ConocoPhillips puts up 10% stake in Cenovus; goal net zero GHG by 2050

Gary Park

for Petroleum News

ConocoPhillips is in a hurry to spruce up its environmental image, announcing plans to unload its 10% stake in Canadian oilsands producer Cenovus Energy, valued at US$2 billion.

Just six months after startling the market when it made a move to outstrip its major rivals, setting an operational goal of eliminating greenhouse gas emissions by 2050, ConocoPhillips has laid out its strategy to join the parade of U.S.-based companies exiting the Alberta oilsands.

By inviting bids for the Cenovus holding, ConocoPhillips ended rumors that have swirled since 2018 when industry insiders said the company had started talks with investment banks about appointing advisers for the sale.

If it finds a buyer within its deadline of the next seven quarters, ConocoPhillips will take another step closer to winding down its northern activities and its joint partnership with Cenovus, which was launched with fanfare when it gained a holding in the Cenovus oil sands production in return for giving Cenovus access to its stable of heavy crude refineries in the U.S. Midwest and Texas.

The decision to cash out of Cenovus comes only four years after ConocoPhillips made a C$17.7 billion agreement to transfer its 50% stake in the Foster Creek and Christina Lake oil sands projects in Alberta to Cenovus.

That transaction gave ConocoPhillips 208 million Cenovus shares and C$14.4 billion in cash.

The Cenovus shuffles include its C$3.8 billion takeover of Husky Energy which have transformed the company into the third largest Canadian oil and natural gas producer by doubling its total output to 588,000 barrels of oil equivalent per day and the second largest Canadian-based refiner and upgrader.

Six years after its first round of layoffs during the oil price downturn, Cenovus is still targeting volume increase of 80,000 boe per day over the next two years.

ConocoPhillips Chairman and Chief Executive Officer Ryan Lance told investors his company will sell its Cenovus shares in the open market, using the proceeds to increase share buybacks, while grooming its plans to reduce debt by US$5 billion over the next five years.

Like many of its peers, ConocoPhillips is restraining future capital spending, notably in its prime drilling position in the Permian Basin, by limiting reinvestment to 70% of its cash flow.

Lance noted in a press release that ConocoPhillips has had a “momentous” first quarter of the 2021-22 fiscal year, including the closing of a US$11.4 billion all-share deal to acquire shale oil producer Concho Resources, joining the industry’s consolidation scramble.

It also reported a first quarter profit that beat Wall Street forecasts, generating cash flow from operations of US$2.1 billion, despite a US$1 billion hit from the unraveling of hedges of US$300 million and restructuring expenses.

- GARY PARK