Hot oil markets ignite speculation around Cenovus deal
Last week, departing Cenovus CEO Brian Ferguson, shown in this file photo, would not say when asked how many parties have looked at the property.
CHRIS BOLIN/THE GLOBE AND MAIL
JEFFREY JONES AND JEFF LEWIS
NOVEMBER 6, 2017
Cenovus Energy Inc. is expected to announce a deal shortly to sell its interest in a major Saskatchewan oil project just as surging crude prices rekindle industry interest in attractive energy properties.
The Weyburn project, with a price tag estimated at $1-billion or more, is the last of four large assets Cenovus had earmarked for sale to reduce debt taken on to fund its acquisition earlier this year of ConocoPhillips Co.’s Alberta oil sands and natural gas assets.
Several companies that have their production skewed to oil, rather than natural gas, are thought to be possible bidders for the assets – some as sole entities and others in partnerships with private-equity sources or pension funds.
Such investors covet the long-term, steady returns and low rate of production declines that the enhanced oil project delivers.
A 16-per-cent rise in U.S. oil prices over the past month is seen as supportive to potential buyers and their financing plans.
Deal interest is said to be picking up as oil prices climb to more than two-year highs amid a string of high-profile arrests in Saudi Arabia over the past weekend in an anti-corruption crackdown, and as markets tighten.
West Texas intermediate cruce closed up 3 per cent on Monday at $57.35 (U.S.) a barrel.
An improving oil market could open up capital markets for the oil patch, allowing financing for deals, after months of being out of favour.
Spartan Energy Corp. and Whitecap Resources Inc. have both been rumoured as bidders for Weyburn, though such a deal would be a big undertaking, especially for the former, whose market capitalization is about $1.2-billion (Canadian).
Spartan did not respond to a request for comment on Monday. It gained an ownership interest in Weyburn last year as part of a $700-million acquisition of oil assets from ARC Resources Ltd.
For its part, Whitecap, with a market cap of about $3.6-billion, is one of few companies to have successfully raised large sums in equity issues during the downturn. Whitecap chief executive officer Grant Fagerheim did not respond to a request for comment.
On Monday, GMP FirstEnergy analyst Michael Dunn speculated that Husky Energy Inc., with $2-billion of cash in hand and a strong balance sheet following its own asset sales, could also be in the running. A Husky spokesman declined to comment.
Cona Resources Ltd., led by former investment banker Adam Waterous, is also said to have made it to the final stages of bidding.
The Weyburn project, located in southeastern Saskatchewan, produces about 24,000 barrels of oil a day, with the aid of carbon dioxide that is piped in from North Dakota. It is known as the world’s largest CO2 capture-and-utilization storage project. Cenovus is operator and has a 62-per-cent stake in the complex venture, and its share of output is around 15,000 barrels a day. Several analysts have pegged the interest’s value at $1-billion or more.
Last week, Brian Ferguson, Cenovus’s departing CEO, would not say when asked how many parties have looked at the property. But he described the sales process as very competitive. Bids were due in mid-October and industry sources said the company was in talks with the winning bidder.
“It’s a very attractive asset,” Mr. Ferguson told analysts on a conference call. “And all the parties that are in the process I would characterize as substantive parties that are well-financed.”
The company has said it is targeting a deal to be announced by the end of this year. Spokesman Brett Harris declined to say Monday if an agreement is imminent.
So far, Cenovus has garnered $2.8-billion from sales of its Pelican Lake, Suffield and Palliser oil-and-gas properties, helping to rebuild investor confidence, which took a hit following the $17.7-billion ConocoPhillips deal owing to the sudden build-up of debt.
Mr. Ferguson was replaced as chief executive of Cenovus on Monday by Alex Pourbaix, a onetime TransCanada Corp. executive. Despite the leadership change, executives indicated last week that a strategic pivot was not on tap.
Still, the company is likely to put more assets on the block to meet its targeted range of $4-billion to $5-billion in sales by the end of the year. It plans to unveil its budget for 2018 in December, while also providing more detail around potential asset sales in the Deep Basin region of Alberta.