary-based company have shed nearly half their value this year, with much of the loss following the acquisition of bitumen and natural gas assets from Houston-based ConocoPhillips Co.

CEO Brian Ferguson is set to meet with investors and analysts for an in-depth discussion of corporate plans in Toronto on June 20, offering yet another opportunity to explain the deal since it was announced in March.

He has faced criticism for amassing debt in a shaky market and for buying assets in the Deep Basin exploration region in British Columbia, seen by some as a departure from Cenovus's expertise in northern Alberta's oil sands.

Those concerns have been amplified as crude prices have fallen back under $50 (U.S.) a barrel. On Thursday, West Texas intermediate oil settled just above the $45 threshold the company says it needs to maintain existing production and fund its current dividend.

Cenovus shares fell 2 per cent on Thursday to $10.63 (Canadian) on the Toronto Stock Exchange, well under what they fetched at the beginning of the year and far off their $34 price in 2014.

Mr. Ferguson has already gone to great lengths to explain the acquisition to investors – how it benefits from economies of scale and lower costs by buying out its partner in the company's main oil sands projects, while proceeds from planned asset sales will pay down the suddenly higher debt levels.

But the company's road to share-price recovery likely will be long, especially if oil prices remain in low, said Les Stelmach, portfolio manager at Franklin Bissett Investment Management.

"You can say whatever you like but, ultimately, you have to prove it out. An analysts' day is a first step, but what you say at that event has to be corroborated in the coming quarters with action," Mr. Stelmach said. "I don't think there's a Hail Mary pass for any company."

All eyes are focused on Cenovus's stated plans to sell $3.6-billion in assets by the end of the year in hopes of reducing its hefty debt load.

The company is looking to sell production equivalent to 45,000 barrels of oil a day split between its Suffield and Pelican Lake properties. Mr. Ferguson has said an update is expected by the end of the third quarter, while also expressing an openness to selling some of the acquired assets in the Deep Basin.

Cenovus is one of the few producers to revive deferred projects in the oil sands as crude prices edged up, signalling a hoped-for end to a bruising slump.

Last last year, the company restarted construction of a 50,000-b/d expansion at its flagship Christina Lake development. Two more projects under review, known as Narrows Lake A and Foster Creek H, could add 75,000 b/d of new capacity in coming years.

The company is plotting a return to growth even as weak prices pressure energy shares and stoke fresh concerns about industry debt levels.

The S&P/TSX energy subindex, which includes large energy producers and oil service companies, is down about 10 per cent since mid-May.

This week, crude fell sharply after U.S. government data showed a surprise increase in already swollen oil inventories. Rising production from shale deposits such as the Permian in Texas has largely overshadowed supply cuts orchestrated by the Organization of Petroleum Exporting Countries and its allies, as well as tensions in the Middle East.

Cenovus has said it could chop spending should oil prices weaken much below $50 (U.S.) a barrel. Its current budget stands at $2.1-billion (Canadian) to $2.2-billion. An update is expected later this month.

"The company recognizes it is now in the 'show me' phase with the market," analyst Greg Pardy at Royal Bank of Canada said in a research note.