Cenovus plans to accelerate drilling on acquired ConocoPhillips gas properties

Cenovus Energy (TSX:CVE) plans to ramp up the drilling of conventional gas wells on the lands it is buying from Houston-based ConocoPhillips in a $17.7-billion deal announced last month.

The Calgary-based company intends to spend $650 million in 2019 to drill about 120 wells in what is known as the Deep Basin of northeastern B.C. and northwestern Alberta, CEO Brian Ferguson said in an interview on Friday.

That’s about five times the $120 million ConocoPhillips had planned to spend this year to drill 24 wells, he said.

The drilling will bring on new production to better utilize ConocoPhillips’ gas processing plants and pipelines, Ferguson said, thus improving the economic return from the play.

“The infrastructure is 40 per cent utilized — that’s one of the big opportunities for us,” he said.

“Conoco has been starving the Deep Basin of capital; they had been allocating it elsewhere in the corporation.”

He said spending on the assets is expected to climb this year to $170 million and next year to $350 million.

Cenovus said production from the Deep Basin properties could grow by more than 40 per cent, from 120,000 barrels of oil equivalent per day in 2017 to about 170,000 boe/d in 2019.

Cenovus is also buying ConocoPhillips’s 50 per cent interest in the FCCL Partnership, an oilsands venture between the two companies in northern Alberta. The deal is expected to close by June 30.

The acquisitions will boost Cenovus’ production from 290,000 boe/d to 588,000 boe/d, with about 60 per cent of the total output coming from the oilsands.

ConocoPhillips has said it wanted to sell the Canadian assets to pay down debt and to allocate capital to other energy investments with better rates of return than oilsands and natural gas.

Ferguson believes the deal will provide cost-saving “operating synergies” for Cenovus, but said the effect on job numbers hasn’t yet been determined.

Cenovus said it has seen active interest from potential buyers of Alberta conventional oil and gas assets at Pelican Lake and Suffield it is trying to sell to help pay for the ConocoPhillips acquisition.