Tracking two mega deals in oilsands

Almost two-and-ahalf months after agreeing to acquire a 70-per-cent interest in the Athabasca Oil Sands Project, Canadian Natural Resources Ltd. has taken the first public steps to finance that almost $13-billion acquisition.

On Tuesday the company launched an unsecured US$3 billion debt financing in the U.S. market and a three-part $1.3-billion raise in the domestic market. By the close of business Tuesday, all six elements of the two financings by the investment grade borrower had been priced.

There is no great surprise that Canadian Natural was in both the U.S. and Canadian debt markets. When it announced its purchase on March 9, it indicated it had lined up $9 billion in “fully committed acquisition financing.” The $9 billion was split between a $3-billion term loan facility and up to $6 billion “in bridge facility to bonds in U.S. and Canadian debt capital markets.”

The rest of the acquisition price came from the issuance of $4 billion of its own shares to Shell Canada. (CNRL is also buying the 10 per cent in the project held by Marathon Oil.)

But CNRL did not sell any of its shares to the public to raise cash to help with the purchase price. Whether that was the reason or whether investors liked the acquisition — deemed to be “immediately cash flow and earnings accretive — the shares posted an immediate 10-per-cent gain. In general they have stayed around the level reached after the announcement was made.”

In this way, CNRL was unlike Cenovus Energy Inc., which in late March announced a $17.7-billion purchase of ConocoPhillips’ 50-per-cent interest in an oilsands project. (Cenovus, which deemed the acquisition “accretive and significantly increases Cenovus’s growth potential,” owns the other 50 per cent.)

But Cenovus, which is about one-third of the size of CNRL, liked issuing equity so much so that it did it twice: once to ConocoPhillips and a second to public investors at $16 a share. In all, it issued almost 50 per cent of its shares outstanding but in two packages, which is an acceptable way around the rules. One wag noted that the carefully chosen percentages — 24.97 per cent to ConocoPhillips and 22.51 per cent to the public — weren’t selected randomly.

Shareholders voiced their complaints to the Ontario Securities Commission about what had occurred but there was no intervention by the regulator.

The market didn’t like the $3-billion equity financing that was priced at a discount to the then-market price of $17. The shares have continued to fall and closed Tuesday at $13.01, not far from the 52-week low of $12.62. Last December the stock traded at a six-month high of $21.26.

While investors have been forced to swallow hard, it seems not many voiced objection to the ConocoPhillips deal: at its annual meeting held on April 27, more than 87 per cent of the shares supported the directors who approved the transaction.

But, according to the analysts who follow Cenovus — which raised US$2.9 billion of public debt in early April — better times lie ahead. According to Bloomberg, the stock is rated a buy by 13 analysts and a hold by 12, with target prices ranging from $15 to $24. The average price is $19.02.

The shareholders of ConocoPhillips have done some celebrating. On the day the deal was announced, its shares jumped about 10 per cent. While there has been some slippage, the shares are still trading above where they were just prior to the announcement of the sale.