Moody's raised its ratings on the Canadian oil sands producer Cenovus Energy Inc., citing "substantial" free cash flow and better cost structuring for its operations.

The rating agency upgraded Cenovus' corporate family rating and senior unsecured notes rating to Ba1 from Ba2 and its probability-of-default rating to Ba1-PD from Ba2-PD. The outlook for the company remains stable. Ba1 is one notch below investment grade.

Cenovus is expected to generate about $1.5 billion of free cash flow in 2019 as a result of higher prices and lower costs at its oil sands operations, according to an Oct. 4 news release by Moody's. The agency also acknowledged company management's commitment to debt reduction.

Cenovus may be negatively affected by its lack of diverse assets, with its operations concentrated in heavy oil in one location, and Canadian price discounts. However, the company has adequate liquidity and noncore assets available for sales or joint venture arrangements.

Calgary, Alberta-based Cenovus is engaged in oil sands projects in northern Alberta and natural gas and oil production in Alberta and British Columbia.