Cenovus Energy’s $975M Pelican Lake sale a ‘first step’ to reducing debt burden

CALGARY – Investors and analysts offered measured praise Tuesday as Cenovus Energy (TSX:CVE) delivered the first of four key asset sales it has promised to help pay for its $17.7-billion purchase of most of the Canadian assets of ConocoPhillips.

The Calgary-based oilsands company announced it is selling its Pelican Lake heavy oil operations in northern Alberta for $975 million in cash to cross-town rival Canadian Natural Resources (TSX:CNQ). The deal is expected to close by the end of September.

Cenovus has been in the doghouse with investors since March 29 when it announced the acquisition of oilsands and conventional assets from Houston-based ConocoPhillips, along with a plan to raise $3 billion by issuing new shares and the marketing of its Pelican Lake and southern Alberta Suffield operations.

Its shares, which had fallen almost 43 per cent by last Friday, were up about three per cent Tuesday morning.

“This represents a significant first step in our strategy to optimize our asset portfolio and deleverage our balance sheet as planned following the acquisition of the ConocoPhillips assets,” said Cenovus CEO Brian Ferguson in a statement.

He added the company is seeing “strong interest” from potential buyers for its other assets. In June, the sales list was expanded to include its Palliser operations in southern Alberta and Weyburn oil assets in Saskatchewan.

Neither Ferguson nor Canadian Natural CEO Steve Laut were available for an interview.

In June, the company announced the unexpected retirement of Ferguson as of Oct. 31 and the launch of a search for a successor, moves linked by analysts to the market’s dislike for the ConocoPhillips deal.

Analysts said the Pelican Lake price of about $50,000 per daily barrel of production matched their expectations.

“(Cenovus) gets credit for getting the first of four targeted deals across the line,” said Menno Hulshof of TD Securities in a report, adding the announcement is “a step in the right direction in restoring market confidence.”

Pelican Lake is producing about 19,600 barrels per day of heavy oil. The three other packages Cenovus is trying to sell produce the equivalent of about 85,000 barrels of oil per day.

In a note, analyst Travis Wood of National Bank Financial estimated Cenovus could raise $2.8 billion from the three other packages.

The company has indicated it might also sell other “non-core” assets. It said the Pelican Lake funds would be used to pay down a $3.6-billion bridge loan facility used in the ConocoPhillips deal.

Analyst Nick Lupick of AltaCorp Capital said Tuesday’s purchase will boost Canadian Natural’s Pelican Lake oil production to about 66,500 barrels per day and includes Cenovus’s 38 per cent interest in the Pelican Lake sales pipeline, making Canadian Natural the sole owner.

The production addition is not considered material for Canadian Natural.

It reported achieving output of more than one million barrels equivalent per day in June after it closed its $12.74-billion purchase of Alberta oilsands assets from Royal Dutch Shell and Houston-based Marathon Oil.

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