EX-99.3 4 q12022interimconsolidatedf.htm EX-99.3
Exhibit 99.3
Cenovus Energy Inc.
Interim Consolidated Financial Statements (unaudited)
For the Period Ended March 31, 2022
(Canadian Dollars)

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

For the period ended March 31, 2022

TABLE OF CONTENTS

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (UNAUDITED) |  | 3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) |  | 4
CONSOLIDATED BALANCE SHEETS (UNAUDITED) |  | 5
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) |  | 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |  | 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |  | 8
1. DESCRIPTION OF BUSINESS AND SEGMENTED DISCLOSURES |  | 8
2. BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE |  | 13
3. ACCOUNTING POLICIES, CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY |  | 14
4. GENERAL AND ADMINISTRATIVE |  | 14
5. FINANCE COSTS |  | 14
6. INTEGRATION COSTS |  | 15
7. FOREIGN EXCHANGE (GAIN) LOSS, NET |  | 15
8. DIVESTITURES |  | 15
9. INCOME TAXES |  | 15
1 0. PER SHARE AMOUNTS |  | 16
1 1. ASSETS HELD FOR SALE |  | 17
1 2. EXPLORATION AND EVALUATION ASSETS, NET |  | 17
1 3. PROPERTY, PLANT AND EQUIPMENT, NET |  | 18
1 4. RIGHT-OF-USE ASSETS, NET |  | 19
1 5. JOINT ARRANGEMENTS |  | 19
1 6. OTHER ASSETS |  | 21
1 7. DEBT AND CAPITAL STRUCTURE |  | 21
1 8. LEASE LIABILITIES |  | 24
1 9. CONTINGENT PAYMENT |  | 25
2 0. DECOMMISSIONING LIABILITIES |  | 25
2 1. OTHER LIABILITIES |  | 25
2 2. SHARE CAPITAL AND WARRANTS |  | 26
2 3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |  | 27
2 4. STOCK-BASED COMPENSATION PLANS |  | 27
2 5. RELATED PARTY TRANSACTIONS |  | 28
2 6. FINANCIAL INSTRUMENTS |  | 28
2 7. RISK MANAGEMENT |  | 30
2 8. SUPPLEMENTARY CASH FLOW INFORMATION |  | 33
29. COMMITMENTS AND CONTINGENCIES |  | 35

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 2

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (unaudited)

For the period ended March 31,
($ millions, except per share amounts)

|  |  | Three Months Ended |  |
| Notes |  | 2022 |  | 2021 (1) |  |  |  |
Revenues | 1 |  |  |  |  |  |  |  |
Gross Sales |  |  | 17,383 |  | 9,666 |  |  |  |
Less: Royalties |  |  | 1,185 |  | 373 |  |  |  |
|  |  | 16,198 |  | 9,293 |  |  |  |
Expenses | 1 |  |  |  |  |  |  |  |
Purchased Product |  |  | 7,538 |  | 4,237 |  |  |  |
Transportation and Blending |  |  | 2,919 |  | 1,785 |  |  |  |
Operating |  |  | 1,287 |  | 1,134 |  |  |  |
(Gain) Loss on Risk Management | 26 |  | 1,285 |  | 194 |  |  |  |
Depreciation, Depletion and Amortization | 13,14 |  | 1,030 |  | 1,045 |  |  |  |
Exploration Expense | 12 |  | 16 |  | 6 |  |  |  |
(Income) Loss From Equity-Accounted Affiliates | 15 |  | (4) |  | (14) |  |  |  |
General and Administrative | 4 |  | 199 |  | 163 |  |  |  |
Finance Costs | 5 |  | 229 |  | 244 |  |  |  |
Interest Income |  |  | (15) |  | (4) |  |  |  |
Integration Costs | 6 |  | 24 |  | 223 |  |  |  |
Foreign Exchange (Gain) Loss, Net | 7 |  | (102) |  | (117) |  |  |  |
Re-measurement of Contingent Payment | 19 |  | 236 |  | 187 |  |  |  |
(Gain) Loss on Divestiture of Assets | 8 |  | (242) |  | (12) |  |  |  |
Other (Income) Loss, Net |  |  | (370) |  | (72) |  |  |  |
Earnings (Loss) Before Income Tax |  |  | 2,168 |  | 294 |  |  |  |
Income Tax Expense (Recovery) | 9 |  | 543 |  | 74 |  |  |  |
Net Earnings (Loss) |  |  | 1,625 |  | 220 |  |  |  |
Net Earnings (Loss) Per Common Share ($) | 10 |  |  |  |  |  |  |  |
Basic |  |  | 0.81 |  | 0.10 |  |  |  |
Diluted |  |  | 0.79 |  | 0.10 |  |  |  |

(1) See Note 3 for revisions to comparative results.
See accompanying Notes to Consolidated Financial Statements (unaudited).

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 3

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

For the period ended March 31,
($ millions)

|  |  | Three Months Ended |  |
| Notes |  | 2022 |  | 2021 |  |  |  |
Net Earnings (Loss) |  |  | 1,625 |  | 220 |  |  |  |
Other Comprehensive Income (Loss), Net of Tax | 23 |  |  |  |  |  |  |  |
Items That Will not be Reclassified to Profit or Loss: |  |  |  |  |  |  |  |  |
Actuarial Gain (Loss) Relating to Pension and Other Post-Employment Benefits |  |  | 30 |  | 16 |  |  |  |
Items That may be Reclassified to Profit or Loss: |  |  |  |  |  |  |  |  |
Foreign Currency Translation Adjustment |  |  | (150) |  | (133) |  |  |  |
Total Other Comprehensive Income (Loss), Net of Tax |  |  | (120) |  | (117) |  |  |  |
Comprehensive Income (Loss) |  |  | 1,505 |  | 103 |  |  |  |

See accompanying Notes to Consolidated Financial Statements (unaudited).

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 4

CONSOLIDATED BALANCE SHEETS (unaudited)

As at
($ millions)

| Notes | March 31, 2022 |  | December 31, 2021
Assets |  |  |  |
Current Assets |  |  |  |
Cash and Cash Equivalents |  | 3,399 |  | 2,873
Accounts Receivable and Accrued Revenues |  | 5,987 |  | 3,870
Income Tax Receivable |  | 7 |  | 22
Inventories |  | 4,661 |  | 3,919
Assets Held for Sale | 11 | 530 |  | 1,304
Total Current Assets |  | 14,584 |  | 11,988
Restricted Cash | 20 | 188 |  | 186
Exploration and Evaluation Assets, Net | 1,12 | 723 |  | 720
Property, Plant and Equipment, Net | 1,13 | 33,340 |  | 34,225
Right-of-Use Assets, Net | 1,14 | 1,963 |  | 2,010
Income Tax Receivable |  | 66 |  | 66
Investments in Equity-Accounted Affiliates | 15 | 300 |  | 311
Other Assets | 16 | 455 |  | 431
Deferred Income Taxes |  | 563 |  | 694
Goodwill | 1 | 3,473 |  | 3,473
Total Assets |  | 55,655 |  | 54,104
Liabilities and Equity |  |  |  |
Current Liabilities |  |  |  |
Accounts Payable and Accrued Liabilities |  | 8,122 |  | 6,353
Short-Term Borrowings | 17 | 62 |  | 79
Lease Liabilities | 18 | 259 |  | 272
Contingent Payment | 19 | 178 |  | 236
Income Tax Payable |  | 391 |  | 179
Liabilities Related to Assets Held for Sale | 11 | 128 |  | 186
Total Current Liabilities |  | 9,140 |  | 7,305
Long-Term Debt | 17 | 11,744 |  | 12,385
Lease Liabilities | 18 | 2,647 |  | 2,685
Decommissioning Liabilities | 20 | 3,304 |  | 3,906
Other Liabilities | 21 | 906 |  | 929
Deferred Income Taxes |  | 3,288 |  | 3,286
Total Liabilities |  | 31,029 |  | 30,496
Shareholders’ Equity |  | 24,614 |  | 23,596
Non-Controlling Interest |  | 12 |  | 12
Total Liabilities and Equity |  | 55,655 |  | 54,104
Commitments and Contingencies | 29 |  |  |

See accompanying Notes to Consolidated Financial Statements (unaudited).

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 5

CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

($ millions)

| Shareholders’ Equity |  |
| Common Shares |  | Preferred Shares |  | Warrants |  | Paid in Surplus |  | Retained Earnings |  | AOCI (1) |  | Total |  | Non-Controlling Interest
| (Note 22) |  | (Note 22) |  | (Note 22) |  |  |  |  |  | (Note 23) |  |  |  |
As at December 31, 2020 | 11,040 |  | — |  | — |  | 4,391 |  | 501 |  | 775 |  | 16,707 |  | —
Net Earnings (Loss) | — |  | — |  | — |  | — |  | 220 |  | — |  | 220 |  | —
Other Comprehensive Income (Loss), Net of Tax | — |  | — |  | — |  | — |  | — |  | (117) |  | (117) |  | —
Total Comprehensive Income (Loss) | — |  | — |  | — |  | — |  | 220 |  | (117) |  | 103 |  | —
Common Shares Issued | 6,111 |  | — |  | — |  | — |  | — |  | — |  | 6,111 |  | —
Preferred Shares Issued | — |  | 519 |  | — |  | — |  | — |  | — |  | 519 |  | —
Warrants Issued | — |  | — |  | 216 |  | — |  | — |  | — |  | 216 |  | —
Warrants Exercised | 1 |  | — |  | — |  | — |  | — |  | — |  | 1 |  | —
Stock-Based Compensation Expense | — |  | — |  | — |  | 5 |  | — |  | — |  | 5 |  | —
Dividends on Common Shares | — |  | — |  | — |  | — |  | (35) |  | — |  | (35) |  | —
Dividends on Preferred Shares | — |  | — |  | — |  | — |  | (9) |  | — |  | (9) |  | —
Non-Controlling Interest | — |  | — |  | — |  | — |  | — |  | — |  | — |  | 11
As at March 31, 2021 | 17,152 |  | 519 |  | 216 |  | 4,396 |  | 677 |  | 658 |  | 23,618 |  | 11
As at December 31, 2021 | 17,016 |  | 519 |  | 215 |  | 4,284 |  | 878 |  | 684 |  | 23,596 |  | 12
Net Earnings (Loss) | — |  | — |  | — |  | — |  | 1,625 |  | — |  | 1,625 |  | —
Other Comprehensive Income (Loss), Net of Tax | — |  | — |  | — |  | — |  | — |  | (120) |  | (120) |  | —
Total Comprehensive Income (Loss) | — |  | — |  | — |  | — |  | 1,625 |  | (120) |  | 1,505 |  | —
Common Shares Issued on Exercise of Stock Options | 54 |  | — |  | — |  | (10) |  | — |  | — |  | 44 |  | —
Purchase of Common Shares Under NCIB (2) (Note 22) | (210) |  | — |  | — |  | (256) |  | — |  | — |  | (466) |  | —
Warrants Exercised | 14 |  | — |  | (5) |  | — |  | — |  | — |  | 9 |  | —
Stock-Based Compensation Expense | — |  | — |  | — |  | 4 |  | — |  | — |  | 4 |  | —
Dividends on Common Shares | — |  | — |  | — |  | — |  | (69) |  | — |  | (69) |  | —
Dividends on Preferred Shares | — |  | — |  | — |  | — |  | (9) |  | — |  | (9) |  | —
As at March 31, 2022 | 16,874 |  | 519 |  | 210 |  | 4,022 |  | 2,425 |  | 564 |  | 24,614 |  | 12

(1) Accumulated other comprehensive income (loss) (“AOCI”).
(2) Normal course issuer bid (“NCIB”).
See accompanying Notes to Consolidated Financial Statements (unaudited).

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 6

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

For the period ended March 31,
($ millions)

| Notes | 2022 |  | 2021 |  |  |  |
Operating Activities |  |  |  |  |  |  |  |
Net Earnings (Loss) |  | 1,625 |  | 220 |  |  |  |
Depreciation, Depletion and Amortization | 13,14 | 1,030 |  | 1,045 |  |  |  |
Exploration Expense |  | — |  | 10 |  |  |  |
Inventory Write-Down (Reversal) |  | — |  | 16 |  |  |  |
Realization of Inventory Write-Downs |  | — |  | (15) |  |  |  |
Deferred Income Tax Expense (Recovery) | 9 | 118 |  | 27 |  |  |  |
Unrealized (Gain) Loss on Risk Management | 26 | 311 |  | (148) |  |  |  |
Unrealized Foreign Exchange (Gain) Loss | 7 | (139) |  | (139) |  |  |  |
Realized Foreign Exchange (Gain) Loss on Non-Operating Items | 26 |  | (2) |  |  |  |
Re-measurement of Contingent Payment, Net of Cash Paid |  | 76 |  | 187 |  |  |  |
(Gain) Loss on Divestiture of Assets | 8 | (242) |  | (12) |  |  |  |
Unwinding of Discount on Decommissioning Liabilities | 20 | 44 |  | 48 |  |  |  |
(Income) Loss From Equity-Accounted Affiliates | 15 | (4) |  | (14) |  |  |  |
Distributions Received From Equity-Accounted Affiliates | 15 | 17 |  | 28 |  |  |  |
Other |  | (279) |  | (110) |  |  |  |
Settlement of Decommissioning Liabilities |  | (19) |  | (11) |  |  |  |
Net Change in Non-Cash Working Capital | 28 | (1,199) |  | (902) |  |  |  |
Cash From (Used in) Operating Activities |  | 1,365 |  | 228 |  |  |  |
Investing Activities |  |  |  |  |  |  |  |
Capital Expenditures | 12,13 | (746) |  | (547) |  |  |  |
Proceeds From Divestitures | 8 | 950 |  | 5 |  |  |  |
Cash Acquired Through Business Combination |  | — |  | 735 |  |  |  |
Net Change in Investments and Other |  | (126) |  | — |  |  |  |
Net Change in Non-Cash Working Capital | 28 | 259 |  | 11 |  |  |  |
Cash From (Used in) Investing Activities |  | 337 |  | 204 |  |  |  |
Net Cash Provided (Used) Before Financing Activities |  | 1,702 |  | 432 |  |  |  |
Financing Activities | 28 |  |  |  |  |  |  |
Net Issuance (Repayment) of Short-Term Borrowings |  | (16) |  | 107 |  |  |  |
(Repayment) of Long-Term Debt |  | (510) |  | — |  |  |  |
Net Issuance (Repayment) of Revolving Long-Term Debt |  | — |  | 50 |  |  |  |
Principal Repayment of Leases | 18 | (75) |  | (75) |  |  |  |
Common Shares Issued Under Stock Option Plans |  | 44 |  | — |  |  |  |
Purchase of Common Shares Under NCIB | 22 | (466) |  | — |  |  |  |
Dividends Paid on Common Shares | 10 | (69) |  | (35) |  |  |  |
Dividends Paid on Preferred Shares | 10 | (9) |  | (9) |  |  |  |
Other |  | 8 |  | 1 |  |  |  |
Cash From (Used in) Financing Activities |  | (1,093) |  | 39 |  |  |  |
Effect of Foreign Exchange on Cash and Cash Equivalents |  | (83) |  | 24 |  |  |  |
Increase (Decrease) in Cash and Cash Equivalents |  | 526 |  | 495 |  |  |  |
Cash and Cash Equivalents, Beginning of Period |  | 2,873 |  | 378 |  |  |  |
Cash and Cash Equivalents, End of Period |  | 3,399 |  | 873 |  |  |  |

See accompanying Notes to Consolidated Financial Statements (unaudited).

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

1. DESCRIPTION OF BUSINESS AND SEGMENTED DISCLOSURES

Cenovus Energy Inc., including its subsidiaries, (together “Cenovus” or the “Company”) is an integrated energy company with crude 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 (“U.S.”).
Cenovus is incorporated under the Canada Business Corporations Act and its common shares and common share purchase warrants are listed on the Toronto Stock Exchange (“TSX”) and New York Stock Exchange. Cenovus’s cumulative redeemable preferred shares series 1, 2, 3, 5 and 7 are listed on the TSX. The executive and registered office is located at 4100, 225 6 Avenue S.W., Calgary, Alberta, Canada, T2P 1N2. Information on the Company’s basis of preparation for these interim Consolidated Financial Statements is found in Note 2.
Management has determined the operating segments based on information regularly reviewed for the purposes of decision making, allocating resources and assessing operational performance by Cenovus’s chief operating decision makers. The Company evaluates the financial performance of its operating segments primarily based on operating margin. The Company operates through the following reportable segments:
Upstream Segments
•Oil Sands, includes the development and production of bitumen and heavy oil in northern Alberta and Saskatchewan. Cenovus’s oil sands assets include Foster Creek, Christina Lake, Sunrise (jointly owned with BP Canada Energy Group ULC (“BP Canada”) and operated by Cenovus), as well as the Lloydminster thermal and Lloydminster conventional heavy oil assets. Cenovus jointly owns and operates pipeline gathering systems and terminals through the equity-accounted investment in Husky Midstream Limited Partnership (“HMLP”). The sale and transportation of Cenovus’s production and third-party commodity trading volumes are managed and marketed through access to capacity on third-party pipelines and storage facilities in both Canada and the U.S. to optimize product mix, delivery points, transportation commitments and customer diversification.
•Conventional, includes assets rich in natural gas liquids (“NGLs”) and natural gas within the Elmworth-Wapiti, Kaybob‑Edson, Clearwater and Rainbow Lake operating areas in Alberta and British Columbia and interests in numerous natural gas processing facilities. Cenovus’s NGLs and natural gas production is marketed and transported with additional third-party commodity trading volumes through access to capacity on third-party pipelines, export terminals and storage facilities, which provides flexibility for market access to optimize product mix, delivery points, transportation commitments and customer diversification.
•Offshore, includes offshore operations, exploration and development activities in China and the east coast of Canada, as well as the equity-accounted investment in the Husky-CNOOC Madura Ltd. (“HCML”) joint venture in Indonesia.
Downstream Segments
•Canadian Manufacturing, includes the owned and operated Lloydminster upgrading and asphalt refining complex which upgrades heavy oil and bitumen into synthetic crude oil, diesel fuel, asphalt and other ancillary products. Cenovus seeks to maximize the value per barrel from its heavy oil and bitumen production through its integrated network of assets. In addition, Cenovus owns and operates the Bruderheim crude-by-rail terminal and two ethanol plants. Cenovus also markets its production and third-party commodity trading volumes of synthetic crude oil, asphalt and ancillary products.
•U.S. Manufacturing, includes the refining of crude oil to produce gasoline, diesel, jet fuel, asphalt and other products at the wholly-owned Lima Refinery and Superior Refinery, the jointly-owned Wood River and Borger refineries (jointly owned with operator Phillips 66) and the jointly-owned Toledo Refinery (jointly owned with operator BP Products North America Inc. (“BP”)). Cenovus also markets some of its own and third-party volumes of refined petroleum products including gasoline, diesel and jet fuel.
•Retail, includes the sale of Cenovus's own and third-party volumes of refined petroleum products, including gasoline and diesel, through retail, commercial and bulk petroleum outlets, as well as wholesale channels in Canada.
Corporate and Eliminations
Corporate and Eliminations primarily includes Cenovus-wide costs for general and administrative, financing activities, gains and losses on risk management for corporate related derivative instruments and foreign exchange. Eliminations include adjustments for internal usage of natural gas production between segments, transloading services provided to the Oil Sands segment by the Company’s crude-by-rail terminal, crude oil production used as feedstock by the Canadian Manufacturing and U.S. Manufacturing segments, and diesel production in the Canadian Manufacturing segment sold to the Retail segment. Eliminations are recorded based on current market prices.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
The following tabular financial information presents segmented information first by segment, then by product and geographic location.
A) Results of Operations – Segment and Operational Information (1)

| Upstream
For the three months ended March 31, | Oil Sands |  | Conventional |  | Offshore |  | Total
2022 |  | 2021 (1) |  | 2022 |  | 2021 |  | 2022 |  | 2021 |  | 2022 |  | 2021 (1)
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross Sales | 9,218 |  | 4,918 |  | 1,112 |  | 776 |  | 567 |  | 431 |  | 10,897 |  | 6,125
Less: Royalties | 1,082 |  | 324 |  | 71 |  | 24 |  | 32 |  | 25 |  | 1,185 |  | 373
| 8,136 |  | 4,594 |  | 1,041 |  | 752 |  | 535 |  | 406 |  | 9,712 |  | 5,752
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchased Product | 1,483 |  | 861 |  | 606 |  | 381 |  | — |  | — |  | 2,089 |  | 1,242
Transportation and Blending | 2,885 |  | 1,778 |  | 34 |  | 18 |  | 4 |  | 4 |  | 2,923 |  | 1,800
Operating | 702 |  | 585 |  | 134 |  | 142 |  | 73 |  | 58 |  | 909 |  | 785
Realized (Gain) Loss on Risk Management | 867 |  | 229 |  | 4 |  | 1 |  | — |  | — |  | 871 |  | 230
Operating Margin | 2,199 |  | 1,141 |  | 263 |  | 210 |  | 458 |  | 344 |  | 2,920 |  | 1,695
Unrealized (Gain) Loss on Risk Management | 266 |  | (141) |  | — |  | (1) |  | — |  | — |  | 266 |  | (142)
Depreciation, Depletion and Amortization | 635 |  | 612 |  | 80 |  | 108 |  | 150 |  | 125 |  | 865 |  | 845
Exploration Expense | 1 |  | 11 |  | — |  | (4) |  | 15 |  | (1) |  | 16 |  | 6
(Income) Loss From Equity- Accounted Affiliates | — |  | — |  | — |  | — |  | (4) |  | (12) |  | (4) |  | (12)
Segment Income (Loss) | 1,297 |  | 659 |  | 183 |  | 107 |  | 297 |  | 232 |  | 1,777 |  | 998

(1)Prior period results were revised for a change in presentation of product swaps and certain third-party purchases used in blending and optimization activities. Se e Note 3 below and th e annual Consolidated Financial Statements for the year ended December 31, 2021, for further details.

| Downstream
For the three months ended March 31, | Canadian Manufacturing |  | U.S. Manufacturing |  | Retail |  | Total
2022 |  | 2021 |  | 2022 |  | 2021 |  | 2022 |  | 2021 |  | 2022 |  | 2021
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross Sales | 1,044 |  | 806 |  | 6,509 |  | 3,437 |  | 694 |  | 447 |  | 8,247 |  | 4,690
Less: Royalties | — |  | — |  | — |  | — |  | — |  | — |  | — |  | —
| 1,044 |  | 806 |  | 6,509 |  | 3,437 |  | 694 |  | 447 |  | 8,247 |  | 4,690
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchased Product | 804 |  | 631 |  | 5,482 |  | 2,920 |  | 660 |  | 417 |  | 6,946 |  | 3,968
Transportation and Blending | 2 |  | — |  | — |  | — |  | — |  | — |  | 2 |  | —
Operating | 124 |  | 93 |  | 494 |  | 405 |  | 27 |  | 19 |  | 645 |  | 517
Realized (Gain) Loss on Risk Management | — |  | — |  | 110 |  | 21 |  | — |  | — |  | 110 |  | 21
Operating Margin | 114 |  | 82 |  | 423 |  | 91 |  | 7 |  | 11 |  | 544 |  | 184
Unrealized (Gain) Loss on Risk Management | — |  | — |  | 27 |  | 10 |  | — |  | — |  | 27 |  | 10
Depreciation, Depletion and Amortization | 42 |  | 43 |  | 85 |  | 114 |  | 8 |  | 12 |  | 135 |  | 169
Exploration Expense | — |  | — |  | — |  | — |  | — |  | — |  | — |  | —
(Income) Loss From Equity- Accounted Affiliates | — |  | — |  | — |  | — |  | — |  | — |  | — |  | —
Segment Income (Loss) | 72 |  | 39 |  | 311 |  | (33) |  | (1) |  | (1) |  | 382 |  | 5

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

|  |  | Corporate and Eliminations |  | Consolidated
For the three months ended March 31, |  |  |  |  |  | 2022 |  | 2021 |  | 2022 |  | 2021 (1)
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross Sales |  |  |  |  |  |  |  | (1,761) |  | (1,149) |  | 17,383 |  | 9,666
Less: Royalties |  |  |  |  |  |  |  | — |  | — |  | 1,185 |  | 373
|  |  |  |  |  |  |  | (1,761) |  | (1,149) |  | 16,198 |  | 9,293
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchased Product |  |  |  |  |  |  |  | (1,497) |  | (973) |  | 7,538 |  | 4,237
Transportation and Blending |  |  |  |  |  |  |  | (6) |  | (15) |  | 2,919 |  | 1,785
Operating |  |  |  |  |  |  |  | (267) |  | (168) |  | 1,287 |  | 1,134
Realized (Gain) Loss on Risk Management |  |  |  |  |  |  |  | (7) |  | 91 |  | 974 |  | 342
Unrealized (Gain) Loss on Risk Management |  |  |  |  |  |  |  | 18 |  | (16) |  | 311 |  | (148)
Depreciation, Depletion and Amortization |  |  |  |  |  |  |  | 30 |  | 31 |  | 1,030 |  | 1,045
Exploration Expense |  |  |  |  |  |  |  | — |  | — |  | 16 |  | 6
(Income) Loss From Equity-Accounted Affiliates |  |  |  |  |  |  |  | — |  | (2) |  | (4) |  | (14)
Segment Income (Loss) |  |  |  |  |  |  |  | (32) |  | (97) |  | 2,127 |  | 906
General and Administrative |  |  |  |  |  |  |  | 199 |  | 163 |  | 199 |  | 163
Finance Costs |  |  |  |  |  |  |  | 229 |  | 244 |  | 229 |  | 244
Interest Income |  |  |  |  |  |  |  | (15) |  | (4) |  | (15) |  | (4)
Integration Costs |  |  |  |  |  |  |  | 24 |  | 223 |  | 24 |  | 223
Foreign Exchange (Gain) Loss, Net |  |  |  |  |  |  |  | (102) |  | (117) |  | (102) |  | (117)
Re-measurement of Contingent Payment |  |  |  |  |  |  |  | 236 |  | 187 |  | 236 |  | 187
(Gain) Loss on Divestiture of Assets |  |  |  |  |  |  |  | (242) |  | (12) |  | (242) |  | (12)
Other (Income) Loss, Net (2) |  |  |  |  |  |  |  | (370) |  | (72) |  | (370) |  | (72)
|  |  |  |  |  |  |  | (41) |  | 612 |  | (41) |  | 612
Earnings (Loss) Before Income Tax |  |  |  |  |  |  |  |  |  |  |  | 2,168 |  | 294
Income Tax Expense (Recovery) |  |  |  |  |  |  |  |  |  |  |  | 543 |  | 74
Net Earnings (Loss) |  |  |  |  |  |  |  |  |  |  |  | 1,625 |  | 220

(1)Prior period results were revised for a change in presentation of product swaps and certain third-party purchases used in blending and optimization activities. Se e Note 3 below and th e annual Consolidated Financial Statements for the year ended December 31, 2021, for further details.
(2)Other (income) loss, net includes insurance proceeds related to the 2018 Superior Refinery incident of $269 million (three months ended March 31, 2021 – $45 million), and insurance proceeds related to the 2018 incident in the Atlantic region of $52 million (three months ended March 31, 2021 – $nil).

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
B) Revenues by Product

For the three months ended March 31, | 2022 |  | 2021 |  |  |  |
Upstream (1) |  |  |  |  |  |  |
Crude Oil | 7,653 |  | 4,246 |  |  |  |
NGLs | 1,062 |  | 618 |  |  |  |
Natural Gas | 897 |  | 776 |  |  |  |
Other | 100 |  | 112 |  |  |  |
Downstream |  |  |  |  |  |  |
Canadian Manufacturing |  |  |  |  |  |  |
Synthetic Crude Oil | 370 |  | 346 |  |  |  |
Diesel and Distillate | 130 |  | 85 |  |  |  |
Asphalt | 84 |  | 65 |  |  |  |
Other Products and Services | 460 |  | 310 |  |  |  |
U.S. Manufacturing |  |  |  |  |  |  |
Gasoline | 3,228 |  | 1,768 |  |  |  |
Diesel and Distillate | 2,160 |  | 1,231 |  |  |  |
Other Products | 1,121 |  | 438 |  |  |  |
Retail | 694 |  | 447 |  |  |  |
Corporate and Eliminations | (1,761) |  | (1,149) |  |  |  |
Consolidated | 16,198 |  | 9,293 |  |  |  |

(1)Prior period results were revised for a change in presentation of product swaps and certain third-party purchases used in blending and optimization activities. Se e Note 3 below and th e annual Consolidated Financial Statements for the year ended December 31, 2021, for further details.
C) Geographical Information

| Revenues (1) |
For the three months ended March 31, | 2022 |  | 2021 |  |  |  |  |
Canada (2) | 8,798 |  | 5,512 |  |  |  |  |
United States | 7,026 |  | 3,477 |  |  |  |  |
China | 374 |  | 304 |  |  |  |  |
Consolidated | 16,198 |  | 9,293 |  |  |  |  |

(1)Revenues by country are classified based on where the operations are located.
(2)Prior period results were revised for a change in presentation of product swaps and certain third-party purchases used in blending and optimization activities. Se e Note 3 below and th e annual Consolidated Financial Statements for the year ended December 31, 2021, for further details.

| Non-Current Assets (1)
As at | March 31, 2022 |  | December 31, 2021
Canada (2) | 33,206 |  | 33,981
United States | 4,118 |  | 4,093
China | 2,397 |  | 2,583
Indonesia | 300 |  | 311
Consolidated | 40,021 |  | 40,968

(1)Includes exploration and evaluation (“E&E”) assets, property, plant and equipment (“PP&E”), right-of-use (“ROU”) assets, income tax receivable, investments in equity-accounted affiliates, precious metals, intangible assets and goodwill.
(2)Excludes assets held for sal e of $530 million in the Retail segment (December 31, 2021 – Retail segment - $552 million, Oil Sands segment - $593 million and Conventional segment - $159 million).

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
D) Assets by Segment (1)

| E&E Assets |  | PP&E |  | ROU Assets
As at | March 31, 2022 |  | December 31, 2021 |  | March 31, 2022 |  | December 31, 2021 |  | March 31, 2022 |  | December 31, 2021
Oil Sands | 659 |  | 653 |  | 22,117 |  | 22,535 |  | 758 |  | 754
Conventional | 5 |  | 6 |  | 1,983 |  | 2,174 |  | 2 |  | 2
Offshore | 59 |  | 61 |  | 2,577 |  | 2,822 |  | 157 |  | 160
Canadian Manufacturing | — |  | — |  | 2,311 |  | 2,353 |  | 313 |  | 339
U.S. Manufacturing | — |  | — |  | 3,784 |  | 3,745 |  | 243 |  | 252
Retail | — |  | — |  | 195 |  | 205 |  | 43 |  | 49
Corporate and Eliminations | — |  | — |  | 373 |  | 391 |  | 447 |  | 454
Consolidated | 723 |  | 720 |  | 33,340 |  | 34,225 |  | 1,963 |  | 2,010

| Goodwill |  | Total Assets
As at | March 31, 2022 |  | December 31, 2021 |  | March 31, 2022 |  | December 31, 2021
Oil Sands (1) | 3,473 |  | 3,473 |  | 31,809 |  | 31,070
Conventional (1) | — |  | — |  | 3,048 |  | 3,026
Offshore | — |  | — |  | 3,342 |  | 3,597
Canadian Manufacturing | — |  | — |  | 2,854 |  | 2,918
U.S. Manufacturing | — |  | — |  | 8,438 |  | 7,777
Retail (1) | — |  | — |  | 986 |  | 966
Corporate and Eliminations | — |  | — |  | 5,178 |  | 4,750
Consolidated | 3,473 |  | 3,473 |  | 55,655 |  | 54,104

(1)Total assets includes assets held for sale of $530 million in the Retail segment (December 31, 2021 – Retail segment - $552 million, Oil Sands segment - $593 million and Conventional segment - $159 million).

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
E) Capital Expenditures (1)

For the three months ended March 31, | 2022 |  | 2021 |  |  |  |
Capital Investment |  |  |  |  |  |  |
Oil Sands | 375 |  | 218 |  |  |  |
Conventional | 88 |  | 66 |  |  |  |
Offshore |  |  |  |  |  |  |
Asia Pacific | — |  | 2 |  |  |  |
Atlantic | 53 |  | 24 |  |  |  |
Total Upstream | 516 |  | 310 |  |  |  |
Canadian Manufacturing | 14 |  | 4 |  |  |  |
U.S. Manufacturing | 207 |  | 205 |  |  |  |
Retail | 1 |  | 1 |  |  |  |
Total Downstream | 222 |  | 210 |  |  |  |
Corporate and Eliminations | 8 |  | 27 |  |  |  |
| 746 |  | 547 |  |  |  |
Acquisition Capital |  |  |  |  |  |  |
Oil Sands | — |  | 3 |  |  |  |
Conventional | — |  | 4 |  |  |  |
| — |  | 7 |  |  |  |
Acquisitions (2) |  |  |  |  |  |  |
Oil Sands | — |  | 5,002 |  |  |  |
Conventional | — |  | 547 |  |  |  |
Offshore | — |  | 3,045 |  |  |  |
Canadian Manufacturing | — |  | 2,283 |  |  |  |
U.S. Manufacturing | — |  | 1,618 |  |  |  |
Retail | — |  | 690 |  |  |  |
Corporate and Eliminations | — |  | 156 |  |  |  |
| — |  | 13,341 |  |  |  |
Total Capital Expenditures | 746 |  | 13,895 |  |  |  |

(1)Includes expenditures on PP&E and E&E assets.
(2)Relates to the January 1, 2021, transaction, which combined Cenovus and Husky Energy Inc. (“Husky”). For more details see Note 5 of the annual Consolidated Financial Statements for the year ended December 31, 2021.

2. BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE

In these interim Consolidated Financial Statements, unless otherwise indicated, all dollars are expressed in Canadian dollars. All references to C$ or $ are to Canadian dollars and references to US$ are to U.S. dollars.
These interim Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including International Accounting Standard 34, “Interim Financial Reporting”, and have been prepared following the same accounting policies and methods of computation as the annual Consolidated Financial Statements for the year ended December 31, 2021, except for income taxes. Income taxes on earnings or loss in the interim periods are accrued using the income tax rate that would be applicable to the expected total annual earnings or loss.
Certain information and disclosures normally included in the notes to the annual Consolidated Financial Statements have been condensed or have been disclosed on an annual basis only. Accordingly, these interim Consolidated Financial Statements should be read in conjunction with the annual Consolidated Financial Statements for the year ended December 31, 2021, which have been prepared in accordance with IFRS as issued by the IASB.
These interim Consolidated Financial Statements were approved by the Board of Directors effective April 26, 2022.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

3. ACCOUNTING POLICIES, CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

Accounting policies, a list of critical accounting judgments and key sources of estimation uncertainty can be found in the Company’s annual Consolidated Financial Statements for the year ended December 31, 2021.
Adjustments to the Consolidated Statements of Earnings (Loss)
Certain comparative information for the three months ended March 31, 2021, presented in the Consolidated Statements of Earnings (Loss) within the Oil Sands segment, was revised. The Company made adjustments to more appropriately record certain third-party purchases used for blending and optimization activities and to ensure consistent treatment of product swaps. As a result, revenues and purchased product increased, with no impact to net earnings (loss), segment income (loss), cash flows or financial position. Refer to the annual Consolidated Financial Statements for the year ended December 31, 2021, for further details.

| Three Months Ended March 31, 2021 |  |  |  |
Oil Sands Segment | Previously Reported |  | Revision |  | Revised |  |  |  |  |  |  |  |  |  |  |  |
Gross Sales | 4,775 |  | 143 |  | 4,918 |  |  |  |  |  |  |  |  |  |  |  |
Purchased Product | 718 |  | 143 |  | 861 |  |  |  |  |  |  |  |  |  |  |  |
| 4,057 |  | — |  | 4,057 |  |  |  |  |  |  |  |  |  |  |  |

4. GENERAL AND ADMINISTRATIVE

For the three months ended March 31, | 2022 |  | 2021 |  |  |  |
Salaries and Benefits | 72 |  | 70 |  |  |  |
Administrative and Other | 29 |  | 58 |  |  |  |
Stock-Based Compensation Expense (Recovery) (Note 24) | 107 |  | 35 |  |  |  |
Other Incentive Benefits Expense (Recovery) | (9) |  | — |  |  |  |
| 199 |  | 163 |  |  |  |

5. FINANCE COSTS

For the three months ended March 31, | 2022 |  | 2021 |  |  |  |
Interest Expense – Short-Term Borrowings and Long-Term Debt | 130 |  | 142 |  |  |  |
Net Premium (Discount) on Redemption of Long-Term Debt (Note 17) | 7 |  | — |  |  |  |
Interest Expense – Lease Liabilities (Note 18) | 42 |  | 44 |  |  |  |
Unwinding of Discount on Decommissioning Liabilities (Note 20) | 44 |  | 48 |  |  |  |
Other | 6 |  | 10 |  |  |  |
| 229 |  | 244 |  |  |  |

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

6. INTEGRATION COSTS

On January 1, 2021, Cenovus and Husky closed a transaction to combine the two companies through a plan of arrangement (the “Arrangement”). For more details see Note 5 of the annual Consolidated Financial Statements for the year ended December 31, 2021. Integration costs recognized in earnings include the following:

For the three months ended March 31, | 2022 |  | 2021
Transaction Costs (1) | — |  | 65
Integration Related Costs | 23 |  | 13
Severance Payments | 1 |  | 145
| 24 |  | 223

(1)Excludes share issuance costs related to common shares, preferred shares and warrants.

7. FOREIGN EXCHANGE (GAIN) LOSS, NET

For the three months ended March 31, | 2022 |  | 2021 |  |  |  |
Unrealized Foreign Exchange (Gain) Loss on Translation of: |  |  |  |  |  |  |
U.S. Dollar Debt Issued From Canada | (153) |  | (130) |  |  |  |
Other | 14 |  | (9) |  |  |  |
Unrealized Foreign Exchange (Gain) Loss | (139) |  | (139) |  |  |  |
Realized Foreign Exchange (Gain) Loss | 37 |  | 22 |  |  |  |
| (102) |  | (117) |  |  |  |

8. DIVESTITURES

On January 31, 2022, the Company closed the sale of its Tucker asset in its Oil Sands segment for net proceeds of $730 million and recorded a before-tax gain of $166 million (after-tax gain – $127 million).
On February 28, 2022, the Company closed the sale of its Wembley assets in its Conventional segment for net proceeds of $220 million and recorded a before-tax gain of $78 million (after-tax gain – $60 million).

9. INCOME TAXES

The provision for income taxes is:

For the three months ended March 31, | 2022 |  | 2021 |  |  |  |
Current Tax |  |  |  |  |  |  |
Canada | 367 |  | 12 |  |  |  |
United States | 20 |  | — |  |  |  |
Asia Pacific | 38 |  | 34 |  |  |  |
Other International | — |  | 1 |  |  |  |
Total Current Tax Expense (Recovery) | 425 |  | 47 |  |  |  |
Deferred Tax Expense (Recovery) | 118 |  | 27 |  |  |  |
| 543 |  | 74 |  |  |  |

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

10. PER SHARE AMOUNTS

A) Net Earnings (Loss) Per Common Share – Basic and Diluted

For the three months ended March 31, | 2022 |  | 2021 |  |  |  |
Net Earnings (Loss) | 1,625 |  | 220 |  |  |  |
Effect of Cumulative Dividends on Preferred Shares | (9) |  | (9) |  |  |  |
Net Earnings (Loss) – Basic and Diluted | 1,616 |  | 211 |  |  |  |
Basic – Weighted Average Number of Shares | 1,989.9 |  | 2,017.4 |  |  |  |
Dilutive Effect of Warrants | 42.5 |  | 17.3 |  |  |  |
Dilutive Effect of Net Settlement Rights | 9.1 |  | — |  |  |  |
Diluted – Weighted Average Number of Shares | 2,041.5 |  | 2,034.7 |  |  |  |
Net Earnings (Loss) Per Common Share – Basic ($) | 0.81 |  | 0.10 |  |  |  |
Net Earnings (Loss) Per Common Share – Diluted (1) ($) | 0.79 |  | 0.10 |  |  |  |

Excluded from the calculation of diluted net earnings (loss) per share for the three months ended March 31, 2022, were net earnings of $18 million (three months ended March 31, 2021 – $5 million), and 2.1 million (three months ended March 31, 2021 – 1.9 million) common shares related to the assumed exercise of Cenovus replacement stock options as the impact was anti-dilutive. These instruments could potentially dilute earnings per share in the future.
B) Common Share Dividends
For the three months ended March 31, 2022, the Company paid dividends of $69 million or $0.0350 per common share (three months ended March 31, 2021 – $35 million or $0.0175 per common share). The declaration of common share dividends is at the sole discretion of the Company’s Board of Directors and is considered quarterly.
On April 26, 2022, the Company’s Board of Directors declared a second quarter dividend of $0.105 per common share, payable on June 30, 2022, to common shareholders of record as at June 15, 2022.
C) Preferred Share Dividends

For the three months ended March 31, | 2022 |  | 2021
Series 1 First Preferred Shares | 2 |  | 2
Series 2 First Preferred Shares | — |  | —
Series 3 First Preferred Shares | 3 |  | 3
Series 5 First Preferred Shares | 2 |  | 2
Series 7 First Preferred Shares | 2 |  | 2
Total Declared and Paid Preferred Share Dividends | 9 |  | 9

The declaration of preferred share dividends is at the sole discretion of the Company’s Board of Directors and is considered quarterly. If a dividend on any preferred share is not paid in full on any dividend payment date, then a dividend restriction on the common shares shall apply. The preferred share dividends are cumulative.
On April 26, 2022, the Company’s Board of Directors declared second quarter dividends for Cenovus’s preferred shares, payable on June 30, 2022, in the amount of $9 million, to preferred shareholders of record as at June 15, 2022.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

11. ASSETS HELD FOR SALE

On November 30, 2021, the Company entered into agreements to sell 337 gas stations in the Retail segment, loca ted across Western Canada and Ontario, for gross proceeds of $420 million. The transactions are expected to close in mid-2022. Operating margin associated with the retail assets held for sale for the three months ended March 31, 2022, was $16 million (March 31, 2021 – $14 million).
In the three months ended March 31, 2022, the Company closed the sale of its Tucker and Wembley assets (see Note 8).
Assets held for sale are carried at the lesser of the carrying amount and the fair value less cost to sell.

As at March 31, 2022 | PP&E |  | ROU Assets |  | Goodwill |  | Lease Liabilities |  | Decommissioning Liabilities |
Retail Gas Stations | 476 |  | 54 |  | — |  | (55) |  | (73) |  |

As at December 31, 2021 | PP&E |  | ROU Assets |  | Goodwill |  | Lease Liabilities |  | Decommissioning Liabilities |
Retail Gas Stations | 498 |  | 54 |  | — |  | (58) |  | (86) |  |
Tucker | 505 |  | — |  | 88 |  | — |  | (33) |  |
Wembley | 159 |  | — |  | — |  | — |  | (9) |  |
| 1,162 |  | 54 |  | 88 |  | (58) |  | (128) |  |

12. EXPLORATION AND EVALUATION ASSETS, NET

As at December 31, 2021 | 720
Additions | 10
Change in Decommissioning Liabilities | (7)
As at March 31, 2022 | 723

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

13. PROPERTY, PLANT AND EQUIPMENT, NET

| Oil and Gas Properties |  | Processing, Transportation and Storage Assets |  | Manufacturing Assets |  | Retail and Other (1) |  | Total
COST |  |  |  |  |  |  |  |  |
As at December 31, 2021 | 38,443 |  | 228 |  | 10,495 |  | 1,735 |  | 50,901
Additions | 506 |  | 1 |  | 220 |  | 9 |  | 736
Change in Decommissioning Liabilities | (539) |  | (3) |  | (45) |  | (12) |  | (599)
Exchange Rate Movements and Other | (32) |  | 1 |  | (129) |  | 8 |  | (152)
As at March 31, 2022 | 38,378 |  | 227 |  | 10,541 |  | 1,740 |  | 50,886
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION |  |  |  |  |  |  |  |  |
As at December 31, 2021 | 10,912 |  | 53 |  | 4,572 |  | 1,139 |  | 16,676
Depreciation, Depletion and Amortization | 808 |  | 9 |  | 109 |  | 31 |  | 957
Exchange Rate Movements and Other | (19) |  | (2) |  | (68) |  | 2 |  | (87)
As at March 31, 2022 | 11,701 |  | 60 |  | 4,613 |  | 1,172 |  | 17,546
CARRYING VALUE |  |  |  |  |  |  |  |  |
As at December 31, 2021 | 27,531 |  | 175 |  | 5,923 |  | 596 |  | 34,225
As at March 31, 2022 | 26,677 |  | 167 |  | 5,928 |  | 568 |  | 33,340

(1)Other assets includes office furniture, fixtures, leasehold improvements, information technology and aircraft.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

14. RIGHT-OF-USE ASSETS, NET

| Real Estate |  | Transportation and Storage Assets (1) |  | Manufacturing Assets |  | Retail and Other |  | Total
COST |  |  |  |  |  |  |  |  |
As at December 31, 2021 | 592 |  | 1,841 |  | 161 |  | 62 |  | 2,656
Additions | — |  | 3 |  | — |  | — |  | 3
Modifications | 2 |  | 27 |  | — |  | (1) |  | 28
Re-measurements | — |  | 1 |  | 2 |  | (1) |  | 2
Terminations | — |  | (6) |  | — |  | — |  | (6)
Exchange Rate Movements and Other | (1) |  | (12) |  | (3) |  | (1) |  | (17)
As at March 31, 2022 | 593 |  | 1,854 |  | 160 |  | 59 |  | 2,666
ACCUMULATED DEPRECIATION |  |  |  |  |  |  |  |  |
As at December 31, 2021 | 92 |  | 520 |  | 33 |  | 1 |  | 646
Depreciation | 9 |  | 55 |  | 5 |  | 4 |  | 73
Terminations | — |  | (6) |  | — |  | — |  | (6)
Exchange Rate Movements and Other | — |  | (6) |  | (4) |  | — |  | (10)
As at March 31, 2022 | 101 |  | 563 |  | 34 |  | 5 |  | 703
CARRYING VALUE |  |  |  |  |  |  |  |  |
As at December 31, 2021 | 500 |  | 1,321 |  | 128 |  | 61 |  | 2,010
As at March 31, 2022 | 492 |  | 1,291 |  | 126 |  | 54 |  | 1,963

(1)Transportation and storage assets include railcars, barges, vessels, pipelines, caverns and storage tanks.

15. JOINT ARRANGEMENTS

A) Joint Operations
BP-Husky Refining LLC
Cenovus holds a 50 percent interest in Toledo with BP, who holds the remaining interest and operates the Toledo Refinery in Ohio.
Sunrise Oil Sands Partnership
Cenovus, as the operator, holds a 50 percent interest in Sunrise, an oil sands project in northern Alberta, with BP Canada who holds the remaining interest.
WRB Refining LP
Cenovus holds a 50 percent interest in WRB with Phillips 66, who holds the remaining interest and operates the Wood River Refinery in Illinois and the Borger Refinery in Texas.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
B) Joint Ventures
Husky-CNOOC Madura Ltd.
The Company holds a 40 percent interest in the jointly controlled entity, HCML, which is engaged in the exploration for and production of natural gas resources in offshore Indonesia. The Company’s share of equity investment income (loss) related to the joint venture is included in the Consolidated Statements of Earnings (Loss) in the Offshore segment.
Summarized below is the financial information for HCML accounted for using the equity method.
Results of Operations

For the three months ended March 31, | 2022 |  | 2021
Revenue | 66 |  | 119
Expenses | 64 |  | 127
Net Earnings (Loss) | 2 |  | (8)

Balance Sheet

As at | March 31, 2022 |  | December 31, 2021
Current Assets (1) | 149 |  | 167
Non-Current Assets | 1,408 |  | 1,433
Current Liabilities | 77 |  | 62
Non-Current Liabilities | 846 |  | 896
Net Assets | 634 |  | 642

(1)Includes cash and cash equivalents of $68 million (December 31, 2021 – $46 million).
For the three months ended March 31, 2022, the Company’s share of income from the equity-accounted affiliate was $4 million (three months ended March 31, 2021 – $12 million). As at March 31, 2022, the carrying amount of the Company’s share of net assets was $300 million (December 31, 2021 – $311 million). These amounts do not equal the 40 percent joint control of the revenues, expenses and net assets of HCML due to differences in the values attributed to the investment and accounting policies between the joint venture and the Company.
For the three months ended March 31, 2022, the Company received $17 million of distributions from HCML (three months ended March 31, 2021 – $28 million) and paid $8 million in contributions (three months ended March 31, 2021 – $nil).
Husky Midstream Limited Partnership
The Company jointly owns and operates HMLP, which owns midstream assets, including pipeline, storage and other ancillary infrastructure assets in Alberta and Saskatchewan. The Company holds a 35 percent interest in HMLP, with Power Assets Holdings Ltd. holding a 49 percent interest and CK Infrastructure Holdings Ltd. holding a 16 percent interest in HMLP.
For the three months ended March 31, 2022, HMLP had net earnings of $46 million (three months ended March 31, 2021 –$26 million). The Company’s share of (income) loss from the equity-accounted affiliate does not equal the 35 percent of the net earnings of HMLP due to the nature of the profit-sharing arrangement as defined in the partnership agreement. The Company’s share of earnings will fluctuate depending on certain income thresholds. For the three months ended March 31, 2022, the Company did not record its pre-tax net income relating to HMLP of $1 million (three months ended March 31, 2021 – $7 million). The carrying value was $nil at March 31, 2022 (December 31, 2021 – $nil).
As at March 31, 2022, the Company had $4 million in cumulative unrecognized losses and OCI, net of tax (March 31, 2021 – $4 million). The Company records its share of equity investment income related to the joint venture only in excess of the cumulated unrecognized loss and is included in the Consolidated Statements of Earnings (Loss) in the Oil Sands segment.
For the three months ended March 31, 2022, the Company received $nil in distributions (three months ended March 31, 2021 – $nil), and paid $nil in contributions (three months ended March 31, 2021 – $nil) to HMLP. The net amount of the distributions received and contributions paid are recorded in earnings from equity-accounted affiliates.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

16. OTHER ASSETS

As at | March 31, 2022 |  | December 31, 2021
Intangible Assets | 76 |  | 78
Private Equity Investments (Note 26) | 53 |  | 53
Other Equity Investments | 99 |  | 77
Net Investment in Finance Leases | 62 |  | 60
Long-Term Receivables and Prepaids | 85 |  | 77
Precious Metals | 80 |  | 85
Other | — |  | 1
| 455 |  | 431

17. DEBT AND CAPITAL STRUCTURE

A) Short-Term Borrowings

As at | Notes |  | March 31, 2022 |  | December 31, 2021
Uncommitted Demand Facilities | i |  | — |  | —
WRB Uncommitted Demand Facilities | ii |  | 62 |  | 79
Sunrise Uncommitted Demand Credit Facility | iii |  | — |  | —
Total Debt Principal |  |  | 62 |  | 79

i) Uncommitted Demand Facilities
As at March 31, 2022, the Company had uncommitted demand facilities of $1.9 billion (December 31, 2021 – $1.9 billion) in place, of which $1.4 billion (December 31, 2021 – $1.4 billion) may be drawn for general purposes, or the full amount may be available to issue letters of credit. As at March 31, 2022, there were outstanding letters of credit aggregating to $543 million (December 31, 2021 – $565 million) and no direct borrowings.
ii) WRB Uncommitted Demand Facilities
As at March 31, 2022, WRB had uncommitted demand facilities of US$450 million (the Company’s proportionate share – US$225 million), which may be used to cover short-term working capital requirements. As at December 31, 2021, WRB had uncommitted demand facilities of US$300 million (the Company’s proportionate share – US$150 million).
iii) Sunrise Uncommitted Demand Credit Facility
As at March 31, 2022, and December 31, 2021, Sunrise had an uncommitted demand credit facility of $10 million (the Company’s proportionate share – $5 million), which is available for general purposes.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
B) Long-Term Debt

As at | Notes |  | March 31, 2022 |  | December 31, 2021
Committed Credit Facility (1) | i |  | — |  | —
U.S. Dollar Denominated Unsecured Notes | ii |  | 8,748 |  | 9,363
Canadian Dollar Unsecured Notes | ii |  | 2,750 |  | 2,750
Total Debt Principal |  |  | 11,498 |  | 12,113
Debt Premiums (Discounts), Net, and Transaction Costs |  |  | 246 |  | 272
Long-Term Debt |  |  | 11,744 |  | 12,385

(1)Committed credit facility may include Bankers’ Acceptances, London Interbank Offered Rate based loans, prime rate loans and U.S. base rate loans.
i) Committed Credit Facility
As at March 31, 2022, Cenovus had in place a committed credit facility that consists of a $2.0 billion tranche and a $4.0 billion tranche with a maturity date of August 18, 2024, and August 18, 2025, respectively. As at March 31, 2022, no amount was drawn on the credit facility (December 31, 2021 – $nil).
ii) U.S. Dollar Denominated Unsecured Notes and Canadian Dollar Unsecured Notes
On February 9, 2022, Cenovus redeemed the entire outstanding principal amount of its 3.80 percent notes due September 15, 2023, and 4.00 percent notes due April 15, 2024, for US$402 million. A net premium on redemption of $7 million was recorded in finance costs.
The principal amounts of the Company’s outstanding unsecured notes are:

| March 31, 2022 |  | December 31, 2021
| US$ Principal |  | C$ Principal and Equivalent |  | US$ Principal |  | C$ Principal and Equivalent
U.S. Dollar Unsecured Notes |  |  |  |  |  |  |
3.80% due September 15, 2023 | — |  | — |  | 115 |  | 146
4.00% due April 15, 2024 | — |  | — |  | 269 |  | 341
5.38% due July 15, 2025 | 666 |  | 832 |  | 666 |  | 844
4.25% due April 15, 2027 | 962 |  | 1,202 |  | 962 |  | 1,220
4.40% due April 15, 2029 | 750 |  | 937 |  | 750 |  | 951
2.65% due January 15, 2032 | 500 |  | 625 |  | 500 |  | 634
5.25% due June 15, 2037 | 583 |  | 729 |  | 583 |  | 739
6.80% due September 15, 2037 | 387 |  | 483 |  | 387 |  | 490
6.75% due November 15, 2039 | 1,390 |  | 1,738 |  | 1,390 |  | 1,763
4.45% due September 15, 2042 | 155 |  | 194 |  | 155 |  | 197
5.20% due September 15, 2043 | 58 |  | 72 |  | 58 |  | 73
5.40% due June 15, 2047 | 800 |  | 999 |  | 800 |  | 1,014
3.75% due February 15, 2052 | 750 |  | 937 |  | 750 |  | 951
| 7,001 |  | 8,748 |  | 7,385 |  | 9,363
Canadian Dollar Unsecured Notes |  |  |  |  |  |  |
3.55% due March 12, 2025 | — |  | 750 |  | — |  | 750
3.60% due March 10, 2027 | — |  | 750 |  | — |  | 750
3.50% due February 7, 2028 | — |  | 1,250 |  | — |  | 1,250
| — |  | 2,750 |  | — |  | 2,750
Total Unsecured Notes | 7,001 |  | 11,498 |  | 7,385 |  | 12,113

As at March 31, 2022, the Company was in compliance with all of the terms of its debt agreements. Under the terms of Cenovus’s committed credit facility, the Company is required to maintain a total debt to capitalization ratio, as defined in the agreements, not to exceed 65 percent. The Company is well below this limit.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
C) Capital Structure
Cenovus’s capital structure consists of shareholders’ equity plus net debt. Net Debt includes the Company’s short-term borrowings, and the current and long-term portions of long-term debt, net of cash and cash equivalents and short-term investments, and is used in managing the Company’s capital. The Company’s objectives when managing its capital structure are to maintain financial flexibility, preserve access to capital markets, ensure its ability to finance internally generated growth and to fund potential acquisitions while maintaining the ability to meet the Company’s financial obligations as they come due. To ensure financial resilience, Cenovus may, among other actions, adjust capital and operating spending, draw down on its credit facilities or repay existing debt, adjust dividends paid to shareholders, purchase the Company’s common shares or preferred shares for cancellation, issue new debt, or issue new shares.
Cenovus monitors its capital structure and financing requirements using, among other things, specified financial measures consisting of Net Debt to adjusted earnings before interest, taxes and DD&A (“Adjusted EBITDA”), Net Debt to Adjusted Funds Flow and Net Debt to Capitalization. These measures are used to steward Cenovus’s overall debt position as measures of Cenovus’s overall financial strength. Net Debt to Adjusted Funds Flow is a new metric as at March 31, 2022.
Cenovus targets a Net Debt to Adjusted EBITDA ratio and a Net Debt to Adjusted Funds Flow ra tio of approximately 1.0 times and Net Debt at or below $4 billion over the long-term at a WTI price of US$45.00 per barrel. These measures may fluctuate periodically outside this range due to factors such as persistently high or low commodity prices.
Net Debt to Adjusted EBITDA

As at | March 31, 2022 |  | December 31, 2021
Short-Term Borrowings | 62 |  | 79
Long-Term Portion of Long-Term Debt | 11,744 |  | 12,385
Less: Cash and Cash Equivalents | (3,399) |  | (2,873)
Net Debt | 8,407 |  | 9,591
Net Earnings (Loss) | 1,992 |  | 587
Add (Deduct): |  |  |
Finance Costs | 1,067 |  | 1,082
Interest Income | (34) |  | (23)
Income Tax Expense (Recovery) | 1,197 |  | 728
Depreciation, Depletion and Amortization | 5,871 |  | 5,886
Exploration Expense | 28 |  | 18
Share of (Income) Loss From Equity-Accounted Affiliates | (47) |  | (57)
Unrealized (Gain) Loss on Risk Management | 461 |  | 2
Foreign Exchange (Gain) Loss, Net | (159) |  | (174)
Re-measurement of Contingent Payment | 624 |  | 575
(Gain) Loss on Divestitures of Assets | (459) |  | (229)
Other (Income) Loss, Net | (607) |  | (309)
Adjusted EBITDA (1) | 9,934 |  | 8,086
Net Debt to Adjusted EBITDA | 0.8x |  | 1.2x

(1) Calculated on a trailing twelve-month basis.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
Net Debt to Adjusted Funds Flow

As at | March 31, 2022 |  | December 31, 2021
Net Debt | 8,407 |  | 9,591
Cash From (Used in) Operating Activities | 7,056 |  | 5,919
(Add) Deduct: |  |  |
Settlement of Decommissioning Liabilities | (110) |  | (102)
Net Change in Non-Cash Working Capital | (1,524) |  | (1,227)
Adjusted Funds Flow (1) | 8,690 |  | 7,248
Net Debt to Adjusted Funds Flow | 1.0x |  | 1.3x

(1) Calculated on a trailing twelve-month basis.
Net Debt to Capitalization

As at | March 31, 2022 |  | December 31, 2021
Net Debt | 8,407 |  | 9,591
Shareholders’ Equity | 24,614 |  | 23,596
Capitalization | 33,021 |  | 33,187
Net Debt to Capitalization | 25 | % |  | 29 | %

18. LEASE LIABILITIES

| Total
As at December 31, 2021 | 2,957
Additions | 3
Interest Expense (Note 5) | 42
Lease Payments | (117)
Modifications | 28
Re-measurements | 2
Terminations | (1)
Exchange Rate Movements and Other | (8)
As at March 31, 2022 | 2,906
Less: Current Portion | 259
Long-Term Portion | 2,647

The Company has lease liabilities for contracts related to office space, transportation and storage assets, which includes barges, vessels, pipelines, caverns, railcars and storage tanks, retail assets and other refining and field equipment. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.
The Company has variable lease payments related to property taxes for real estate contracts. Short-term leases are leases with terms of twelve months or less.
The Company has included extension options in the calculation of lease liabilities where the Company has the right to extend a lease term at its discretion and is reasonably certain to exercise the extension option. The Company does not have any significant termination options and the residual amounts are not material.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

19. CONTINGENT PAYMENT

| Total
As at December 31, 2021 | 236
Re-measurement (1) | 236
Liabilities Settled or Payable | (294)
As at March 31, 2022 | 178

(1) Contingent payment is carried at fair value. Changes in fair value are recorded in net earnings (loss).
On May 17, 2022, the contingent payment obligations associated with the acquisition from ConocoPhillips Company and certain of its subsidiaries will end and will be paid subsequent to June 30, 2022. As at March 31, 2022, $294 million was payable under this agreement (December 31, 2021 – $160 million).

20. DECOMMISSIONING LIABILITIES

The decommissioning provision represents the present value of the expected future costs associated with the retirement of producing well sites, upstream processing facilities, surface and subsea plant and equipment, manufacturing facilities, retail and the crude-by-rail terminal.
The aggregate carrying amount of the obligation is:

| Total
As at December 31, 2021 | 3,906
Liabilities Incurred | 6
Liabilities Settled | (35)
Change in Discount Rate | (612)
Unwinding of Discount on Decommissioning Liabilities (Note 5) | 44
Foreign Currency Translation | (5)
As at March 31, 2022 | 3,304

The undiscounted amount of estimated future cash flows required to settle the obligation has been discounted using a credit-adjusted risk-free rate of 5.4 percent as at March 31, 2022 (December 31, 2021 – 4.4 percent).
The Company deposits cash into restricted accounts that will be used to fund decommissioning liabilities in offshore China in accordance with the provisions of the regulations of the People’s Republic of China. As at March 31, 2022, the Company had $188 million in restricted cash (December 31, 2021 – $186 million).

21. OTHER LIABILITIES

As at | March 31, 2022 |  | December 31, 2021
Pension and Other Post-Employment Benefit Plan | 250 |  | 288
Provision for West White Rose Expansion Project | 259 |  | 259
Provisions for Onerous and Unfavourable Contracts | 84 |  | 99
Employee Long-Term Incentives | 80 |  | 74
Drilling Provisions | 56 |  | 56
Deferred Revenue | 43 |  | 41
Other | 134 |  | 112
| 906 |  | 929

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

22. SHARE CAPITAL AND WARRANTS

A) Authorized
Cenovus is authorized to issue an unlimited number of common shares, and first and second preferred shares not exceeding, in aggregate, 20 percent of the number of issued and outstanding common shares. The first and second preferred shares may be issued in one or more series with rights and conditions to be determined by the Board of Directors prior to issuance and subject to the Company’s articles.
B) Issued and Outstanding – Common Shares

| March 31, 2022 |  | December 31, 2021
| Number of Common Shares (thousands) |  | Amount |  | Number of Common Shares (thousands) |  | Amount
Outstanding, Beginning of Year | 2,001,211 |  | 17,016 |  | 1,228,870 |  | 11,040
Issued Under the Arrangement, Net of Issuance Costs | — |  | — |  | 788,518 |  | 6,111
Issued Upon Exercise of Warrants | 1,420 |  | 14 |  | 314 |  | 3
Issued Under Stock Option Plans | 3,643 |  | 54 |  | 535 |  | 7
Purchase of Common Shares Under NCIB | (24,619) |  | (210) |  | (17,026) |  | (145)
Outstanding, End of Period | 1,981,655 |  | 16,874 |  | 2,001,211 |  | 17,016

As at March 31, 2022, there were 35 million (December 31, 2021 – 30 million) common shares available for future issuance under the stock option plan.
C) Normal Course Issuer Bid
In the three months ended March 31, 2022, the Company purchased 25 million common shares through the NCIB (for the twelve months ended December 31, 2021 – 17 million common shares). The shares were purchased at a weighted average price of $18.91 per common share for a total of $466 million. Paid in surplus was reduced by $256 million, representing the excess of the purchase price of common shares over their average carrying value. The shares were subsequently cancelled. Subsequent to March 31, 2022, the Company purchased an additional 16 million shares for $354 million.
D) Issued and Outstanding – Preferred Shares
In the three months ended March 31, 2022, there were no additional preferred shares issued. As at March 31, 2022, there were 36 million preferred shares outstanding (December 31, 2021 – 36 million), with a value of $519 million (December 31, 2021 – $519 million).

As at March 31, 2022 | Dividend Reset Date |  | Dividend Rate |  | Number of Preferred Shares (thousands)
Series 1 First Preferred Shares | March 31, 2026 |  | 2.58 | % |  | 10,740
Series 2 First Preferred Shares (1) | March 31, 2026 |  | 2.35 | % |  | 1,260
Series 3 First Preferred Shares | December 31, 2024 |  | 4.69 | % |  | 10,000
Series 5 First Preferred Shares | March 31, 2025 |  | 4.59 | % |  | 8,000
Series 7 First Preferred Shares | June 30, 2025 |  | 3.94 | % |  | 6,000

(1) The floating-rate dividend was 1.86 percent for the period from December 31, 2021, to March 30, 2022.
E) Issued and Outstanding – Warrants

As at March 31, 2022 | Number of Warrants (thousands) |  | Amount
Outstanding, Beginning of Year | 65,119 |  | 215
Exercised | (1,420) |  | (5)
Outstanding, End of Period | 63,699 |  | 210

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

23. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

| Pension and Other Post-Employment Benefits |  | Private Equity Instruments |  | Foreign Currency Translation Adjustment |  | Total
As at December 31, 2020 | (10) |  | 27 |  | 758 |  | 775
Other Comprehensive Income (Loss), Before Tax | 21 |  | — |  | (133) |  | (112)
Income Tax (Expense) Recovery | (5) |  | — |  | — |  | (5)
As at March 31, 2021 | 6 |  | 27 |  | 625 |  | 658
As at December 31, 2021 | 28 |  | 27 |  | 629 |  | 684
Other Comprehensive Income (Loss), Before Tax | 42 |  | — |  | (150) |  | (108)
Income Tax (Expense) Recovery | (12) |  | — |  | — |  | (12)
As at March 31, 2022 | 58 |  | 27 |  | 479 |  | 564

24. STOCK-BASED COMPENSATION PLANS

Cenovus has a number of stock-based compensation plans which include net settlement rights (“NSRs”), Cenovus replacement stock options, performance share units, restricted share units and deferred share units.
The following tables summarize information related to the Company’s stock-based compensation plans:

| Units Outstanding |  | Units Exercisable
As at March 31, 2022 | (thousands) |  | (thousands)
Stock Options With Associated Net Settlement Rights | 22,552 |  | 14,377 |
Cenovus Replacement Stock Options | 8,359 |  | 6,799 |
Performance Share Units | 8,832 |  | — |
Restricted Share Units | 6,894 |  | — |
Deferred Share Units | 1,604 |  | 1,604 |

The weighted average exercise price of NSRs and Cenovus replacement stock options outstanding as at March 31, 2022, was $12.58 and $14.34, respectively.

| Units Granted |  | Units Vested and Exercised/ Paid Out
For the three months ended March 31, 2022 | (thousands) |  | (thousands)
Stock Options With Associated Net Settlement Rights | 1,980 |  | 3,604
Cenovus Replacement Stock Options | — |  | 1,517
Performance Share Units | 3,191 |  | 1,413
Restricted Share Units | 3,122 |  | 2,207
Deferred Share Units | 407 |  | 62

In the three months ended March 31, 2022, 3,580 thousand NSRs (see Note 22), with a weighted average exercise price of $12.07, were exercised and net settled for cash.
In the three months ended March 31, 2022, 23 thousand NSRs with a weighted average exercise price of $8.69, were exercised and net settled for 10 thousand common shares (see Note 22).
In the three months ended March 31, 2022, 68 thousand Cenovus replacement stock options were exercised with a weighted average exercise price of $20.60 and settled for 53 thousand common shares (see Note 22) and 1,449 thousand Cenovus replacement stock options, with a weighted average exercise price of $11.15, were exercised and net settled for cash.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
The following table summarizes the stock-based compensation expense (recovery) recorded for all plans:

For the three months ended March 31, | 2022 |  | 2021 |  |  |  |
Stock Options With Associated Net Settlement Rights | 4 |  | 5 |  |  |  |
Cenovus Replacement Stock Options | 19 |  | 7 |  |  |  |
Performance Share Units | 37 |  | 12 |  |  |  |
Restricted Share Units | 37 |  | 6 |  |  |  |
Deferred Share Units | 10 |  | 5 |  |  |  |
Stock-Based Compensation Expense (Recovery) | 107 |  | 35 |  |  |  |
Stock-Based Compensation Costs Capitalized | — |  | 1 |  |  |  |
Total Stock-Based Compensation | 107 |  | 36 |  |  |  |

25. RELATED PARTY TRANSACTIONS

Transactions with HMLP are related party transactions as the Company has a 35 percent ownership interest (see Note 15). As the operator of the assets held by HMLP, Cenovus provides management services for which it recovers shared service costs.
The Company is also the contractor for HMLP and constructs its assets based on fixed price contracts or a cost recovery basis with certain restrictions. For the three months ended March 31, 2022, the Company charged HMLP $48 million for construction costs and management services (three months ended March 31, 2021 – $32 million).
The Company pays an access fee to HMLP for pipeline systems that are used by Cenovus’s blending business. Cenovus also pays HMLP for transportation and storage services. For the three months ended March 31, 2022, the Company incurred costs of $68 million for the use of HMLP’s pipeline systems, as well as transportation and storage services (three months ended March 31, 2021 – $72 million).

26. FINANCIAL INSTRUMENTS

Cenovus’s financial assets and financial liabilities consist of cash and cash equivalents, accounts receivable and accrued revenues, restricted cash, net investment in finance leases, accounts payable and accrued liabilities, risk management assets and liabilities, investments in the equity of companies, long-term receivables, lease liabilities, contingent payment, short-term borrowings, long-term debt and other liabilities. Risk management assets and liabilities arise from the use of derivative financial instruments.
A) Fair Value of Non-Derivative Financial Instruments
The fair values of cash and cash equivalents, accounts receivable and accrued revenues, accounts payable and accrued liabilities, and short-term borrowings approximate their carrying amount due to the short-term maturity of these instruments.
The fair values of restricted cash, long-term receivables and net investment in finance leases approximate their carrying amount due to the specific non-tradeable nature of these instruments.
Long-term debt is carried at amortized cost. The estimated fair value of long-term borrowings has been determined based on period-end trading prices of long-term borrowings on the secondary market (Level 2). As at March 31, 2022, the carrying value of Cenovus’s long-term debt was $11.7 billion and the fair value was $12.1 billion (December 31, 2021, carrying value – $12.4 billion, fair value – $13.7 billion).
Equity investments classified as fair value through profit or loss (“FVTPL”) comprise equity investments in public companies. These assets are carried at fair value on the Consolidated Balance Sheets in other assets. Fair value is determined based on quoted prices in active markets (Level 1).
The Company classifies certain private equity investments as fair value through other comprehensive income (loss) (“FVOCI”) as they are not held for trading and fair value changes are not reflective of the Company’s operations. These assets are carried at fair value on the Consolidated Balance Sheets in other assets. Fair value is determined based on recent private placement transactions (Level 3) when available.
The following table provides a reconciliation of changes in the fair value of private equity investments classified as FVOCI:

| Total
As at December 31, 2021 | 53
Change in Fair Value (1) | —
As at March 31, 2022 | 53

(1) Changes in fair value are recorded in OCI.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
B) Fair Value of Risk Management Assets and Liabilities
The Company’s risk manag ement assets and liabilities consist of crude oil, natural gas and refined product swaps and futures, renewable energy contracts, a nd if entered into, forwards, options, as we ll as condensate futures and swaps, f oreign exchange and interest rate swaps.
Crude oil, natural gas, condensate, and refined product contracts are recorded at their estimated fair value based on the difference between the contracted price and the period-end forward price for the same commodity, using quoted market prices or the period-end forward price for the same commodity extrapolated to the end of the term of the contract (Level 2). The fair value of foreign exchange rate contracts are calculated using external valuation models which incorporate observable market data, including foreign exchange forward curves (Level 2) and the fair value of interest rate swaps are calculated using external valuation models which incorporate observable market data, including interest rate yield curves (Level 2). The fair value of cross currency interest rate swaps are calculated using external valuation models which incorporate observable market data, including foreign exchange forward curves (Level 2) and interest rate yield curves (Level 2). The fair value of renewable energy contracts are calculated using internal valuation models which incorporate broker pricing for relevant markets, some observable market prices and extrapolated market prices with inflation assumptions (Level 3). The f air value of renewable energy contracts are calculated by Cenovus’s internal valuation team that consists of individuals who are knowledgeable and have experience in fair value techniques.
Risk management assets and liabilities are carried at fair value on the Consolidated Balance Sheets in accounts receivable and accrued revenues, and accounts payable and accrued liabilities (for short-term positions) an d other liabilities (for long-term positions). Changes in fair value are recorded at FVTPL in the Consolidated Statement of Earnings within (gain) loss on risk management.
On April 4, 2022, Cenovus announced the suspension of its crude oil sales price risk management activities related to WTI. Given the strength of Cenovus’s balance sheet and liquidity position, the Company has determined these programs are no longer required to support financial resilience. The WTI contracts that were impacted by the announcement will be closed by June 30, 2022.
Summary of Unrealized Risk Management Positions

| March 31, 2022 |  | December 31, 2021
| Risk Management |  | Risk Management
As at | Asset |  | Liability |  | Net |  | Asset |  | Liability |  | Net
Crude Oil, Natural Gas, Condensate and Refined Products (1) | 16 |  | 378 |  | (362) |  | 46 |  | 116 |  | (70)
Renewable Energy Contracts | — |  | 20 |  | (20) |  | — |  | — |  | —
Foreign Exchange Rate Contracts | 3 |  | — |  | 3 |  | 2 |  | — |  | 2
| 19 |  | 398 |  | (379) |  | 48 |  | 116 |  | (68)

(1) On April 4, 2022, Cenovus announced the suspension of its crude oil sales price risk management activities related to WTI. As at March 31, 2022, the risk management liability related to the WTI contracts impacted by this announcement was $380 million.
Level 2 prices sourced from observable data or market corroboration refers to the fair value of contracts valued in part using active quotes and in part using observable, market-corroborated data. Level 3 prices are sourced from partially observable data used in internal valuations.
The following table presents the Company’s fair value hierarchy for risk management assets and liabilities carried at fair value:

As at | March 31, 2022 |  | December 31, 2021
Level 2 – Prices Sourced From Observable Data or Market Corroboration | (359) |  | (68)
Level 3 – Prices Sourced From Partially Observable Data (1) | (20) |  | —
| (379) |  | (68)

(1) Includes renewable energy contracts with a fair value of $20 million as at March 31, 2022.
The following table provides a reconciliation of changes in the fair value of Cenovus’s risk management assets and liabilities from January 1 to March 31:

| 2022
Fair Value of Contracts, Beginning of Year | (68)
Change in Fair Value of Contracts in Place at Beginning of Year and Contracts Entered Into During the Period | (1,285)
Fair Value of Contracts Realized During the Period | 974
Fair Value of Contracts, End of Period | (379)

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
C) Fair Value of Contingent Payment
The contingent payment is carried at fair value on the Consolidated Balance Sheets. Fair value is estimated by calculating the present value of the expected future cash flows using an option pricing model (Level 3), which assumes the probability distribution for WCS is based on the volatility of WTI options, volatility of Canadian-U.S. foreign exchange rate options and both WTI and WCS futures pricing, and discounted at a credit-adjusted risk-free rate of 4.1 percent (December 31, 2021 – 2.9 percent). Fair value of the contingent payment has been calculated by Cenovus’s internal valuation team that consists of individuals who are knowledgeable and have experience in fair value techniques. As at March 31, 2022, the fair value of the contingent payment was estimated to be $178 million (December 31, 2021 – $236 million).
The contingent payment agreement ends on May 17, 2022. As at March 31, 2022, average WCS forward pricing over the remaining term is $109.19 per barrel. The average implied volatility of WTI options and the Canadian-U.S. dollar foreign exchange rate options used to value the contingent payment were 61.7 percent and 7.4 percent, respectively.
Changes in the following inputs to the option pricing model, with fluctuations in all other variables held constant, could have resulted in unrealized gains (losses) impacting earnings before income tax as follows:

As at March 31, 2022 | Sensitivity Range |  | Increase |  | Decrease
WCS Forward Prices | ± $5.00 per barrel |  | (16) |  | 16

The impact of a five percent increase or decrease in WTI option price volatility and the Canadian-U.S. dollar foreign exchange rate options would result in nominal unrealized gains (losses) to earnings before income tax.
D) Earnings Impact of (Gains) Losses From Risk Management Positions

For the three months ended March 31, | 2022 |  | 2021 |  |  |  |
Realized (Gain) Loss | 974 |  | 342 |  |  |  |
Unrealized (Gain) Loss (1) | 311 |  | (148) |  |  |  |
(Gain) Loss on Risk Management | 1,285 |  | 194 |  |  |  |

(1) On April 4, 2022, Cenovus announced the suspension of its crude oil sales price risk management activities related to WTI. For the three months ended March 31, 2022, the unrealized risk management loss related to the WTI contracts impacted by this announcement was $370 million.
Realized and unrealized gains and losses on risk management are recorded in the reportable segment to which the derivative instrument relates.

27. RISK MANAGEMENT

Cenovus is exposed to financial risks, including market risk related to commodity prices, foreign exchange rates, interest rates as well as credit risk and liquidity risk.
To manage exposure to commodity price movements between when products are produced or purchased and when sold to the customer or used by Cenovus, the Company may periodically enter into financial positions as a part of ongoing operations to market the Company’s production and physical inventory positions of crude oil, condensate, refined products and natural gas volumes. The Company has entered into risk management positions to both help capture incremental margin expected to be received in future periods at the time products will be sold and to mitigate overall exposure to fluctuations in commodity prices related to inventories and physical sales. Mitigation of commodity price volatility may utilize financial positions to protect both near-term and future cash flows. To manage exposure to interest rate volatility, the Company may periodically enter into interest rate swap contracts. To mitigate the Company’s exposure to foreign exchange rate fluctuations, the Company periodically enters into foreign exchange contracts. To manage interest costs on short-term borrowings, the Company periodically enters into cross currency interest rate swaps. To manage electricity costs associated with the production and transportation of crude oil, the Company may enter into energy instruments, including renewable energy contracts. To manage exposure to carbon costs, the Company may enter into carbon credit instruments, which may be embedded in renewable energy contracts or may be entered into separately.
As at March 31, 2022, the fair value of financial positions was a net liability of $379 million a nd consisted of crude oil, condensate, natural gas, renewable energy and foreign exchange rate instruments. As at March 31, 2022, there were foreign exchange contracts with a notional value of US$207 million outstanding and no interest rate contracts or cross currency interest rate swap contracts outstanding.
On April 4, 2022, Cenovus announced the suspension of its crude oil sales price risk management activities related to WTI.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
Net Fair Value of Risk Management Positions

As at March 31, 2022 | Notional Volumes (1) (2) |  | Terms (3) |  | Weighted Average Price (1) (2) |  | Fair Value Asset (Liability)
Crude Oil Sales Price Related WTI (4) |  |  |  |  |  |  |
WTI Fixed – Sell | 27.0 MMbbls |  | April 2022 - June 2022 (4) |  | US$86.31/bbl |  | (436)
WTI Fixed – Buy | 15.4 MMbbls |  | April 2022 - June 2022 (4) |  | US$96.60/bbl |  | 56
WTI Fixed – Sell | 14.9 MMbbls |  | July 2022 - December 2024 (4) |  | US$84.35/bbl |  | (153)
WTI Fixed – Buy | 9.8 MMbbls |  | July 2022 - December 2024 (4) |  | US$78.26/bbl |  | 153
Other WTI (5) |  |  |  |  |  |  |
WTI Fixed – Sell | 6.5 MMbbls |  | April 2022 - December 2022 |  | US$103.37/bbl |  | 28
WTI Fixed – Buy | 3.0 MMbbls |  | April 2022 - December 2022 |  | US$108.14/bbl |  | (32)
Other Financial Positions (6) |  |  |  |  |  |  | 2
Foreign Exchange Rate Contracts |  |  |  |  |  |  | 3
Total Fair Value |  |  |  |  |  |  | (379)

(1) Million barrels (“MMbbls”). Barrel (“bbl”).
(2) Notional volumes and weighted average price represent various contracts over the respective terms. The notional volumes and weighted average price may fluctuate from month to month as it represents the averages for various individual contracts with different terms.
(3) Contract terms represent various individual contracts with different terms, and range from one to 33 months.
(4) On April 4, 2022, Cenovus announced the suspension of its crude oil sales price risk management activities related to WTI. The terms noted above are as at March 31, 2022. Contracts with terms between April 2022 and June 2022, are expected to naturally decay. Contracts with terms between July 2022 and December 2024, started to be liquidated in April 2022 and will be closed by June 30, 2022.
(5) Other WTI positions consist of WTI contracts to help manage condensate price exposure as well as feedstock costs and refined products price exposure.
(6) Other financial positions consists of risk management positions related to WCS, heavy oil and condensate differential contracts, Belvieu fixed price contracts, reformulated blendstock for oxygenate blending gasoline contracts, heating oil and natural gas fixed price contracts, renewable energy contracts and the Company’s U.S. manufacturing and marketing activities.
A) Commodity Price, Interest Rate and Foreign Currency Risk
Sensitivities
The following table summarizes the sensitivity of the fair value of Cenovus’s risk management positions to independent fluctuations in commodity prices and foreign exchange rates, with all other variables held constant. Management believes the fluctuations identified in the table below are a reasonable measure of volatility.
The impact of fluctuating commodity prices and foreign exchange rates on the Company’s open risk management positions could have resulted in an unrealized gain (loss) impacting earnings before income tax as follows:

As at March 31, 2022 |  | Sensitivity Range |  | Increase |  | Decrease
Crude Oil Commodity Price(1) |  | ± US$5.00/bbl Applied to WTI, Condensate and Related Hedges |  | (114) |  | 114
WCS and Condensate Differential Price |  | ± US$2.50/bbl Applied to WCS and Differential Hedges Tied to Production |  | (10) |  | 10
Refined Products Commodity Price |  | ± US$5.00/bbl Applied to Heating Oil and Gasoline Hedges |  | (5) |  | 5
Power Commodity Price |  | ± C$20.00/MWH Applied to Renewable Energy Contracts |  | 34 |  | (34)
U.S. to Canadian Dollar Exchange Rate |  | ± 0.05 in the U.S. to Canadian Dollar Exchange Rate |  | 15 |  | (17)

(1) On April 4, 2022, Cenovus announced the suspension of its crude oil sales price risk management activities related to WTI. At March 31, 2022, the increase/ decrease associated with the sensitivity range tied to the WTI contracts affected by this announcement was $105 million.
B) Credit Risk
Credit risk arises from the potential that the Company may incur a financial loss if a counterparty to a financial instrument fails to meet its financial or performance obligations in accordance with agreed terms. Cenovus has in place a Credit Policy approved by the Audit Committee and the Board of Directors designed to ensure that its credit exposures are within an acceptable risk level. The Credit Policy outlines the roles and responsibilities related to credit risk, sets a framework for how credit exposures will be measured, monitored and mitigated, and sets parameters around credit concentration limits.
Cenovus assesses the credit risk of new counterparties and continues risk-based monitoring of all counterparties on an ongoing basis. A substantial portion of Cenovus’s accounts receivable are with customers in the oil and gas industry and are subject to normal industry credit risks. Cenovus’s exposure to its counterparties is within credit policy tolerances. The maximum credit risk exposure associated with accounts receivable and accrued revenues, net investment in finance leases, risk management assets and long-term receivables is the total carrying value.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
As at March 31, 2022, approximately 96 percent of the Company’s accruals, receivables related to Cenovus’s joint ventures and joint operations, trade receivables and net investment in finance leases were investment grade, and 100 percent of the Company’s accounts receivable were outstanding for less than 60 days. The associated average expected credit loss on these accounts was 0.1 percent as at March 31, 2022 (December 31, 2021 – 0.1 percent).
C) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet all of its financial obligations as they become due. Liquidity risk also includes the risk of not being able to liquidate assets in a timely manner at a reasonable price. Cenovus manages its liquidity risk through the active management of cash and debt and by maintaining appropriate access to credit, which may be impacted by the Company’s credit ratings. As disclosed in Note 17, over the long term, Cenovus targets a Net Debt to Adjusted EBITDA ratio of approximately 1.0 times to manage the Company’s overall debt position.
Undiscounted cash outflows relating to financial liabilities are:

As at March 31, 2022 | Less than 1 Year |  | Years 2 and 3 |  | Years 4 and 5 |  | Thereafter |  | Total
Accounts Payable and Accrued Liabilities | 8,122 |  | — |  | — |  | — |  | 8,122
Short-Term Borrowings (1) | 62 |  | — |  | — |  | — |  | 62
Long-Term Debt (1) | 541 |  | 1,832 |  | 2,543 |  | 13,874 |  | 18,790
Contingent Payment | 178 |  | — |  | — |  | — |  | 178
Lease Liabilities (1) | 445 |  | 780 |  | 620 |  | 3,122 |  | 4,967
As at December 31, 2021 | Less than 1 Year |  | Years 2 and 3 |  | Years 4 and 5 |  | Thereafter |  | Total
Accounts Payable and Accrued Liabilities | 6,353 |  | — |  | — |  | — |  | 6,353
Short-Term Borrowings (1) | 79 |  | — |  | — |  | — |  | 79
Long-Term Debt (1) | 561 |  | 1,608 |  | 2,603 |  | 14,892 |  | 19,664
Contingent Payment | 238 |  | — |  | — |  | — |  | 238
Lease Liabilities (1) | 453 |  | 794 |  | 634 |  | 3,192 |  | 5,073

(1) Principal and interest, including current portion if applicable.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

28. SUPPLEMENTARY CASH FLOW INFORMATION

A) Working Capital

| March 31, 2022 |  | December 31, 2021
Total Current Assets | 14,584 |  | 11,988
Total Current Liabilities | 9,140 |  | 7,305
Working Capital | 5,444 |  | 4,683

As at March 31, 2022, adjusted working capital was $5.2 billion (December 31, 2021 – $3.8 billion), excluding assets held for sale of $530 million (December 31, 2021 – $1.3 billion), the current portion of the contingent payment of $178 million (December 31, 2021 – $236 million) and liabilities related to assets held for sale of $128 million (December 31, 2021 – $186 million).
Changes in non-cash working capital is as follows:

For the three months ended March 31, | 2022 |  | 2021 |  |  |  |
Accounts Receivable and Accrued Revenues | (1,909) |  | (653) |  |  |  |
Income Tax Receivable | 15 |  | 9 |  |  |  |
Inventories | (805) |  | (608) |  |  |  |
Accounts Payable and Accrued Liabilities | 1,547 |  | 403 |  |  |  |
Income Tax Payable | 212 |  | (42) |  |  |  |
Total Non-Cash Working Capital | (940) |  | (891) |  |  |  |
Net Change in Non-Cash Working Capital - Operating Activities | (1,199) |  | (902) |  |  |  |
Net Change in Non-Cash Working Capital - Investing Activities | 259 |  | 11 |  |  |  |
Total Non-Cash Working Capital | (940) |  | (891) |  |  |  |

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022
B) Reconciliation of Liabilities
The following table provides a reconciliation of liabilities to cash flows arising from financing activities:

| Dividends Payable |  | Short-Term Borrowings |  | Long-Term Debt |  | Lease Liabilities
As at December 31, 2020 | — |  | 121 |  | 7,441 |  | 1,757
Acquisition | — |  | 40 |  | 6,602 |  | 1,441
Changes From Financing Cash Flows: |  |  |  |  |  |  |
Net Issuance (Repayment) of Short-Term Borrowings | — |  | 107 |  | — |  | —
Net Issuance (Repayment) of Revolving Long-Term Debt | — |  | — |  | 50 |  | —
Principal Repayment of Leases | — |  | — |  | — |  | (75)
Common Share Dividends Paid | (35) |  | — |  | — |  | —
Preferred Share Dividend Paid | (9) |  | — |  | — |  | —
Non-Cash Changes: |  |  |  |  |  |  |
Exchange Rate Movements and Other | — |  | (2) |  | (130) |  | (10)
Finance Costs | — |  | — |  | (16) |  | —
Lease Additions | — |  | — |  | — |  | 54
Lease Modifications | — |  | — |  | — |  | 7
Lease Re-measurements | — |  | — |  | — |  | (2)
Common Share Dividends Declared | 35 |  | — |  | — |  | —
Preferred Share Dividends Declared | 9 |  | — |  | — |  | —
As at March 31, 2021 | — |  | 266 |  | 13,947 |  | 3,172
As at December 31, 2021 | — |  | 79 |  | 12,385 |  | 2,957
Changes From Financing Cash Flows: |  |  |  |  |  |  |
Net Issuance (Repayment) of Short-Term Borrowings | — |  | (16) |  | — |  | —
(Repayment) of Long-Term Debt | — |  | — |  | (510) |  | —
Net Issuance (Repayment) of Revolving Long-Term Debt | — |  | — |  | — |  | —
Principal Repayment of Leases | — |  | — |  | — |  | (75)
Common Share Dividends Paid | (69) |  | — |  | — |  | —
Preferred Share Dividends Paid | (9) |  | — |  | — |  | —
Non-Cash Changes: |  |  |  |  |  |  |
Exchange Rate Movements and Other | — |  | (1) |  | (128) |  | (8)
Net Premium (Discount) on Redemption of Long-Term Debt | — |  | — |  | 7 |  |
Finance Costs | — |  | — |  | (10) |  | —
Lease Additions | — |  | — |  | — |  | 3
Lease Modifications | — |  | — |  | — |  | 28
Lease Re-measurements | — |  | — |  | — |  | 2
Lease Terminations | — |  | — |  | — |  | (1)
Common Share Dividends Declared | 69 |  | — |  | — |  | —
Preferred Share Dividends Declared | 9 |  | — |  | — |  | —
As at March 31, 2022 | — |  | 62 |  | 11,744 |  | 2,906

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended March 31, 2022

29. COMMITMENTS AND CONTINGENCIES

A) Commitments
Cenovus has entered into various commitments in the normal course of operations primarily related to demand charges on firm transportation agreements. In addition, the Company has commitments related to its risk management program.
Future payments for the Company’s commitments are below:

As at March 31, 2022 | Remainder of Year |  | 2 Years |  | 3 Years |  | 4 Years |  | 5 Years |  | Thereafter |  | Total
Transportation and Storage (1) | 2,731 |  | 3,286 |  | 3,381 |  | 2,394 |  | 2,297 |  | 18,469 |  | 32,558
Real Estate (2) | 35 |  | 45 |  | 52 |  | 54 |  | 58 |  | 658 |  | 902
Obligation to Fund Equity-Accounted Affiliate (3) | 54 |  | 84 |  | 97 |  | 89 |  | 89 |  | 207 |  | 620
Other Long-Term Commitments | 422 |  | 167 |  | 151 |  | 142 |  | 154 |  | 1,212 |  | 2,248
Total Payments (4) | 3,242 |  | 3,582 |  | 3,681 |  | 2,679 |  | 2,598 |  | 20,546 |  | 36,328

(1) Includes transportation commitments of $9.1 billion (December 31, 2021 – $8.1 billion) that are subject to regulatory approval or have been approved, but are not yet in service. Terms are up to 20 years subsequent to the date of commencement.
(2) Relates to the non-lease components of lease liabilities consisting of operating costs and unreserved parking for office space. Excludes committed payments for which a provision has been provided.
(3) Relates to funding obligations for HCML.
(4) Commitments are reflected at Cenovus’s proportionate share of the underlying contract.
As at March 31, 2022, the Company had commitments with HMLP that include $2.6 billion related to long-term transportation and storage commitments (December 31, 2021 – $2.6 billion). There were also outstanding letters of credit aggregating to $543 million (December 31, 2021 – $565 million) issued as security for financial and performance conditions under certain contracts.
B) Contingencies
Legal Proceedings
Cenovus is involved in a limited number of legal claims associated with the normal course of operations. Cenovus believes that any liabilities that might arise from such matters, to the extent not provided for, are not likely to have a material effect on its Consolidated Financial Statements.
Decommissioning Liabilities
Cenovus is responsible for the retirement of long-lived assets at the end of their useful lives. Cenovus has recorded a liability of $3.3 billion, based on current legislation and estimated costs, related to its producing well sites, upstream processing facilities, surface and subsea plant and equipment, manufacturing facilities, retail and the crude-by-rail terminal. Actual costs may differ from those estimated d ue to changes in legislation and changes in costs.
Income Tax Matters
The tax regulations and legislation and interpretations thereof in the various jurisdictions in which Cenovus operates are continually changing. As a result, there are usually a number of tax matters under review. Management believes that the provision for taxes is adequate.

Cenovus Energy Inc. – Q1 2022 Interim Consolidated Financial Statements | 35