Cen­ovus to buy Cono­coPhillips’ Cana­dian as­sets for $17.7B.


National Post (National Edition) - - NEWS - GE­OF­FREY MOR­GAN

CAL­GARY • Cen­ovus En­ergy Inc. is pay­ing $17.7 bil­lion to buy as­sets from Cono­coPhillips in a block­buster deal that both deep­ens the con­cen­tra­tion of Cana­dian own­er­ship in the oil­sands and turns the pre­vi­ously pure-play Cen­ovus into a sig­nif­i­cant nat­u­ral gas pro­ducer.

Cen­ovus said Wed­nes­day that it is ac­quir­ing Conoco-Phillips’s 50 per cent stake in oil­sands as­sets the two com­pa­nies pre­vi­ously co-owned as well as Cono­coPhillips’ con­ven­tional oil and nat­u­ral gas as­sets in west-cen­tral Al­berta and north­east­ern B.C.’s Deep Basin.

Brian Fer­gu­son, president and CEO of Cen­ovus, called the deal “a unique op­por­tu­nity to take full con­trol of our oil­sands as­sets,” on a con­fer­ence call and added that it would dou­ble his com­pany’s to­tal pro­duc­tion and re­serves.

The deal will turn Cen­ovus into the third-largest oil­sands pro­ducer, be­hind Cana­dian Nat­u­ral Re­sources Ltd. and Sun­cor En­ergy Inc., and is be­ing funded with 208 mil­lion Cen­ovus shares, cash and bridge loans.

The com­pany also an­nounced it would raise $3 bil­lion in a bought deal by sell­ing 187.5 mil­lion shares.

“Given that we al­ready fully op­er­ate the (joint-ven­ture) as­sets, we are ef­fec­tively dou­bling our oil­sands ex­po­sure with no in­te­gra­tion risk,” Fer­gu­son said,.

“We also view this trans­ac­tion as a strate­gic op­por­tu­nity to es­tab­lish an ex­pan­sive pres­ence in the Deep Basin.”

Fol­low­ing the an­nounce­ment, credit rat­ings agency DBRS Ltd. an­nounced it would place Cen­ovus’ credit un­der re­view with neg­a­tive im­pli­ca­tions be­cause it would take on enough debt to “pres­sure” the com­pany’s cur­rent credit rat­ing.

“De­pend­ing on pro­ceeds raised from as­set sales (which are tar­geted for debt re­duc­tion), a rat­ing down­grade is likely,” DBRS an­a­lysts wrote.

Fer­gu­son said Cen­ovus planned to sell off its Pel­i­can Lake oil­sands prop­er­ties and some light oil as­sets in south­east­ern Al­berta as a re­sult of the deal, and the com­pany would re­visit its div­i­dend once those as­sets sold.

Be­fore DBRS re­leased its note, Fer­gu­son said he was con­fi­dent the com­pany could pre­serve its credit rat­ings fol­low­ing the “trans­for­ma­tive” ac­qui­si­tion, which he ex­pects will close in the sec­ond quar­ter.

“This is a nat­u­ral con­sol­i­da­tion,” Wood Macken­zie an­a­lyst Peter Agiris said in an in­ter­view, not­ing Cen­ovus’ long part­ner­ship with Cono­coPhillips.

Cana­dian Nat­u­ral Re­sources Ltd.’s $12.7-bil­lion pur­chase of Shell’s oil­sands as­sets this month and Athabasca Oil Corp.’s $832 mil­lion pur­chase of Sta­toil S.A.’s ther­mal fa­cil­i­ties are other ex­am­ples of Cal­gar­y­based com­pa­nies con­sol­i­dat­ing in the oil­sands.

He also said that while the deal does con­tinue the trend of Cana­dian own­er­ship, Cono­coPhillips isn’t ex­it­ing the heavy oil play as it will own roughly 20 per cent of Cen­ovus af­ter the deal closes and re­tains a stake in the Sur­mont oil­sands project with To­tal S.A.

The deal also trans­forms Cen­ovus into a nat­u­ral gas player for the first time.

Cen­ovus was spun out of En­cana Corp. to fo­cus on oil in 2009 but will now be­come a sig­nif­i­cant nat­u­ral gas player in west-cen­tral Al­berta and north­east­ern B.C. gas fields.

The com­pany plans to spend $170 mil­lion in the Deep Basin gas for­ma­tion this year.

That’s ramp­ing up sig­nif­i­cantly in 2018 and be­yond, Fer­gu­son said.

Some an­a­lysts jok­ingly called the new Cen­ovus, “En­cana 2.0.”

“There’s some al­lure to be­ing a pure play,” Agiris said of Cen­ovus, but added the Cono­coPhillips deal would help di­ver­sify the com­pany’s rev­enues and com­mod­ity ex­po­sure.

In ad­di­tion to the nat­u­ral gas pro­duc­tion, Fer­gu­son said Cen­ovus is ac­quir­ing 1.4 bil­lion cu­bic feet per day of gas pro­cess­ing ca­pac­ity that has largely been un­der­uti­lized.

He said the com­pany plans to boost uti­liza­tion through those fa­cil­i­ties and in­crease gas pro­duc­tion in the com­ing years.


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