CEO Interview: Midstream To Upstream Learning Curve Aside, Pourbaix Has Embraced Navigating Cenovus’s Path Forward

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Alex Pourbaix. File photo.

This is the first part of a three-part series the DOB is running, stemming from an interview with Cenovus president and CEO Alex Pourbaix.

For Part 2, click on the link: CEO Interview: Pourbaix Reflects On The Company-Altering Husky Deal


After a stellar and almost three decade-long career in the midstream sector, Alex Pourbaix knew there would be a steep learning curve after he pursued and eventually secured the top job at Cenovus Energy Inc.

While his tenure since being appointed to the position in October of 2017 has seen numerous successes, it’s also been fraught with numerous challenges experienced by his company, indeed the industry as a whole, as factors outside of an executive’s control impacted the oil and gas industry market and dynamics.

And Pourbaix believes his midstream background helped him navigate the aforementioned learning curve in his then new role as president and CEO of one of Canada’s premium upstream entities.

“I spent a pretty long career with TC Energy Corporation [formerly TransCanada Corporation] and retired as chief operating officer. I think one of the benefits of that role was I really worked closely, in particular, with the upstream industry, and even the downstream industry to a degree, through TC Energy’s liquids pipeline business,” Pourbaix told the Bulletin.

“So when this opportunity at Cenovus came around I had the advantage in that I think I understood that, obviously, I wasn’t a technical expert [of oilsands, particularly SAGD]. But I had a pretty good understanding of the industry and I had good relationships with a lot of Cenovus’s peers and a lot of downstream refiners were known to me,” he added.

“And having worked in Calgary my whole career, I had always been really interested in Cenovus. I always viewed them as a true leader, particularly on the SAGD technology. So I thought it was a really interesting opportunity where I obviously had a lot to learn — I probably spent about a year or so drinking from a fire hose. But I was able to feel my way around the company pretty quickly and I think I have been able to add some value over the years. It’s a great company to work for.”

In the five-plus years he’s been at the helm, Cenovus, and the industry as a whole, have faced a litany of challenges.

From incredibly volatile commodity prices and differentials; to a global pandemic that sent the oil and gas industry into a tailspin as crude and product demand/commodity prices plummeted; to myriad geopolitical events and issues — all the while facing increasing scrutiny and opposition of oilsands operations and the sector in general. It’s been quite the ride, to say the least.

Pourbaix didn’t flinch as he learned on the go, and in real time. Game-on. Trial-by-fire.

“There’s certainly been no lack of excitement in the five or six years that I’ve been here. I hadn’t been in the seat more than a few months when differentials blew out well past $30 a barrel, kind of heading to $40 a barrel. The entire profitability of the heavy oil industry was really at risk for a period of time,” Pourbaix said.

“And then, obviously, the pandemic and the impact on oil prices. So I’ve certainly seen all the elements of the oil and gas price cycle. And for me, coming from the regulated utility business side, I expected some volatility moving into the upstream business. But, to be fully frank, I honestly had no idea of how volatile this industry can be largely because of how quickly prices can move from feast-to-famine and back again.”

Pourbaix noted that his early indoctrination into the trials and tribulation faced by executives in the upstream sector helped him set the course for the company’s path going forward. And the company’s need to repair and improve its balance sheet quickly became top-of-mind.

“I realized that in the upstream business nothing is more important than your balance sheet. And it didn’t take me very long once I got to Cenovus to realize what the priorities were for the company. And obviously, one of the biggest ones for Cenovus when I got there was it had a really strained balance sheet,” he said.

“So we were focused on getting the debt down to a low and sustainable level [and] getting our cost structure down.”

Another area of focus and concern in the early days of his tenure was tight egress out of Alberta, a situation that was hampering not only his company, but its peers as well.

“Cenovus had some great assets but we did not have a lot of firm pipeline takeaway capacity. And that was obviously a real challenge when I first joined the company. And I think we’ve been able to largely slay those dragons and then, ultimately through the acquisition of Husky have more downstream integration,” Pourbaix said.

(Editor’s note: Click here to read a more detailed account of how the Husky deal transpired and changed Cenovus.)

Pourbaix suspects ‘more consolidation coming’

Given the Oct. 25, 2020, all-stock transaction valued at $23.6 billion that saw Cenovus and Husky combine, does Pourbaix anticipate additional large-scale M&A transactions to occur in the oilsands sector?

“Look, it’s a good question. I mentioned this to someone the other day. You know, if you look at the Canadian upstream oil and gas sector today, we have never produced more oil and gas than we do today. But if you compare this industry to 20 years ago, when there were literally dozens of juniors and intermediates and senior [oilsands] producers, you now have six oilsands players that represent about 95 per cent of the production in the oilsands,” he said.

“And on the conventional side it’s equally, if not more, concentrated. And despite all of that, I suspect there probably will be more consolidation coming. I think our deal with Husky is a good example that there are economies of scale that really can come into play as you combine really significant companies.”

That said, Pourbaix noted that while Cenovus always keeps a keen and watchful eye on the M&A market, the company isn’t currently actively on the hunt to further beef up its asset base, though that could always change  going forward as the M&A market becomes more clear and further defines itself.

“As I said many times pre-Husky: We don’t see any compelling things right now that we would feel that we would want to move on. But once again, we always look at this from a very opportunistic and disciplined perspective. And I do think there are arguments to be made at some point on the future,” he said.

“We’ll just have to wait and see if valuations kind of drive some of those companies to get put together. I think a lot of people are seeing the benefits of scale and I think we’ll continue to see it for awhile to come.”

What is Cenovus’s short- to medium-term strategy?

Now that the integration of Husky and its assets has been completed, Pourbaix said the company has somewhat modest growth ambitions and will focus its efforts on projects that complement and enhance its current suite of assets. Tinkering under the existing hood, if you will.

In fact, he added, it’s a process that’s already underway.

“We’re really focused here for the next few years. We’ve got the integration of Husky behind us and there’s just really a few priorities that I want to see the company focus on. On the growth side, we have no plans in the medium-term for any large-scale growth initiatives,” he said.

“We think we can continue growing the production of the company over the next five years. But we would look at that as largely coming from kind of brownfield and debottlenecking-types of opportunities that we have within our existing assets.”

As an example, Pourbaix pointed to the company’s Narrows Lake project.

Cenovus’s current five-year plan includes a tie-back to Narrows Lake — a move the company expects will meaningfully increase production with no added steam requirements. The company is accessing the high-quality Narrows Lake reservoir with a steam pipeline.

According to the company, the tie-back adds about $1 billion net asset value to Christina Lake at US$45/bbl WTI by accessing better resource, with around $250 million in capital.

“A great example [of Cenovus’s approach to growth] would be our Narrows Lake project, which is a permitted project a little bit to the north of Christina Lake. And that was a project that 10 years ago construction was started initially with a view that it was going to be a standalone, brand new SAGD oilsands facility,” Pourbaix said.

“The company stopped the construction in the middle of the last decade when prices collapsed. We have now completely re-thought that. And what we’re doing now is we’re developing production pads out at Narrows Lake, but rather than building a huge central processing facility and a camp and everything else, we have become so proficient in moving steam and emulsion and gas long distances by pipeline that we’re actually just going to build steam and emulsion pipelines out to Narrows Lake,” he added.

“And as we develop pads we’re going to move steam from the existing Christina Lake processing facility out to Narrows and we’re going to be moving the oil emulsion back to Christina Lake for processing. And that was something that I don’t think anyone had even thought about as a possibility 10 years ago. And now we’re doing that.”

The end result, according to Pourbaix, is the company will avoid having to build a $1 billion-plus processing facility, as well as the five or six years of construction work that would entail.

“We’re developing that as we speak. And we’ve avoided all of that massive capital in that period of time during construction, where you have no revenue,” he said.

“So I think we’re going to see a lot more of that kind of brownfield and debottlenecking work that we think is really meaningful.”

Enhancing downstream operations a continued focus

Pourbaix said the company’s downstream operations will also be a major focus as the company continues to look to enhance both safety and operational performance in that segment.

“We are a company that is incredibly focused on health and safety and we want to make sure that, as that downstream business has grown so substantially, it has the same focus on industrial safety and human safety as our legacy operations,” he said.

Cenovus now has stakes in both the Toledo (currently non-operated) and Superior refineries, both of which have endured serious fire-related safety and operational events in recent months and years.

“We are really, really focused on driving operational improvements in that downstream business. As you are probably aware, we acquired half of the Toledo refinery. The half that we didn’t own we’re in the process of acquiring from BP. So we’re going to be taking over operations at that facility. We will very shortly be bringing back the Superior Refinery, which has been under significant construction for the better part of the last few years,” Pourbaix said.

“So the downstream business has grown significantly for us. As I said, we take a great deal of pride in our safety track record. We also take a great deal of pride in the upstream — in our operational capabilities, our cost control and our focus on operational priorities.

“And for the next year, that to me is one of our biggest priorities — really having the whole team focus on the downstream and having that become another leg to our stool with very, very reliable and low-cost production.”

2023 spending up 21%. Why?

Pourbaix said that after a year or two of curtailed spending because of the pandemic and its effects, Cenovus is investing some in capital projects that were delayed or deferred during less certain market conditions and economic times.

Hence, a somewhat substantial uptick in capex this year.

On Dec. 6, the company announced its plans to invest between $4 billion and $4.5 billion in 2023, up 21 per cent from a range of $3.3 billion to $3.7 billion in 2022.

“I would say in respect to the capital budget this year, a bit of what we’re doing this year is really playing a bit of catch-up. As you can imagine, over the pandemic pretty much every company in our sector was turning off every bit of capital that they could without jeopardizing safety or operations. And we very much did that in 2021. So there’s a little bit of catch-up going on from prior years,” Pourbaix said.

Industry-wide cost pressures witnessed over the last year or so are also a factor in the increased capex guidance, the CEO noted.

“The other thing I would say is inflation is biting us, to a degree. I think the team has done a great job in really pushing back hard on inflation. You know, there are some areas — particularly the oilsands — where the decisions are made over such a long-planned period that most of our contracts are multi-year contracts for drilling, for chemicals —you name it,” Pourbaix said.

“We’ve been able to really avoid the worst of inflation [in oilsands operations],” Pourbaix said.

But the company’s conventional assets and development programs in plays like the Montney, as an example, have been more impacted.

“In shorter-cycle businesses like conventional, we have seen a lot more cost pressures. But overall, I’d probably look at the company’s costs kind of [increasing] into that eight to 10 per cent category, going from memory,” Pourbaix added.

That said, he noted that Cenovus “actually has a reasonable amount of growth capital” being deployed this year, including funds directed to an offshore project on the East Coast of Canada.

“It’s not entirely West White Rose, but West White Rose is a pretty significant component of our [growth] capital for the next several years,” Pourbaix said.

“We have our plan. We’ve put a little more money towards the conventional. We think that where gas prices and oil prices have gone we have an opportunity, really just looking at our existing plays, to add some more capital to that and deliver some very, very high-return projects on the conventional side,” he added.

“That’s really where the focus is.”

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