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Cenovus (CVE) Eyes Atlantic Assets Rejig, $10B Net Debt

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Cenovus Energy Inc. (CVE - Free Report) recently agreed to restructure its stakes in the Atlantic region with respective partners in the region. The agreement incorporates its working interests in Terra Nova and White Rose projects. The move is expected to improve the company’s economics in the region.

The deal will increase its stake in Terra Nova to 34% from 13%. Also, it will receive $78 million from the exiting partners for future asset retirement obligations. The asset life expansion project at Terra Nova will likely proceed, extending the field’s life to 2033. Production from the site will likely resume before 2022-end. Output from the field is expected to reach 29,000 barrels per day by 2023.

The company also agreed to decrease its stake in the White Rose project, while partner Suncor Energy Inc. (SU - Free Report) will receive an increased working interest. Cenovus’ stake in the field will be reduced from 72.5% to 60%, while the same in the satellite extensions will be decreased to 56.375% from 68.875%. Per the deal, Suncor’s stake in the offshore field will likely rise to 40% from 27.5%. The West White Rose project restarting decision is expected to be made by the middle of the next year.

The restructuring move from Cenovus is likely to make its upstream portfolio more profitable and free up some capital, which can be allocated more efficiently toward producing assets. These steps are likely to boost shareholder value. Further, the Terra Nova asset life expansion project and restart of the West White Rose project can enable it to attain its target of achieving compound annual production growth of 2-3% from 2020 to 2024.

Additionally, the company announced that it is working toward reaching the target of $10 billion net debt this year. At second quarter-end, the company had $12.4 billion in net debt. With its rising free funds in recent quarters, Cenovus is likely to achieve the goal within time. In the first half of 2021, it generated $1,877 million in free funds flow, reflecting a massive improvement from the year-ago free funds outflow of $1,074 million. Upon reaching the goal, it intends to allocate parts of the free funds for increasing shareholder returns.

Price Performance

The stock has gained 38.9% in the year-to-date period compared with a 6.6% rise of the industry it belongs to.

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Zacks Rank & Stocks to Consider

The company currently has a Zacks Rank #3 (Hold). Some better-ranked stocks from the energy space include Suburban Propane Partners, L.P. (SPH - Free Report) and Comstock Resources, Inc. (CRK - Free Report) , each having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Suburban Propane’s bottom line for 2021 is expected to rise 62.9% year over year.

The Zacks Consensus Estimate for Comstock Resources’ earnings for 2021 is pegged at $1.10 per share, signaling a major improvement from the year-ago figure of 23 cents.