Cenovus gambit seen as last oilsands mega-deal for now
CALGARY — Cenovus Energy’s blockbuster $17.7-billion deal to buy most of the Canadian assets of Houston-based ConocoPhillips will likely stand as the biggest acquisition in the oilsands sector for years to come, say some industry watchers.
While other deals are expected to materialize, analysts note there are fewer significant assets available after more than a year of consolidation transactions in Alberta’s oilpatch worth billions.
“If you think about who’s left in terms of remaining players, there aren’t that many,” said Peter Argiris, principal analyst for consultancy Wood Mackenzie in Calgary.
“The days of $15-, $12- and $17-billion deals, I don’t think we’ll see that. I think the big ones are probably eaten up now.”
The deal is the largest this year involving Canadian oil and gas assets, according to data provided by Thomson Reuters.
Alberta’s oilsands, the thirdlargest proven oil reserves in the world, are also among the most costly and carbon-intensive to produce from. These factors, combined with the pullback in crude prices, have spurred several foreign players to exit the sector so they can reinvest their capital elsewhere. Big Canadian players like Cenovus have stepped in to buy, looking to better control costs by operating at a larger size.
Further consolidation can be expected, but probably on a smaller scale, said Nick Lupick, an analyst with AltaCorp Capital.
“Eventually, obviously, you will run out of opportunities given that you are likely to have three to five major E&Ps [explorers and producers] controlling most of the production,” Lupick said.
The cash-and-share deal was announced Wednesday after the close of Canadian and U.S. stock markets.
Cenovus shares closed down almost 14 per cent on Thursday at $15.05. The company had said it planned to raise $3 billion in an equity offering to help pay for the $14.1-billion cash portion of the acquisition, supplemented by cash on hand and debt financing.
The DBRS credit rating agency said Wednesday it would place Cenovus’s ratings under review with negative implications because of the increase in debt from the ConocoPhillips deal.
ConocoPhillips’s New Yorklisted shares closed up about eight per cent.
The latest deal comes about three weeks after Canadian Natural Resources announced a $12.74-billion offer to buy Alberta oilsands assets from Royal Dutch Shell and Houstonbased Marathon Oil.
ConocoPhillips will continue to operate and own half of the Surmont oilsands project in northern Alberta, with French giant Total holding the other half.