Cenovus buys Husky in $3.8B share transaction, signals consolidation trend in Canadian energy sector
CALGARY -- Cenovus Energy Inc. will merge with and acquire Husky Energy Inc. at a $23.6 billion price tag including debt, the Calgary-based companies announced jointly on Sunday.
Cenovus will keep its head offices in Calgary with CEO Alex Pourbaix at the head of the merged company, while acquiring Jeff Hart from Husky as chief financial officer.
"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," Pourbaix said in the statement.
"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."
The combined company will be the third largest Canadian oil and natural gas producer, and the second largest Canadian refiner, according to Cenovus’ leadership during Sunday’s announcement.
In a statement to CTV News, Energy Minister Sonya Savage said the merger didn't come as a surprise.
"Consolidation is not unexpected nor unprecedented in difficult economic times. We have no doubt Alberta’s oil and gas sector will be in a strong position in meeting post-pandemic global energy demand."
Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers, also shared the following statement on the deal:
We have seen the news today that Cenovus and Husky are creating a new integrated oil and natural gas company. In our current economic climate, and as the industry aims to play a key role in Canada’s economic recovery, companies are looking to the future, leveraging their strengths, lowering their costs, and making decisions to put themselves in a stronger position particularly as it relates to market access and overall competitiveness. Natural gas and oil demand is rebounding and that demand is projected to grow and remain consistent over the next couple of decades. There is significant opportunity for Canadian energy to fill that global demand, while providing economic benefits across our country.
Energy analysts say the consolidation is a sign of difficult economic times in addition to the COVID-19 pandemic.
"This is part of an ongoing trend we’ve seen in western Canada really since the beginning of the first price collapse back in 2014 and 2015," said Kevin Birn, vice president of North American crude oil markets for IHS Markit research firm
The Calgary-based analyst agreed with Savage's understanding of the situation.
"With the impact of COVID-19, and the shock of dramatic reduction in demand and the dramatic reductions in the oil price we expected MNA (mergers and acquisitions) to occur."
Birn says the transaction will cushion these oil and gas companies from the volatile price market, as now the new Cenovus will be able to manage its resource from extraction, to refining, to shipment.
He believes that there will be fewer players in the upstream side of production controlled by fewer parties.
There is some bad news coming from the merger as Birn expects jobs losses are likely.
"That means streamlining of teams over time as well and we’ll see those details come out over the next couple weeks," said Birn.
The news comes mere weeks after announced job cuts from other Calgary energy giants.
TC Energy Corporation, formerly known as TransCanada Corporation, signed a deal, which is expected to be finalized later this year, that will see Natural Law Energy purchase an equity stake in the Keystone XL pipeline.
TC Energy has not said how many jobs are on the the line in the late September announcement.
Suncor Energy says approximately 2,000 positions will be slashed from an estimated roster of 13,000 people.
Announced in October, the company says cuts will begin within the next six months by way of early retirements and voluntary severance packages, and will continue through and 18-month period.
The clearing out of Calgary office towers has resulted in another spike in vacancy rates.
The firm Avison Young recently reported that overall office vacancy is at 23.5 per cent — a record previously hit in 2017 and 2018.
CBRE reports Calgary’s office vacancy rate is 28.7 per cent.
A number of towers stand hollow, including the former Nexen building at just under 600,000 square feet and the former SNC Lavalin building at just under 120,000 square feet.
Husky is controlled by Hong Kong billionaire Li Ka-Shing through Hutchison Whampoa Europe, although the transaction will reduce the investment from 70 per cent to 27 per cent.
The Cenovus/Husky transaction has been approved by both boards but is subject to shareholder and regulatory approvals.
The deal is expected to close in the first quarter of 2021.
(With files from the Canadian Press)