Cenovus Energy Inc. and Husky Energy Inc. have agreed to merge in an all-stock transaction valued at $23.6 billion, inclusive of debt.
The combine, to operate as Cenovus Energy Inc. and remain headquartered in Calgary, Alta., will have low exposure to Alberta oil pricing, maintain exposure to global commodity prices, and unite high-quality and low-cost oil sands and heavy oil assets with extensive midstream and downstream infrastructure, the companies said in a combined statement.
The newly formed company will be the third largest Canadian oil and natural gas producer based on total company production with about 750,000 boe/d of low-cost oil and natural gas production, including 50,000 boe/d of high free funds flow generating offshore Asia Pacific production. It will be the second largest Canadian-based refiner and upgrader, with total North American upgrading and refining capacity of 660,000 b/d, which includes 350,000 b/d of heavy oil conversion capacity. The company will have access to about 265,000 b/d of current takeaway capacity out of Alberta on existing major pipelines, as well as about 305,000 b/d of committed capacity on planned pipelines. In addition, it will have 16 million bbl of crude oil storage capacity as well as crude-by-rail assets that provide takeaway optionality.
The combined company is expected to generate an incremental $1.2 billion of annual free funds flow, comprised of $600 million in annual corporate and operating synergies and $600 million in annual capital allocation synergies, achievable independent of commodity prices. Most of the annual savings are anticipated to be achieved in the first year of combined operations, with the full amount of the annual run rate synergies realized within year two. The companies anticipate additional future savings based on opportunities for further physical integration of the upstream and downstream heavy oil assets.
The anticipated $600 million in annual corporate and operating cost synergies will be achieved through reductions to combined workforce and corporate overhead costs including streamlined IT systems and procurement savings through economies of scale. Immediate efficiencies are also expected from applying Cenovus’s operating expertise to Husky’s oil sands assets, leveraging scale in the Deep basin, and pursuing commercial and contract-related efficiencies on midstream marketing and blending opportunities.
The company is expected to sustain production levels and downstream operations with an anticipated annual capital investment of $2.4 billion, a reduction of more than $600 million/year compared with what would be required by the two companies on a standalone basis.
At closing, the combined company is expected to have ample liquidity with $8.5 billion in undrawn committed credit facilities and no bond maturities until 2022.
Alex Pourbaix, currently president and chief executive officer of Cenovus, will serve as chief executive officer of the combined company. Jeff Hart will serve as chief financial officer, Jon McKenzie will serve as chief operating officer, and Keith MacPhail will serve as independent board chair.
The transaction has been unanimously approved by both boards of directors and is expected to close in first-quarter 2021, but remains subject to shareholder approvals, regulatory approvals, as well as the approval of the Court of Queen’s Bench of Alberta.