ConocoPhillips-Cenovus Deal Means Yet Another Multinational Bailing On Oilsands

Jon Howard
March 31, 2017

ConocoPhillips (NYSE:COP) got rid of the tar baby on its balance sheet by selling most of its western Canada "oil sands" assets to Cenovus Energy Inc (USA) (NYSE:CVE), a Canadian company, which presently dropped by 11% in early trade March 30.

The company will, however, retain a 50-percent stake in another oil sands project, Surmont, where it partners with France's Total, plus its 100 percent in a shale block, Blueberry-Montney. While Cenovus shares fell, Houston-based Conoco was having its best day in four months, rising 6 per cent to US$48.69 in NY.

Canada's Natural Resources minister Jim Carr said the recent trend of consolidation in the oil sands underscored Canadian investors long-term confidence in the sector.

Cenovus Energy's Christina Lake oil sands operation.

Cenovus plans to raise C$3 billion in an offering of shares to help pay for the acquisition, supplemented by cash on hand and debt financing.

The price includes $14.1 billion in cash and 208 million Cenovus common shares.

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Cenovus Energy stock is down about eight per cent this morning ahead of regular trading on North American stock markets.

But it also outweighs the company's C$12.8 billion market capitalization, prompting ratings agency DBRS to place Cenovus under review with negative implications. It follows by a month Conoco's announcement that its reserves fell to a 15-year low after removing oil-sands barrels that were uneconomic as crude prices sat below $50 a barrel.

Cenovus president and CEO Brian Ferguson said: "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".

Combined, the holdings in the agreement can produce 298,000 barrels of oil equivalent a day in 2017.

Ryan Lance, ConocoPhillips chairman and CEO, said the transaction will make an immediate impact on the company's value proposition by allowing it to reduce debt to $20 billion and double share repurchases to $6 billion from $3 billion.

Meanwhile Canadian players like Cenovus, Suncor Energy and Canadian Natural Resources Ltd are grabbing assets as the multinationals retreat, betting improvements in thermal extraction technology will help them boost efficiency to compete against cheaper USA shale plays.

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