Cenovus to buy Athabasca Oil in C$5.7 billion oilsands deal
Canadian energy giant Cenovus agreed Monday to acquire Athabasca Oil in a C$5.7 billion cash-and-stock transaction. Cenovus expects to nearly triple production at Athabasca's properties, from about 40,000 to 115,000 barrels a day, by 2032. Analysts say the deal leaves oilsands ownership more concentrated than ever.
Cenovus Energy is buying another oilsands producer. The company agreed Monday to acquire Athabasca Oil Corp. in a cash-and-stock deal worth C$5.7 billion, The Canadian Press reported via CBC News.
Athabasca shareholders can take C$12 in cash or 0.264 of a Cenovus share for each share they own, subject to limits. Total cash is capped at C$4.3 billion, CBC reported. Athabasca said the price is a 14% premium to its average share price over the past 20 trading days.
The prize is growth. Athabasca pumps about 40,000 barrels a day from the oilsands now. Cenovus thinks it can push that to 115,000 by 2032. "That represents one of the most significant organic growth opportunities available in Canadian oilsands today," CEO Jon McKenzie told analysts.
McKenzie credited policy shifts in Ottawa and Alberta. Last month, Prime Minister Mark Carney said companies can write off a wider range of investments right away. Alberta plans royalty incentives in November to spur more production. Days before the deal, Ottawa named a proposed million-barrel-a-day pipeline from Alberta to British Columbia its first "national interest" project, which speeds its review.
Analysts said Cenovus paid up. "While the transaction does not come cheap," Desjardins analyst Robert Mann wrote, the deal is "strategically compelling." Michael Berger of Enverus said the price lands well above earlier deals, because good targets are getting scarce.
Investors split. Cenovus shares closed down 3% at C$44.86 on Monday. Athabasca rose 13.5% to C$12.01, CBC reported.
Some background: Less than a year ago, Cenovus bought MEG Energy for C$8.6 billion after a bidding war with Strathcona Resources. Wood Mackenzie said the new deal lifts Cenovus to 21.5% of all oilsands output. "With this deal, 90 per cent of oilsands production remains in Canadian hands," said Mark Oberstoetter of Wood Mackenzie, "and it is now more concentrated than ever."
Cenovus is targeting about C$85 million a year in cost savings, mostly in the first full year, Wood Mackenzie said. The oilsands are now dominated by five big players: Cenovus, ConocoPhillips, Canadian Natural Resources, Suncor and Imperial Oil, Berger noted.
Athabasca shareholders are expected to vote in late November, and its directors have agreed to back the deal. The companies expect it to close in December, pending court, competition and other regulatory approvals.
What we know: The price, the share swap terms and the December target.
What we don't: Whether the new pipeline gets built in time to carry the extra oil.
Where outlets agree CBC News and Wood Mackenzie both put the deal at C$5.7 billion, or C$12 per Athabasca share, with closing expected in December.
Where they differ Desjardins calls the deal strategically compelling despite the price, while Enverus says Cenovus paid well above past deals because few targets are left.