Cenovus agrees to sell Palliser assets for US$1 billion

19 October 2017, Week 41, Issue 480

Cenovus Energy has struck a deal to sell its Palliser oil and gas assets to Torxen Energy and Schlumberger for C$1.3 billion (US$1.0 billion). This is the third asset sale being carried out by Cenovus since the start of September, as it seeks to pay down its C$3.6 billion (US$2.9 billion) asset-sale bridge facility following its C$17.7 billion purchase of ConocoPhillips’ Canadian assets earlier this year.

Oilfield services giant Schlumberger said in an October 19 statement that it would be the majority non-operating owner of the Palliser Block assets, while Canada-based Torxen would be the operator. The companies are planning to carry out a multi-year drilling programme at Palliser involving over 1,600 oil wells starting in 2018.

The Palliser assets include oil and gas wells, surface facilities, a pipeline network, and roughly 800,000 acres (3,237 square km) of oil and gas development rights, Schlumberger said. The assets are currently producing about 54,000 boepd. The block borders acreage that was awarded to the Schlumberger Production Management (SPM) and Torxen joint venture, established earlier this year, according to the statement.

“By leveraging our reservoir knowledge, oilfield services technology and project management expertise, we expect to lower development costs and maximise the value of this asset – in a market where our traditional business model is challenged to deliver the required financial returns,” Schlumberger’s executive vice president of new ventures, Patrick Schorn, said.

The deal is anticipated to close in the fourth quarter of this year.

For Cenovus, the deal follows its agreement to sell its Suffield oil and gas operations in Southern Alberta to International Petroleum for C$512 million (US$410 million), announced on September 25. This deal is also due to close in the fourth quarter.

Prior to that, on September 5, the company announced the sale of its Pelican Lake heavy oil operations in Northern Alberta for C$975 million (US$781 million) in cash to Canadian Natural Resources Ltd (CNRL). That sale closed on September 29.

Cenovus said in an October 19 statement that the proceeds from the Pelican Lake sale were used to retire the first tranche of the asset-sale bridge facility and to pay down a portion of the second tranche. Proceeds from the Palliser and Suffield sales will be applied against the outstanding balance of the bridge facility, the company added.

“Our strategy to optimise our portfolio by selling non-core assets and using the proceeds to pay down debt is firmly on track,” said Cenovus’ president and CEO, Brian Ferguson. “We continue to target between C$4 billion and C$5 billion [US$3 billion and US$4 billion] in announced asset sale agreements by the end of the year, and we remain committed to returning to our long-term debt ratio target.”

Cenovus is aiming to be below two times net debt to adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA).

The company also said that it would still pursue the sale of its Weyburn carbon dioxide (CO2) enhanced oil recovery (EOR) assets in Saskatchewan, and anticipated reaching a sale agreement for them in the fourth quarter of 2017. Cenovus has certain other non-core assets that it said were currently being evaluated for potential sale.

The company’s total proceeds from the asset sales announced so far this year stand at around C$2.8 billion (US$2.2 billion), which is C$1.2 billion (US$961 million) short of the lower end of its target. This implies a hefty price tag for the Weyburn project, a Raymond James analyst, Chris Cox, said in a research note.

“We continue to believe that [Cenovus] will struggle to achieve the low end of its C$4-5 [billion] target for proceeds from the legacy conventional assets,” Cox said.

However, a Barclays analyst, Paul Cheng, noted that the Palliser sale would “significantly allay concerns that the company may not reach its asset sales target by the end of this year”. The company has “tangible momentum” in lowering its debt load, he added.


Edited by

Anna Kachkova


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