ConocoPhillips has struck a deal to sell its stake in the Foster Creek Christina Lake (FCCL) oil sands partnership, plus most of its gas assets in Western Canada, for US$13.3 billion to Cenovus Energy, which holds the remainder of FCCL.
Cenovus will pay US$10.6 billion plus 208 million shares, which were worth US$2.7 billion as of March 28. Furthermore, it will receive contingent payments for five years when WCS prices exceed C$52 (US$39) per barrel. Closing of the sale is anticipated in the second quarter of the year.
ConocoPhillips will keep its 50% stake in the Surmont oil sands venture, where it works with Total, and its Blueberry-Montney acreage.
“This is a significant, win-win opportunity for ConocoPhillips and Cenovus,” said ConocoPhillips’ chairman and CEO, Ryan Lance. He went on to say it would cut the company’s debt to US$20 billion and allow it to double share repurchases, to US$6 billion.
“The transaction is accretive to our cash margins and lowers the average cost of supply of our portfolio, with no impact to our estimate of cash provided by operating activities at US$50 per barrel Brent price. We will retain upside to future oil price increases through our equity stake in Cenovus and an uncapped, five-year contingent payment.”
“This transformational acquisition allows us to take full control of our best-in-class oil sands projects and to add a second growth platform across the prolific Deep Basin that provides complementary short-cycle development opportunities," said Cenovus’ president and CEO, Brian Ferguson. "The acquisition is accretive and significantly increases Cenovus's growth potential. Going forward, we plan to focus capital spending on these two value platforms. At the same time, we intend to divest a significant portion of our legacy conventional assets to help fund the transaction."
The sale covers around 280,000 boepd net after royalty, of which two-thirds is liquids and one-third gas. Cenovus said production should reach 298,000 boepd in 2017. The reserves associated with the sale, as of the end of 2016, were 1.3 billion boe. The assets had a net book value of US$10.9 billion at the end of the year.
“Our stated plan was to accelerate our value proposition by reducing debt with asset sales,” Lance continued. “Clearly, this transaction significantly accelerates those efforts and provides an important catalyst that should allow investors to have clarity and confidence in our future direction.”
Cenovus announced a bought-deal offering to raise C$3 billion (US$2.25 billion) the same day, through the sale of 187.5 million shares, with net proceeds to go to the ConocoPhillips deal.
ConocoPhillips took a major write-down in its 2016 results on its Canadian oil sands reserves. Proven undeveloped reserves were cut from 3.02 billion barrels at the end of 2015 to 1.61 billion barrels at the end of 2016.
The FCCL venture covers three bitumen-producing projects – Foster Creek, Christina Lake and Narrows Lake – which use steam-assisted gravity drainage (SAGD). Cenovus, in February, signalled a more positive stance on Narrows Lake, where construction was delayed in 2015. The oil sands company said it would provide an update on costs and timing in June, at its investor day.