The company’s Board of Directors has approved tripling the base dividend starting with the second quarter of 2022, as well as a plan for additional increases to shareholder returns. Beyond the base dividend increase, Cenovus will target to return 50% of quarterly excess free funds flow to shareholders when reported net debt is less than $9 billion . The company will do this through share buybacks and/or variable dividends while also continuing to pay down the balance sheet. Cenovus has adopted an ultimate net debt target of $4 billion . When reported net debt is at the $4 billion floor, Cenovus will target to return 100% of that quarter’s excess free funds flow to shareholders through share buybacks and/or variable dividends.
‘We have consistently delivered on our commitments to our shareholders,’ said Alex Pourbaix , Cenovus President & Chief Executive Officer. ‘After rapidly deleveraging our balance sheet, we are now able to provide a much clearer picture of how we will position Cenovus for the longer term – as a leader in delivering total shareholder returns.’
Cash from operating activities was $1.4 billion and adjusted funds flow was $2.6 billion in the quarter. Free funds flow of more than $1.8 billion included capital investment of $746 million , primarily to sustain production and throughput levels and continue work on the Superior Refinery rebuild project. Long-term debt was reduced to $11.7 billion as at March 31, 2022 , down from $12.4 billion at the end of the fourth quarter of 2021. Net debt was reduced to $8.4 billion as at March 31, 2022 , down nearly $1.2 billion from December 31, 2021 , and the company expects to reach its interim net debt target of below $8 billion imminently. A build in non-cash working capital of $1.2 billion , mainly attributable to an increase in accounts receivable and the impact of higher commodity prices on product inventory, affected the extent of debt reduction in the quarter.
Cash flows were impacted in the first quarter by a previously announced realized risk management loss of $974 million related to Cenovus’s risk management program. With the significant deleveraging of its balance sheet over the past year and its strong liquidity position, Cenovus announced on April 4, 2022 that its crude oil sales price risk management activities related to WTI are no longer required to support financial resilience by providing increased cash flow certainty. The company expects to close the bulk of its outstanding WTI price risk management positions related to crude oil sales over the next month and anticipates no significant financial exposure to WTI sales price risk management contracts beyond the second quarter of 2022.
Cenovus closed the sale of its Tucker asset in the Oil Sands segment for net proceeds of $730 million and its Wembley assets in the Conventional business for net proceeds of approximately $220 million in the quarter. The previously announced $420 million sale of the company’s retail fuels network continues to progress through regulatory approvals, with an anticipated close in the third quarter of 2022.
Cenovus recorded net earnings of $1.6 billion in the first quarter, compared with a net loss of $408 million in the fourth quarter. The difference in net earnings was primarily due to fourth-quarter earnings being impacted by an impairment of $1.9 billion recorded at December 31, 2021 , as well as increased operating margin, higher gains on asset divestitures and income of $269 million from Superior rebuild insurance proceeds in the first quarter, as well as lower general and administrative costs partially offset by unrealized risk management losses and a higher re-measurement loss on the contingent payment in the first quarter.