$17.7 billion acquisition establishes anchor position in two of Canada’s most attractive oil and gas plays
Cenovus Energy Inc., one of Canada’s largest producers, has agreed to acquire U.S. oil major ConocoPhillips’ 50 per cent interest in the FCCL Partnership, the companies’ jointly owned oil sands venture operated by Cenovus, according to a press release.
Cenovus is also purchasing the majority of ConocoPhillips’ Deep Basin conventional assets in Alberta and British Columbia.
Combined, these assets have forecast 2017 production of approximately 298,000 boe/d.
The divestment, the largest in ConocoPhillips’s history, was unexpected on Wall Street but comes as the company has come under pressure to cut its debt. Its shares jumped more than 6 per cent in after-hours trading. Shares of Cenovus tumbled more than 7 per cent, according to Reuters.
The acquisition is expected to result in an 18 per cent increase in 2018 adjusted funds flow per share compared with Cenovus’s original 2018 forecast.
“Now that you have a prolonged period of low crude prices, the companies are really looking hard on where is the place to invest. Canadian companies… they’re kind of getting bigger in what they know … whereas other companies are seeing opportunities elsewhere,” said Carlos Murillo, economist at the Conference Board of Canada, according to Reuters.
Total consideration for the purchase is $17.7 billion, including $14.1 billion in cash and 208 million Cenovus common shares.
“This transformational acquisition allows us to take full control of our best-in-class oil sands projects and to add a second growth platform across the prolific Deep Basin that provides complementary short-cycle development opportunities,” said Brian Ferguson, Cenovus President & Chief Executive Officer.
Concurrent with the acquisition, Cenovus has launched a bought-deal offering of common shares for expected gross proceeds of approximately $3 billion.
“The acquisition is accretive and significantly increases Cenovus’s growth potential. Going forward, we plan to focus capital spending on these two value platforms. At the same time, we intend to divest a significant portion of our legacy conventional assets to help fund the transaction,” said Ferguson.
ConocoPhillips Chief Executive Ryan Lance said his company will use the cash portion of the deal to pay down debt and increase share repurchases, according to Reuters.