Cenovus lands deal

Oil sands major Cenovus Energy has partly cushioned the impact of the decline in crude prices and the unknowns that lie ahead by selling 4.8 million gross acres of royalty land in the three Canadian Prairie provinces for C$3.3 billion in cash.

The buyer, assuming regulatory approvals, is the Ontario Teachers’ Pension Plan (better known as Teachers’) which dipped into its huge pool of net assets, which were listed at C$154.5 billion at the end of 2014.

Cenovus Chief Executive Officer Brian Ferguson said in a statement June 29 that the “proceeds from this sale will strengthen our balance sheet and provide us with greater resilience during these uncertain times as well as the flexibility to invest in organic projects with strong returns.”

Compounding the doubts surrounding Cenovus, along with its peer companies in the Canadian petroleum industry, is how far the recently elected New Democratic Party in Alberta will go in raising taxes and changing regulations governing the oil and gas sector. Cenovus said it weighed a number of options to generate value from its royalty business, including a possible initial public offering, before deciding that the deal with Teachers’ was the best hope of maximizing value for its shareholders.

The transaction includes production of 7,800 barrels of oil equivalent per day through Cenovus’ wholly owned subsidiary Heritage Royalty Limited Partnership, which holds a broad portfolio of royalty and mineral fee title lands in Alberta, Saskatchewan and Manitoba and generates revenue by drilling for other companies.

Faced with a transformation from relentless growth to merely clinging to its status quo, Cenovus has reigned in capital spending, confining itself to projects nearing completion and cutting 800 jobs or 15 percent of its workforce, the company also went to market earlier this year to raise C$1.5 billion to help ride out the slump.

- Gary Park