What a difference a few Iranian air strikes (coupled with UAV’ing the Russian refinery industry) has on the profitability of domestic oil and gas companies.
I am looking at Cenovus Energy’s Q2 financial statements and see approximately $5.4 billion in free cash flow generated in the first half. This is well above the $3.3 billion generated in the full year of 2025. The MEG Energy acquisition has resulted in a rounding error now on the balance sheet with most of the debt being paid back and shares repurchased almost to the point before the acquisition (about 25 million shares away). Clearly wrestling away this company from Strathcona Resources was a strategic masterstroke. The refinery business has turned around, from generating a $706 million loss in the first half of 2025, while generating a $1,374 million income in first half 2026. This is one hell of a swing, mainly due to crack spreads trading at elevated values.
Annualized, the company is on track to generate about $5.90/share in free cash flow, which puts it at around 7x free cash flow, or a total yield of about 14.5% on the current CAD$40.60/share price. Valuation-wise, I can see why management continues to dump excess cash into the stock rather than accruing it for a special dividend.
However, always be cautioned that this is subject to the cyclical whims of the marketplace – many a dollar has been lost investing in cyclical companies at low price to earnings multiples. My gut has this as a “too cheap to sell, too expensive to buy” situation although if you can model the situation going on in the middle east correctly, you will stand to make a small fortune. I was eyeballing adding to some CNQ at the end of June/early July valuations for some idle cash deployment but was too lazy on the switch.
It has been noted that the US’s strategic petroleum reserve‘s balances have dwindled to record lows not seen since the early 1980’s – once this tap shuts off, this artificial amount of supply will shut with it and domestic crude prices stands to marginally rise – let alone the demand increase if the government wishes to refill it. The SPR is filled with both light and heavy crudes and North American demand will rise as a result if the reserve is ever to be refilled.
Finally, I note the crude oil curve remains extremely bent – a barrel in September 2026 is US$84.75, while a barrel in December 2027 is US$70.00 – a 17.4% discount for 15 months’ time. Short today, cover tomorrow – if you can find the supply.