is taking an estimated $1.38-billion hit to exit its oil hedges, accepting the short-term pain of shutting down the program to regain exposure to soaring oil prices and rejoin the ranks of Canada’s senior energy companies.
While the dollar figures are large, the fact that Cenovus can afford to make this move shows how chief executive Alex Pourbaix has fixed the company’s finances since acquiring rival Husky Energy Inc. for $4.78-billion in March, 2021. By pre-selling a portion of its future oil production at set prices – that’s what the hedging program does – Cenovus locked in the cash it needed to pay creditors. By hedging, Mr. Pourbaix managed the risk Cenovus could go bankrupt, wiping out shareholders.
If they gave Olympic medals for losing money on exiting hedges, Cenovus wouldn’t even get near the podium. Barrick Gold Corp. took a US$5.6-billion charge in 2009 when it shut down a bullion hedging program and was forced to sell US$4-billion of stock to pay for the move.