With coronavirus cases again surging around the globe, Canada’s oil industry continues to struggle as oil prices continue to spiral downward – a trend that threatens to send oil prices back below $40.
Even before the pandemic began, Alberta was already having problems with severe pipeline bottlenecks that limited exports from its oil sands. According to Yahoo Finance, Husky’s shares are down about 84 percent over the past five years, while Cenovus has dropped 74 percent.
This latest deal is but one of several that have occurred as oil companies consolidate to avoid the total collapse of the crumbling sector. Earlier this month, Concho Resources Inc agreed to be taken over by ConocoPhillips for $9.7 billion. That merger followed Chevron Corp’s $4.2 billion purchase of Noble Energy, per Reuters.
According to a company presentation, Cenovus will own 61 percent of the new company, while Husky will hold a 39 percent stake. Hong Kong billionaire Li Ka-Shing’s CK Hutchison Holdings, the main shareholder in Husky, will own about 27 percent.
In the deal, Husky shareholders will receive 0.7845 of a Cenovus share and 0.0651 of a Cenovus share purchase warrant in exchange for each Husky common share. The combination is valued at C$23.6 billion when debt is included, according to the statement. The deal gives Husky an enterprise value of approximately C$10.2 billion.
“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,” said Alex Pourbaix, Cenovus President and Chief Executive Officer. “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. All of this supports strong credit metrics, accelerated deleveraging, and an enhanced ability for return of capital to shareholders.”
Rob Peabody, Husky President, and Chief Executive Officer said, “Bringing our talented people and complementary assets together will enable us to deliver the full potential of this resilient new company. The integration of Cenovus’s best-in-class in situ oil sands assets with Husky’s extensive North American upgrading, refining and transportation network and high netback offshore natural gas production, will create a low-cost competitor and support long-term value creation.”
The transaction has been unanimously approved by the boards of directors of Cenovus and Husky and is expected to close in the first quarter of 2021, the companies said.
