Mr. Jon McKenzie reports

CENOVUS ANNOUNCES 2023 SECOND-QUARTER RESULTS AND ORGANIZATIONAL UPDATE

Cenovus Energy Inc. generated nearly $2-billion in cash from operating activities, approximately $1.9-billion in adjusted funds flow and $897-million in free funds flow in the second quarter of 2023. Total upstream production was approximately 730,000 barrels of oil equivalent per day (boe/d), reflecting a planned turnaround at Foster Creek and production impacts in the conventional segment in May and June due to Alberta wildfire activity. Downstream throughput averaged almost 538,000 barrels per day (bbl/d), increasing in the quarter as volumes ramped up following restart work at the Superior and Toledo refineries.

"We achieved significant operational milestones across the company over the quarter," said Jon McKenzie, Cenovus president and chief executive officer. "With all that we have accomplished during the quarter, we're well positioned for the back half of 2023 and beyond."

Highlights:

• Ramped up throughput at the Toledo refinery, which is now fully operational. The Superior refinery is processing crude oil and continues to progress the start-up of its fluid catalytic cracking unit;
• Delivered $575-million to shareholders in the second quarter through buybacks and common share dividends, in addition to the purchase and cancellation of 45.5 million outstanding warrants for $711-million;
• Achieved a major milestone on the West White Rose project as the company completed the concrete pour on the offshore platform's conical slip;
• Successfully completed a three-week turnaround at the company's Foster Creek oil sands project;
• Released Cenovus's 2022 environmental, social and governance (ESG) report, detailing overall sustainability performance and progress on the company's ESG targets, as well as a new milestone to reduce absolute methane emissions in upstream operations by 80 per cent by year-end 2028, from a 2019 baseline.

Organizational changes

To reflect the further evolution of Cenovus as a company over the past two years, the board of directors has approved some role changes on Cenovus's executive team. Effective Sept. 1, 2023:

• Keith Chiasson (executive vice-president, downstream) will become Cenovus's executive vice-president and chief operating officer, responsible for all aspects of the company's operations.
• Doreen Cole (senior vice-president, downstream manufacturing) will join Cenovus's executive team as executive vice-president, downstream.
• Drew Zieglgansberger (executive vice-president, natural gas and technical services) will become Cenovus's executive vice-president and chief commercial officer, a new role responsible for all commercial arrangements across the company, including strategy, business development, planning and marketing.
• Andrew Dahlin (executive vice-president, corporate and operations services) will take on the role of executive vice-president, natural gas and technical services.
• Jeff Hart (executive vice-president and chief financial officer) will become executive vice-president, corporate and operations services.
• Kam Sandhar (executive vice-president, strategy and corporate development) will become executive vice-president and chief financial officer and continue to be responsible for investor relations.

There are no planned changes to the roles of Susan Anderson, senior vice-president, people services, Rhona DelFrari, chief sustainability officer and executive vice-president, stakeholder engagement, Gary Molnar, senior vice-president, legal, general counsel and corporate secretary, and Norrie Ramsay, executive vice-president, upstream -- thermal, major projects and offshore.

"These changes reflect the capability and versatility of Cenovus's exceptional executive team. I have absolute confidence they will continue to generate value for our shareholders," said Mr. McKenzie. "Our executive team structure will now better reflect the size and complexity of the company we are today."

Board update

The company also announced today that, due to the demands of other commitments, Canning K.N. Fok retired from the Cenovus board of directors, effective July 26, 2023, and confirms that Mr. Fok will continue to support and assist the company as the CEO of one of its major shareholders. It is expected that, in accordance with the standstill agreements entered into at the time of the Husky Energy transaction, a new director to replace Mr. Fok will be nominated before the end of the year.

"On behalf of the entire board, i would like to thank Canning for his valuable insights, experience and commitment during his service as a member of the board," said Alex Pourbaix, executive chair of the board. "As a director of Cenovus since the Husky Energy transaction, Canning has been a thoughtful and effective contributor to the integration and success of the combined organization."

Second quarter results

Operating results

Cenovus's total revenues were approximately $12.2-billion in the second quarter, in line with $12.3-billion in the first quarter of 2023. Upstream revenues were about $6.8-billion, similar to the previous quarter, and downstream revenues were $7.6-billion, compared with nearly $7.4-billion in the first quarter. Total operating margin was $2.4-billion, compared with about $2.1-billion in the first quarter. Upstream operating margin was approximately $2.3-billion, an increase from $1.7-billion in the prior quarter, primarily driven by a tighter light-heavy differential and lower condensate blending costs, partially offset by lower Brent and West Texas Intermediate (WTI) crude oil prices and decreased production volumes. Downstream operating margin was $143-million, compared with $391-million in the first quarter. U.S. manufacturing operating margin was negatively impacted by approximately $170-million due to the cost of processing crude oil purchased in prior periods at higher prices as well as the narrowing of heavy oil differentials.

Total upstream production was 729,900 boe/d in the second quarter, a decrease from the first quarter as the company experienced production impacts due to Alberta wildfire activity and planned maintenance. Foster Creek production of 167,000 bbl/d, compared with 190,000 bbl/d in the first quarter, reflects a planned three-week turnaround that was completed in the second quarter. Christina Lake production was 234,900 bbl/d, in line with the prior quarter as the company continued to progress its redevelopment and redrill program, including new well pads at both Foster Creek and Christina Lake. Sunrise production was 46,500 bbl/d, in line with first quarter production of 44,500 bbl/d. At the Lloydminster thermal projects, production increased to 106,200 bbl/d from 99,000 bbl/d in the prior quarter, as the company continued to focus on optimization of the asset.

In response to the Alberta wildfires that began in May and continued into early June, Cenovus shut in several producing conventional fields and processing plants as a precaution. Production in the conventional segment was 104,600 boe/d in the second quarter compared with 123,900 boe/d in the first quarter. No significant damage was identified at any Cenovus assets, and production at all facilities returned to normal rates in late June, with the exception of approximately 5,000 boe/d to 7,000 boe/d currently off-line at the Rainbow Lake facility due to electric power constraints from a third party provider. Cenovus estimates the annualized impact to production in the conventional segment to be approximately 8,000 boe/d to 10,000 boe/d, and as a result has revised conventional production guidance to between 115,000 boe/d and 130,000 boe/d.

In the offshore segment, production was 51,500 boe/d compared with 65,600 boe/d in the previous quarter. In Asia Pacific, sales volumes decreased compared with the first quarter as a result of a temporary unplanned outage in China, when an unauthorized vessel travelled into a dedicated pipeline corridor and struck an umbilical line. In Indonesia, sales volumes were higher than the first quarter of 2023, with the MBH and MDA fields continuing to ramp up. In the Atlantic region, production was 5,300 bbl/d compared with 8,900 bbl/d in the first quarter as the company advanced a planned turnaround at the SeaRose floating production, storage and offloading (FPSO) vessel, originally scheduled for the fall, into the first and second quarters. Light crude oil from production at the White Rose field is offloaded from the SeaRose FPSO to tankers and stored at an onshore terminal before shipment to buyers, which results in a timing difference between production and sales. There were no sales volumes in the second quarter due to this timing. The non-operated Terra Nova FPSO remains dockside in Newfoundland and Labrador, as it continues to undergo maintenance as part of its asset life extension program.

In U.S. manufacturing, crude throughput was 442,500 bbl/d, an increase of 23 per cent, compared with 359,200 bbl/d in the first quarter. The Superior refinery introduced crude oil in mid-March and increased throughput throughout the second quarter. Cenovus began restarting the Toledo refinery in April, ramping up volumes through the second quarter, and the facility is now fully operational. The Toledo and Superior refineries are both producing saleable products. The company's Lima refinery continues to deliver strong performance, with 93-per-cent utilization achieved in the quarter. At the non-operated Borger refinery, utilization was impacted by a planned turnaround and temporary unplanned outages. The refinery is now fully operational. The non-operated Wood River refinery completed a planned turnaround in May and is now fully operational.

Crude utilization in the Canadian manufacturing segment was 86 per cent with throughput of 95,300 bbl/d, compared with crude utilization and throughput of 89 per cent and 98,700 bbl/d in the first quarter.

Financial results

Second quarter cash from operating activities, which includes changes in non-cash working capital, was nearly $2-billion, compared with cash used in operating activities of $286-million in the first quarter of 2023. Adjusted funds flow was $1.9-billion, compared with $1.4-billion in the prior period, and free funds flow increased to $897-million from $294-million in the first quarter. Second quarter financial results improved compared with the first quarter, primarily due to higher price realizations in the oil sands segment, driven by narrower light-heavy crude oil differentials and lower condensate prices. In addition, oil sands segment sales volumes outpaced production by approximately 4,000 boe/d as the company drew down product inventory built through the first quarter of 2023 and fourth quarter of 2022. These factors were partially offset by higher operating costs in the U.S. manufacturing segment related to the commissioning and start-up of the Superior and Toledo refineries, as well as planned and unplanned maintenance at Borger. Results in the U.S. manufacturing segment were lower by approximately $170-million due to the cost of processing crude oil purchased in prior periods at higher prices, in addition to lower sales volumes than production volumes due to inventory buildup at the Lima refinery and a normal time lag expected on sales with the ramp-up of the Toledo and Superior refineries.

Capital investment of $1-billion in the second quarter was primarily directed toward sustaining production in the oil sands segment, the continuing construction of the West White Rose project and the Terra Nova asset life extension, in addition to refining reliability initiatives in the U.S. manufacturing segment and completing rebuild activities at the Superior refinery.

Net earnings in the second quarter were $866-million, compared with $636-million in the previous quarter. The increase in net earnings was primarily due to higher operating margin and a favourable unrealized foreign exchange gain, partially offset by higher income tax.

Long-term debt, including the current portion, was $8.5-billion at June 30, 2023, compared with $8.7-billion as at March 31, 2023. Net debt was approximately $6.4-billion at June 30, 2023, a decrease of $265-million from March 31, 2023, primarily due to an increase in free funds flow generated in the second quarter of 2023 compared with the prior quarter. The company continues to focus on making progress toward its net debt target of $4-billion.

2023 guidance updates

Cenovus has revised its 2023 corporate guidance to reflect the company's updated outlook for commodity prices, production and operating expenses for the remainder of the year. It is available on Cenovus's website under investors.

Changes to the company's 2023 guidance include:

• Reducing conventional output by 10,000 boe/d to a range of 115,000 boe/d to 130,000 boe/d as a result of the production impact from wildfires in Alberta;
• Lowering Lloydminster thermal production by 5,000 bbl/d to a range of 100,000 bbl/d to 110,000 bbl/d, reflecting year-to-date operating performance;
• Adjusting the total production range by 15,000 boe/d to between 775,000 boe/d and 795,000 boe/d;
• Expected cash taxes for 2023 have been lowered at the midpoint by $200-million, to a revised range of $1.1-billion to $1.4-billion for 2023.

In addition, the company has updated conventional operating expenses and royalties, and revised its commodity price deck and sensitivities. The company continues to execute its capital program and there has been no change to Cenovus's expected capital investment range of $4-billion to $4.5-billion.

Dividend declarations and share purchases

The board of directors has declared a quarterly base dividend of 14 cents per common share, payable on Sept. 29, 2023, to shareholders of record as of Sept. 15, 2023. In addition, the board has declared a quarterly dividend on each of the cumulative redeemable first preferred shares -- Series 1, Series 2, Series 3, Series 5 and Series 7 -- payable on Oct. 3, 2023, to shareholders of record as of Sept. 15, 2023, as noted herein.

All dividends paid on Cenovus's common and preferred shares will be designated as eligible dividends for Canadian federal income tax purposes. Declaration of dividends is at the sole discretion of the board and will continue to be evaluated on a quarterly basis.

Cenovus's shareholder returns framework has a target of returning 50 per cent of excess free funds flow to shareholders for quarters where the ending net debt is between $9-billion and $4-billion. In the second quarter, the company bought approximately 14 million shares under its normal course issuer bid (NCIB), delivering $310-million in returns to shareholders. In June, Cenovus reached separate agreements with each of Hutchison Whampoa Europe Investments sarl (HWEI) and L.F. Investments sarl (LFI) to purchase for cancellation all of the warrants held by HWEI and LFI, respectively, representing an aggregate of 45,484,672 warrants (CVE.WT), for a total of $711-million. The company has negotiated payment terms that provide flexibility to work within its shareholder returns framework, and at its discretion Cenovus has the option to pay the aggregate warrant purchase price of $711-million through the remainder of 2023, within each quarter's excess free funds flow, with full payment being made no later than Jan. 5, 2024. In the second quarter, the company elected to direct excess free funds flow to its NCIB program, and as a result no payment was made to either HWEI or LFI as part of the warrant purchases.

2023 planned maintenance

The attached table provides details on planned maintenance activities at Cenovus assets through the remainder of 2023 and anticipated production or throughput impacts.

Sustainability

During the quarter, Cenovus released its 2022 ESG report, updating progress the company made toward targets in its five ESG focus areas: climate and greenhouse gas (GHG) emissions, water stewardship, biodiversity, indigenous reconciliation, and inclusion and diversity. Cenovus also announced a milestone to reduce absolute methane emissions in its upstream operations by 80 per cent by year-end 2028, from a 2019 baseline. This is a key milestone toward the company's target to reduce absolute GHG emissions by 35 per cent by year-end 2035 as Cenovus builds toward its long-term ambition of achieving net-zero emissions from operations by 2050.

The ESG report shows continued progress in several areas, including reducing absolute methane emissions in upstream operations by 32 per cent from 2021 levels, and 59 per cent between 2019 and 2022. The company also spent $395-million, or the equivalent of more than $1-million each day in 2022, with indigenous businesses in areas such as engineering and construction services. Building on this work, Cenovus has now achieved its target of spending at least $1.2-billion with indigenous businesses between 2019 and year-end 2025. The company continues to seek additional opportunities to expand the scope of work it does with indigenous communities and businesses in the areas that it operates.

In addition, Cenovus has achieved its aspiration to have at least 40-per-cent representation from designated groups (defined as women, indigenous peoples, persons with disabilities and members of visible minorities) among non-management members of the board of directors by year-end 2025. Cenovus recognizes and embraces the benefits of having a diverse board, with a board diversity policy committing it to seeking highly qualified directors and to consider diversity when determining the best composition for the board.

Conference call today

9 a.m. Mountain Time (11 a.m. Eastern Time)

Cenovus will host a conference call today, July 27, 2023, starting at 9 a.m. MT (11 a.m. ET).

To join the conference call without operator assistance, please register approximately 5 minutes in advance to receive an automated call back when the session begins.

Alternatively, you can dial 888-664-6383 (toll-free in North America) or 416-764-8650 to reach a live operator who will join you into the call. A live audio webcast will also be available and will be archived for approximately 90 days.

About Cenovus Energy Inc.

Cenovus Energy is an integrated energy company with oil and natural gas production operations in Canada and the Asia Pacific region, and upgrading, refining and marketing operations in Canada and the United States. The company is focused on managing its assets in a safe, innovative and cost-efficient manner, integrating environmental, social and governance considerations into its business plans. Cenovus common shares and warrants are listed on the Toronto and New York stock exchanges, and the company's preferred shares are listed on the Toronto Stock Exchange.

We seek Safe Harbor.