Cenovus Energy Inc. is set to expand its existing steam-driven oilsands assets through a $5.7 billion cash-and-stock agreement to acquire Athabasca Oil Corp. The company’s CEO stated that recent government policy changes will facilitate increased production from the acquired properties.
Currently, Athabasca produces 40,000 barrels per day of oilsands, but Cenovus aims to boost this to 115,000 barrels by 2032.
During a conference call with analysts on Monday, CEO Jon McKenzie highlighted the significant growth potential within the Canadian oilsands sector offered by the acquisition.
The acquisition announcement follows the federal government’s decision to categorize a proposed million-barrel-per-day pipeline from Alberta to British Columbia as a national interest project. This designation paves the way for a streamlined regulatory review under the Major Projects Office.
Concerns had been raised regarding whether Cenovus and other oilsands companies would commit to sufficient production growth to fill the anticipated pipeline capacity by its operational start in 2032, along with other upcoming pipeline expansions.
McKenzie commended the federal and Alberta governments for taking positive actions to enhance the sector’s competitiveness, particularly benefiting growth projects like those at Leismer and Corner, two assets from Athabasca that will be integrated into Cenovus’ portfolio.
The recent announcement by Prime Minister Mark Carney allowing businesses to immediately deduct a broader range of investments against taxes was noted by McKenzie as a factor that could accelerate growth opportunities.
Additionally, McKenzie mentioned upcoming royalty incentives by the Alberta government, expected to be unveiled in November, to spur more oilsands production.
Under the terms of the agreement, Athabasca shareholders can choose between receiving $12 in cash or 0.264 of a Cenovus common share for each share held, subject to cash and shares availability limits.
Analysts view the acquisition favorably, with Desjardins Securities analyst Robert Mann describing it as strategically compelling due to the scarcity and quality of the acquired thermal assets, along with the positive outlook for oilsands development.
Michael Berger, a senior analyst at Enverus Intelligence Research, highlighted the premium paid by Cenovus for the Athabasca deal compared to previous transactions, reflecting a reevaluation of Canadian oilsands producers in the global oil landscape.
Notably, Cenovus’ recent acquisition of MEG Energy for $8.6 billion further consolidated oilsands ownership among major players like Cenovus, ConocoPhillips, Canadian Natural Resources Ltd., Suncor Energy Inc., and Imperial Oil Ltd.
Energy research firm Wood Mackenzie reported that this acquisition elevates Cenovus’ share of total oilsands output to 21.5%, contributing to the ongoing consolidation of oilsands ownership among a few large Canadian companies.
The deal is expected to close in December, pending customary closing conditions, regulatory approvals, and shareholder consent, according to Cenovus.
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