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Oil Prices at 2-Year High: Time to Buy Cenovus Energy Inc.?

Haris Anwar

World crude oil prices have gained momentum which, it seems, is here to stay.

This week, oil prices climbed to an approximate two-year high, propelled by various factors, including a potential agreement among top producers to extend their production cuts, a geopolitical situation in the Middle East, and continued strong economic growth in North America.

It is hard to predict where oil prices will be, say, two to three months down the road, but this bullish trend in oil markets have accelerated some deal making in the Canadian oil patch.

Alberta-based Cenovus Energy Inc. (TSX:CVE) (NYSE:CVE) is one producer which is taking a full advantage of this price recovery, and it has put its oil sands assets back on the radar screens of investors.

After concluding assets sales of worth $2.8 billion this year, the company is rumoured to closing another $1 billion deal in the coming weeks. According to media reports, Cenovus is expected to announce a deal shortly to sell its interest in a major Saskatchewan oil project.

Asset sales are a big milestone for Cenovus, which struggled to convince investors that its paid a right price to ConocoPhillips when it acquired its oil sands and Alberta Deep Basin natural gas assets for $17.7 billion last year.

This hefty price tag forced Cenovus to take on a lot of debt, which it planned to pay off by selling its assets. The $2.8 billion in divestitures during the past quarter takes Cenovus very close to paying off a $3.6 billion bridge loan it took on for the ConocoPhillips deal.  

Cenovus stock continues to soar

Amid this flurry of positive developments, Cenovus stock gained massively, rising 34% in the past three months, outperforming other top producers in the oil patch.

For investors interested in oil stocks, Cenovus presents an interesting risk/reward scenario. As oil prices strengthen, and the deal making picks up, this company is in a great position to remove the drag which kept its share price under pressure during the past 12 months.

The debt load, which made many investors nervous, will be reduced as Cenovus pays off its loans and cuts its leverage. The company is also benefiting from its higher production from the newly acquired assets.

In the third quarter, Cenovus beat analysts? profit forecast by a huge margin, posting $0.28-a-share profit from analysts? $0.10-a-share average estimate.

The bottom line

Cenovus is a good momentum stock among Canadian oil sands producers, offering an attractive valuation even after a huge rebound of the last three months. Trading at $14.22, its share price is still down 25% from its last year?s high. If you are an oil bull and looking for good value, then Cenovus is certainly a name to consider.

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Fool contributor Haris Anwar has no position in any stocks mentioned.