Cenovus signs $13.3-billion deal with ConocoPhillips for oil sands, other Canadian assets

Cenovus Energy Inc., Calgary, has agreed to acquire ConocoPhillips’ 50% interest in the companies’ jointly owned Foster Creek Christina Lake (FCCL) oil sands partnership as well as the majority of the Houston independent’s Deep basin conventional assets in Alberta and British Columbia for $13.3 billion, including $10.6 billion in cash and 208 million Cenovus common shares valued at $2.7 billion.

The assets altogether have forecast 2017 production of 298,000 boe/d, more than doubling Cenovus’ overall production to 588,000 boe/d. The firm’s oil sands output is projected to double to 356,000 b/d and its conventional oil and gas output is expected to more than double to 232,000 boe/d. The deal also more than doubles Cenovus’ proved plus probable reserves to 7.76 billion boe as of Dec. 31, 2016.

With 100% ownership of the FCCL partnership assets, Cenovus says it will receive “the full benefit of its plan to resume construction on the Phase G expansion at Christina Lake.” The firm believes the expansion can be completed with go-forward capital investment of $12,000-13,600/flowing bbl. Module assembly has already resumed for Phase G, which has a design capacity of 50,000 b/d. Field construction is expected to ramp up to full activity by midyear, with the start of production expected in second-half 2019.

Cenovus in June intends to provide an update on its plans for Foster Creek Phase H and Narrows Lake Phase A, including expectations for capital costs and timing for each project. Foster Creek Phase H has a design capacity of 30,000 b/d, and Narrows Lake Phase A has a design capacity of 45,000 b/d.

On a pro forma, wholly owned basis, Christina Lake production is expected to average 198,000 b/d in 2017. Phases A-F have current production capacity of 210,000 b/d and are expected to reach 310,000 b/d with full regulatory approval. Production at Foster Creek, on a pro forma, wholly owned basis, is expected to average 158,000 b/d in 2017. Phases A-G have current production capacity of 180,000 b/d and are expected to reach 295,000 b/d with full regulatory approval.

Phase A of Cenovus' wholly owned Narrows Lake Project A is planned as a commercial steam-assisted gravity drainage project with implementation of a solvent-aided process that is expected to reduce the amount of steam required to recover a barrel of oil by 30%, while increasing ultimate recovery factors by up to 15%, Cenovus says. Narrows Lake has full regulatory approval to reach production capacity of 130,000 b/d. Proved plus probable reserves were 1 billion bbl as of Dec. 31, 2016.

“With two recently completed expansion phases ramping up, construction resuming at Christina Lake Phase G, potential restarts at Foster Creek and Narrows Lake in 2018 and 2019, and full ownership of the FCCL asset base, we have a clear line of sight to 5 years of growth that should take our oil sands production capacity to over half a million barrels per day,” explained Brian Ferguson, Cenovus president and chief executive officer.

Opportunity beyond oil sands

“In addition, we’re acquiring a hard-to-replicate position in the highly economic, liquids-rich Deep basin, providing another platform to generate significant additional production and adjusted funds flow growth throughout our current 3-year business plan and beyond,” Ferguson said.

Cenovus intends to spend about $130 million this year on the acquired Deep basin assets, which comprise 1.3 million net acres across the core Elmworth-Wapiti, Kaybob-Edson, and Clearwater operating areas. The firm says the “assets have been capital constrained in recent years, resulting in a low-decline production base with significant upside development potential.”