Cenovus Energy (TSX:CVE) made a splash in the oil patch Wednesday with a $17.7-billion deal to buy a big chunk of us -based ConocoPhillips's oilsands assets, doubling the size of the Calgary-based company in the process.
Cenovus Energy (CVE -11.5%) slumps to 52-week lows following its purchase of ConocoPhillips' (COP +8.7%) Canadian assets catapults, which catapults the company into the top three in the oil sands but the amount of debt it is taking on is raising red flags.
Alberta's oilsands, the third-largest proven oil reserves in the world, are also among the most costly and carbon-intensive to produce from.
Either way, they're a drain on many balance sheets, with the product now selling at about $37 per barrel.
Investors are calling ConocoPhillips a big victor here. The shares already were down 14 percent this year through yesterday.
The company says the transaction is expected to close in the second quarter of 2017.
But the tar baby isn't completely gone.
Total proceeds from the transaction total $13.3 billion before general agreements, consisting of the following considerations: $10.6 billion of cash, payable at closing; and 208 million Cenovus shares, valued at $2.7 billion on March 28, 2017.
Surmont is a joint venture oil-sands project with French oil giant Total with capacity of about 140,000 bpd. Prime minister Justin Trudeau was elected over Stephen Harper over the objections of Alberta voters, and his January statement that production from the oil sands must be "phased out", while quickly walked back, was seen as a signal to sell.
Conoco became the latest non-Canadian oil explorer to bail on Canada, following Marathon Oil (MRO), Royal Dutch Shell (RDS.A), and Murphy Oil (MUR).
The new assets allow Cenovus "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 Brian Ferguson, Cenovus chief executive officer. In that split, Encana retained most of the previous company's natural gas assets, while Cenovus held the oil assets.
Ryan Lance, ConocoPhillips chairman and CEO, said the transaction will make an immediate impact on the company's value proposition by allowing it to reduce debt to $20 billion and double share repurchases to $6 billion from $3 billion.