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Cenovus to focus on cost reduction, deleveraging under new CEO

After spending his first few months on the job streamlining Cenovus Energy Inc.'s management structure and workforce, CEO Alex Pourbaix said he plans to instill a better pay-for-performance philosophy across the company and continue to focus on deleveraging the balance sheet.

"I can say without hesitation that I believe Cenovus has top-tier assets and some of the most technically confident people in the industry," said Pourbaix, who was appointed president and CEO at the end of October 2017. "This is, in fact, what attracted me to Cenovus. At the same time, our industry is evolving so fast that more urgent change is required in certain areas."

The company ended 2017 with about C$9 billion in debt, compared with about C$13 billion at the end of the second quarter, Pourbaix said during a Feb. 15 conference call. The long-term goal for Cenovus Energy is to reach a net debt-to-adjusted EBITDA ratio of 2x or lower, after ending the year at about 2.8-times adjusted EBITDA. "Through generation of free funds flow and potential of further asset sales, our focus will remain on deleveraging," Pourbaix said.

Cenovus Energy recently closed the sale of its four legacy conventional oil and natural gas assets for combined proceeds of about C$3.7 billion, which was used to help repay a C$3.6 billion bridge facility that was made as part of the ConocoPhillips assets acquisition. The company will continue to rely on noncore asset sales, along with cost-cutting measures, free funds flow generation and capital discipline, said Pourbaix. The company gave no specifics on a dollar value for its divestitures.

The company reduced its oil sands sustaining capital costs to C$6.34 per barrel from C$7.24/bbl. In 2018, the company plans to further reduce sustaining capital costs per barrel by 13%. Oil sands operating costs are expected to decline 6% in 2018.

Part of the cost reduction plan was a goal to reduce the workforce by about 15% in 2018. The majority of the reductions occurred in the past month, said Pourbaix, with more coming in the next two to three months. Cenovus Energy recorded net earnings of C$620 million in the fourth quarter, or 50 Canadian cents per share, up from C$91 million, or 11 cents per share, in the year-ago period.