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Paying for a takeover
Cenovus estimates Husky acquisition will cost 2,150 jobs, 25% of combined payroll Gary Park for Petroleum News
Every shred of apparent good news from the Canadian oil patch also comes at a stiff human cost.
Those struggling to stem the outflow of jobs enjoyed a fleeting moment of success on Oct. 26 when Suncor Energy announced it will move two offices from Ontario back to their Calgary home base in 2021 - a possible gain of 700 people.
No sooner was that development being welcomed by Calgary Mayor Naheed Nenshi and Mary Moran, chief executive officer of Calgary Economic Development, than a harsh setback was delivered.
Cenovus Energy disclosed that 25%, or 2,150 employees of the combined workforce from its freshly announced takeover of Husky Energy, would soon find themselves on the street.
Most job losses in Calgary The two companies confirmed that most of the job losses will occur in Calgary, where the unemployment level is a crippling 13%.
A Husky spokesperson Kim Guttormson said that “as with any merger of this type there will be overlap and there will be some difficult decisions as we work to create a combined organization best positioned for the future.”
Cenovus Chief Executive Officer Alex Pourbaix, whose company initiated the C$3.8 billion friendly takeover (which carries a value of C$23.6 billion), said the transaction was viewed as necessary “to ensure our companies and our sectors remain strong. But there is no escaping the impact that they have on some extremely talented and dedicated people.”
No White Rose expansion Also facing the chopping block is Husky’s planned C$2.2 billion expansion of its White Rose oil field offshore Newfoundland that had been designed to add 75,000 barrels per day to offset the field’s decline over the last 15 years to 26,000 bpd.
Guttormson told the Globe and Mail that all options for White Rose are under review, adding that “accelerating abandonment (of White Rose) remains a possibility.”
Pourbaix had earlier confirmed that work on the White Rose expansion, which was suspended in March when Corvid-19 hammered oil prices, could set the stage for a worst-case scenario of scrapping the project and decommissioning the field over time.
Canada’s Natural Resources Minister Seamus O’Regan said recently that his government is working with Husky to find ways to save the expansion but conceded there is little prospect the solution lies in a public equity stake.
Husky Chief Executive Officer Rob Peabody described the White Rose undertaking as a “spectacularly good project for Newfoundland,” although he agreed the financial viability is affected by the general health of the energy industry.
Restructuring ‘unfortunate reality’ Alberta Energy Minister Sonya Savage said the job restructuring from the Cenovus-Husky deal is an “unfortunate reality” and will be “opportunistically seized on” by those who want to see Canada’s energy sector shut down entirely.
“But projections show continued global demand for fossil fuels well into the future,” she said.
Savage said Alberta’s economic recovery plan is focused on ensuring the oil and gas sector is put in a strong position, while the province concentrates on diversifying its economy to create new jobs.
Moran said her organization will continue to call for more training programs to help laid-off energy workers find jobs in other industries.
“We’re talking to all organizations (with a presence in Calgary) to consider expansion, whether it be banks or trucking companies or financial services or agriculture companies.”
Oil sands focus For now, attention is focused on what lies in store for the oil sands in particular as foreign players shred their stakes in the resource to reduce their carbon emissions.
The Canadian industry is seen as having no choice but to follow the lead of senior U.S. energy companies and buy smaller rivals with shaky balance sheets.
Suncor Energy and Canadian Natural Resources will be the oil sands players to watch. They are expected to lead the way in snapping up reserves unloaded by European majors and concentrating on meeting environmental challenges, while decreasing their own greenhouse gas emissions through technological advances in developing, extracting and refining fossil fuels in Alberta.
The two biggest producers from the oil sands are already making headway in capturing and storing carbon dioxide.
Analysts are forecasting that small- and medium-sized Canadian companies will start a round of mergers to reduce their operating costs and bolster their balance sheets.
In a recent report, Scotia Capital analyst Jason Bouvier said divestiture of oil sands assets and a drive to build scale will underpin a wave of domestic takeovers.
“We believe the acquirers should be able to drive value via a good purchase price followed by real cost synergies,” he wrote.
One of the prime targets is Chinese-owned MEG Energy, which fended off a hostile C$3.3 billion takeover offer by Husky in 2018. The cost of that strategy is now painfully obvious, with MEG’s market capitalization having tumbled to C$720 million and its debt at C$3 billion.
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