Cenovus closes in on paying off Conoco deal with asset sale

By Meenal Vamburkar and Kevin Orland on 10/20/2017

NEW YORK and CALGARY (Bloomberg) -- Cenovus Energy Inc. agreed to sell its Palliser crude field to Schlumberger Ltd. and Torxen Energy for C$1.3 billion ($1.04 billion), advancing efforts to pay down debt from its oil-sands mega deal earlier this year.

With the Palliser sale, Cenovus has announced about C$2.8 billion in divestitures to help pay off a C$3.6 billion bridge loan used to purchase ConocoPhillips’ Canadian operations in March. Calgary-based Cenovus is targeting C$4 billion to C$5 billion in divestitures this year, and is still marketing its Weyburn operation in Saskatchewan.

The Palliser divestiture in southern Alberta “will significantly allay concerns that the company may not reach its asset sales target by the end of this year,” Paul Cheng, an analyst at Barclays Plc, said in a research note. The company has “tangible momentum” in lowering its debt load.

Cheng said the sale price in line with analysts’ expectations, a sentiment echoed by Greg Pardy at Royal Bank of Canada, Chris Cox at Raymond James & Associates Inc., Justin Bouchard at Desjardins Capital Markets and Dennis Fong at Canaccord Genuity Group Inc. The cash deal is expected to close in the fourth quarter, according to a company statement released Thursday.

The Conoco deal doubled Cenovus’ reserves and production but tied the company heavily to one of the costliest methods of producing oil. The subsequent divestiture process has been closely watched by investors concerned that low energy prices may reduce Cenovus’s proceeds.

Schlumberger venture

Schlumberger, the world’s largest oilfield-services provider, will be majority owner in Palliser while closely held Torxen will be in charge of operations, according to a separate statement released by the buyers. Torxen is led by CEO John Brannan, who served as chief operating officer of Cenovus until March 2016, according to the executive’s LinkedIn profile.

The partners plan to drill more than 1,600 wells on the Palliser tract, which covers 800,000 acres and borders acreage already held by a Torxen-Schlumberger joint venture. Palliser wells are currently producing the daily equivalent of about 54,000 bbl of oil.

Cenovus agreed last month to sell its Suffield operations in southern Alberta to International Petroleum Corp. for C$512 million in cash. Cenovus previously announced the sale of its Pelican Lake heavy oil operations in northern Alberta for C$975 million to Canadian Natural Resources Ltd.

Aside from marketing its Weyburn property, Cenovus has said it is open to selling other assets such as gross overriding royalties and assets in Alberta’s Deep basin.

“Our strategy to optimize our portfolio by selling non-core assets and using the proceeds to pay down debt is firmly on track,” CEO Brian Ferguson said in the statement.

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