Cenovus' acquisition of Husky to form Canada's 3rd-largest oil and gas producer

Cenovus Energy Inc has agreed to buy rival Husky Energy Inc in an all-stock deal valued at $2.9 billion to create Canada's third-largest oil and gas producer as a pandemic-driven collapse in demand forces the industry to consolidate.

Only Canadian Natural Resources Ltd and Suncor Energy Ltd. would be larger than the new company.

The deal also makes Cenovus an integrated producer with refineries in Canada and the US, adding to their existing half-ownerships in two US refineries.

Husky shareholders will get 0.7845 of a Cenovus share and 0.0651 of a Cenovus share purchase warrant for each Husky common share.
Cenovus shareholders would own 61 percent of the combined entity, with Husky shareholders controlling the rest.

Hutchison Whampoa, the biggest shareholder of Husky with a 40.2 percent stake, would hold a 15.7 percent share in the new company.

The agreement follows recent big US deals with ConocoPhillips $9.7 billion acquisition of Concho Resources and Chevron Corp.'s $4.2 billion purchase of Noble Energy.

Canadian oil companies have been under stress for six years due to congested pipelines and the flight by foreign oil companies and investors from the country’s high production costs and emissions.

Consolidation makes the Canadian industry leaner and lowers costs, said Jackie Forrest, executive director at the ARC Energy Research Institute, adding that deal-making is likely just getting started.

According to Cenovus CEO Alex Pourbaix, acquiring refineries, pipelines and storage offered a solution to Canada’s often-congested pipelines, which have usually created price discounts.

Pourbaix added that the deal would almost completely remove their exposure to West Texas Intermediate/Western Canada Select differentials.

Pourbaix denied that the deal was in response to the risk that oil pipelines will be more difficult to build if Joe Biden wins the US presidency.