ConocoPhillips' Canadian assets going to Cenovus

ConocoPhillips (COP) announced today that it has signed a final agreement with Cenovus (CVE) to sell its 50% non-operated interest in the Foster Creek Christina Lake oil sands partnership, and the majority of its western Canada Deep Basin gas assets, for a total of $13.3 billion.

However, ConocoPhillips Canada will retain 50% stake and ownership in the Surmont oil sands joint venture as well as 100% stake in Blueberry-Montney unconventional acreage position.

Total proceeds from the transaction consist of $10.6 billion cash and 208 million Cenovus shares valued at $2.7 billion as of March 28, ConocoPhillips said.

Royal Dutch Shell PLC earlier this month sold most of its oil sands holdings to Canadian Natural Resources Ltd. "ConocoPhillips is focused elsewhere, and Cenovus has made it a priority to expand in the oil sands".

The company said the assets being bought are expected to produce about 298,000 barrels of oil equivalent per day in 2017.

While the acquisition will double the Calgary-based producer's reserves and production, it ties it heavily to one of the costliest methods of producing oil after prices sank below $30 a barrel just a year ago.

However, shares of Cenovus listed on the New York Stock Exchange slipped more than 8% after hours, Reuters reported.

Cenovus says the financing for the deal is in place and plans to raise $3 billion in an offering of shares to help pay for the acquisition.

"Cenovus' risk profile has drastically changed with this deal", Chris Cox, an analyst at Raymond James in Toronto, said in an interview. A stabilising price level has been credited for the general uptick in profits, as the average price for oil barrels is estimated to rise from C$40 in 2016 to C$55 this year.

He added that the deal would "make an immediate and significant impact on the company's value proposition by allowing us to rapidly reduce debt to $20 billion and double our share repurchase authorization to $6 billion". The company also intends to triple its planned buybacks through 2019 to $3 billion.

The Houston driller is selling its 50-percent share in the Forest Creek Christina Lake oil sands partnership, a 21-year-old project that pumps steam underground to extract viscous oil from almost 1,500 feet in the earth.

Cenovus Energy fell 7.5% in late trading.

  • Anthony Vega