Higher crack spread could cut Cenovus Energy’s funding gap

Cenovus' refining cash flow guidance of $250 million for 2015 is based on a crack spread of US$11.75 per barrel, but current levels are now near US$30.

Cenovus Energy Inc.’s funding gap of $1.3 billion for 2015 might end up being small compared to anticipated.

The current shortfall, calculated as income minus both capex and also the dividend, is significant even through the company’s own admission, but TD Securities analyst Menno Hulshof thinks it could shrink, partly due to possible upward revisions to refining cash flow guidance.

He pointed towards the dramatic improvement within the refining outlook since earlier this year, due to the widening price differential between Brent and WTI. Cenovus’ refining cash flow guidance of $250 million for 2015 is based on a crack spread of US$11.75 per barrel, but current levels are now near US$30.

Mr. Hulshof noted that Cenovus’ guidance established that every US$1-per-barrel increase boosts refining income by US$90 million. If crack spreads averaged US$16.75/bbl (US$5 greater than guidance), then your refining cash flow guidance would increase to around $700 million and also the shortfall in funding would fall to $850 million.

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