Canadian oil and gas companies Cenovus Energy and Husky Energy have signed an all-stock merger deal worth around CAD3.8bn ($2.9bn).
The combination will establish a new integrated oil and natural gas company based in Canada with an enterprise value of CAD23.6bn ($17.97bn), inclusive of debt.
Cenovus Energy will be the surviving entity post-merger with headquarters in Calgary, Alberta.
Through a production of nearly 750,000 barrels of oil equivalent per day (BOE/d), the new Cenovus Energy is expected to become the third-largest oil and natural gas producer in Canada.
The enlarged Cenovus Energy will also go on to become the second-largest refiner and upgrader in the country with an upgrading and refining capacity of 660,000BOE/d.
According to the companies, their combination is less exposed to Alberta oil pricing while having a healthy exposure to global commodity prices.
Currently, Cenovus Energy is engaged in oil sands projects in northern Alberta in Canada. It is also active in production of natural gas and oil in Alberta and British Columbia, besides having stakes of 50% each in two US refineries.
Husky Energy’s operations span across Western and Atlantic Canada, the US, and Asia Pacific.
The combination of the two energy firms is anticipated to be stronger, more competitive, efficient, and also profitable than either of them operating independently.
Besides, the combination is expected to make use of market opportunities by bringing together high-quality and low-cost oil sands and heavy oil assets with vast midstream and downstream infrastructure.
Cenovus Energy president and CEO Alex Pourbaix said: “We will be a leaner, stronger and more integrated company, exceptionally well-suited to weather the current environment and be a strong Canadian energy leader in the years ahead.
“The diverse portfolio will enable us to deliver stable cash flow through price cycles, while focusing capital on the highest-return assets and opportunities. The combined company will also have an efficient cost structure and ample liquidity.”
Terms of the Cenovus Energy, Husky Energy merger
The all-stock deal will see Husky Energy’s shareholders issued with 0.7845 of Cenovus Energy’s shares plus 0.0651 of a Cenovus Energy’s share purchase warrant for each of the common shares they hold in the former.
Post-merger, the original shareholders of Cenovus Energy will hold a stake of around 61% in the combined company, while shareholders of Husky Energy will own the remaining stake of nearly 39%.
Husky Energy president and CEO Rob Peabody said: “Bringing our talented people and complementary assets together will enable us to deliver the full potential of this resilient new company.
“The integration of Cenovus’s best-in-class in situ oil sands assets with Husky’s extensive North American upgrading, refining and transportation network and high netback offshore natural gas production, will create a low-cost competitor and support long-term value creation.”
The deal, which is subject to shareholder approvals for both the companies, receipt of regulatory approvals, and approval of the Court of Queen’s Bench of Alberta, is expected to close in Q1 2021.
