Concerns raised over purchase price

Continued from FP1

The company has already secured 75 per cent of its financing requirements, and with a $3-billion credit facility on tap and investment grades by ratings agencies, the company remains on sound financial footing, Ferguson said.

“Even in a lower price world, we will remain in a strong financial position, as … we have two strong growth platforms generating free cash flow at US$50 WTI — that makes us more financially resilient,” Ferguson said. “This transaction doubles our cash flow, we are not doubling our capital.”

However, DBRS Limited has placed the company “under review with negative implications,” citing the company’s high indebtedness.

Another concern among investors is that Cenovus may have overpaid for the assets in an uncertain oil price environment.

Bob Brackett, an analyst at Sanford Bernstein, estimates the embedded oil price of the deal was around US$70 per barrel, compared to its current price of US$53.26.

“I have heard that (Cenovus overpaid) occasionally over the past few days,” Ferguson admitted. “I strongly believe we paid a fair price for a top decile assets and ones that have significant growth forward.”

Ferguson hopes to orchestrate a new design for the company that can remain solvent at US$50 oil prices, focused on two planks — the oilsands and the Deep Basin — with at least two decades of growth left in each.

“I don’t need to rely on (oil) price increase to increase earnings and cash flow,” Ferguson said. “That is part of what I find really exciting about the transaction.”

Analyst reaction remains muted for now.

“Market reception to Cenovus’ COP acquisition was decidedly swift and negative “Even in a lower price world, we will remain in a strong financial position,” says Brian Ferguson, president and CEO of Cenovus Energy.