Massive deal reshapes Canadian oil and gas sector
Calgary-based Cenovus Energy has announced that it has entered into a merger agreement with Husky Energy Inc. Under the terms of the agreement, Cenovus will combine with Husky Energy for (C)$23.6 billion in an all-stock transaction. Together the companies will trade as Cenovus Energy and will remain headquartered in Calgary. The deal, approved by both boards of directors, is expected to close Q1 of 2021. Husky shareholders will receive 0.7845 of a Cenovus share plus 0.0651 of a Cenovus share purchase warrant in exchange for each Husky common share.
The idea behind the merger is to create a resilient integrated energy leader with an advantaged upstream and downstream portfolio. When the deal is complete Cenovus will become Canada’s number three oil and gas producer behind Suncor and Canadian Natural Resources.
The consolidation of the industry is a trend that is occurring globally. Recently in the U.S. ConocoPhillips picked up Concho Resources while Chevron bought Noble energy. Here in Canada Canadian Natural Resources purchased assets from Shell and Marathon Oil in 2017 to become the country’s number two player in oil & gas production. This deal between Husky and Cenovus is the largest oil & gas sector M&A in the last four years.
“We will be a leaner, stronger and more integrated company, exceptionally well-suited to weather the current environment and be a strong Canadian energy leader in the years ahead,” says Alex Pourbaix, Cenovus president and CEO. “The diverse portfolio will enable us to deliver stable cash flow through price cycles while focusing capital on the highest-return assets and opportunities. The combined company will also have an efficient cost structure and ample liquidity. All of this supports strong credit metrics, accelerated deleveraging and an enhanced ability for return of capital to shareholders.”
Husky president and CEO Rob Peabody agrees. "Bringing our talented people and complementary assets together will enable us to deliver the full potential of this resilient new company," he says pointing to the integration of Cenovus's best-in-class in situ oil sands assets with Husky's extensive North American upgrading, refining and transportation network and high netback offshore natural gas production.
Altogether, the company will be the third-largest Canadian oil and natural gas producer, based on total company production. Combined, Cenovus will produce about 750,000 barrels of oil equivalent per day (BOE/d) of low-cost oil and natural gas production, including 50,000 BOE/d of high free funds flow generating offshore Asia Pacific production. It will be the second-largest Canadian-based refiner and upgrader, with total North American upgrading and refining capacity of approximately 660,000 barrels per day (bbls/d), which includes approximately 350,000 bbls/d of heavy oil conversion capacity. The company will have access to about 265,000 bbls/d of current takeaway capacity out of Alberta on existing major pipelines, as well as about 305,000 bbls/d of committed capacity on planned pipelines. Also, it will have 16 million barrels of crude oil storage capacity as well as strategic crude-by-rail assets that provide takeaway optionality.