Cenovus CEO Alex Pourbaix speaks at a news conference in Calgary on January 30, 2020. THE CANADIAN PRESS/Jeff McIntosh

Cenovus to buy Husky Energy for $3.8 billion in shares, CEO will be Alex Pourbaix

Cenovus to buy Husky Energy for $3.8 billion in shares, CEO will be Alex Pourbaix

CALGARY — A surprise move by Cenovus Energy Inc. to buy rival Husky Energy Inc. for $3.8 billion in shares will create the third-largest Canadian oil and natural gas producer by total production, the companies announced Sunday.

The all-stock transaction was cast as a $23.6-billion deal by the Calgary-based companies by including the value of Cenovus and net debt, reported at the end of the second quarter as $8.2 billion for Cenovus and $5.1 billion for Husky.

The combined company will be better able to weather energy market volatility while generating more cash flow, reducing debt and cutting overall costs, said Cenovus CEO Alex Pourbaix, who will head the merged entity.

“It is unique for the assets of two companies to complement each other this well,” he said on a conference call on Sunday.

“We’re bringing together Cenovus’s top-tier (steam-driven oilsands) assets at Foster Creek and Christina Lake with Husky’s extensive refining and upgrading network.”

Husky CEO Rob Peabody added it’s the “start of a new chapter.”

“Over the past several months as we worked together on this transaction, from a value and strategic perspective, the merits and overall fit have become abundantly clear,” he said on the call.

Combining the companies will create annual savings of $1.2 billion, largely achieved within the first year and independent of commodity prices, the companies said.

That’s bad news for Calgary office workers as about $400 million of the savings are expected to come from “workforce optimization,” along with savings from IT and procurement, said Pourbaix, though he did not explicitly say there would be job losses.

“When you combine two companies with similar geographies and somewhat similar operations, you’re always going to have some overlap … in this case, there would probably be relatively a little more weight on the head office functions, just because we aren’t quite as overlapping in the field,” he said.

He added about $200 million in savings will come from sharing technical expertise and the other $600 million through better use of capital by focusing on assets with higher return potential.

The combined companies are expected to be able to sustain output at about 750,000 barrels of oil equivalent per day for about $2.4 billion a year, 25 per cent less than required separately, Pourbaix said.

Husky is controlled by Hong Kong billionaire Li Ka-Shing through Hutchison Whampoa Europe Investments SARL, with 40.1 per cent, and L.F. Investments SARL, which holds 29.32 per cent of the company’s common shares.

Both entities have agreed to support the transaction, which will leave them with about 27.2 per cent of the merged company. They’ve also agreed to a standstill agreement under which they are subject to certain voting requirements and transfer restrictions for a maximum of five years.

The merger combines Cenovus production of about 475,000 boe/d with Husky’s 275,000 boe/d and their combined refining and upgrading capacity is expected to total about 660,000 barrels per day (Cenovus 250,000 bpd, Husky 410,000 bpd).

Cenovus owns 50 per cent of two U.S. refineries in Illinois and Texas in partnership with Phillips 66, and Husky owns a refinery in Lima, Ohio, and is a 50-50 partner with BP in a refinery in Toledo, Ohio.

Husky also has an upgrader and asphalt refinery near Lloydminster on the Alberta-Saskatchewan border — which could be used to process Cenovus bitumen in future — and is repairing a refinery in Wisconsin after a fire in 2018.

Husky has production from a deepwater gas project offshore China with Chinese partner CNOOC Ltd., produces oil offshore Newfoundland and Labrador and owns a chain of retail fuel stations.

Peabody said on the call that Husky has decided to cancel spending in 2021 on its partly completed $2.2-billion West White Rose offshore oil project. In September, it said it was reviewing the project while asking for direct investment from the federal government and the province of Newfoundland and Labrador.

Cenovus owns a crude-by-rail terminal northeast of Edmonton.

The merged company is expected to break-even on a free funds flow basis at West Texas Intermediate pricing of US$36 per barrel in 2021, and at less than WTI US$33 per barrel by 2023.

The transaction has been approved by both boards and is expected to close in the first quarter of 2021, pending shareholder and regulatory approvals.

Husky shareholders will receive 0.7845 of a Cenovus share plus 0.0651 of a Cenovus share purchase warrant in exchange for each Husky common share.

The combined company’s board of directors is to be made up of eight Cenovus appointees and four from Husky.

This report by The Canadian Press was first published Oct. 25, 2020.

Companies in this story: (TSX:CVE, TSX:HSE)

Dan Healing, The Canadian Press

oil & gas

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Prime Minister Justin Trudeau leaves the House of Commons on Parliament Hill in Ottawa, on Monday, Nov. 30, 2020. THE CANADIAN PRESS/Justin Tang
Conservatives push for parliamentary committee study into failed vaccine deal

OTTAWA — The federal Conservatives are calling for a parliamentary committee to… Continue reading

Trail RCMP report three impaired driving investigations. Photo: Black Press file
New drunk driving rules allow police to impose tougher penalties immediately

New impaired driving regulations started on Tuesday

(Lacombe Express file photo)
Lacombe County holds the line on taxes

Staff hiring freeze planned for 2021 to make up for lost oil and gas revenue

Alberta premier Jason Kenney declared a public health state of emergency Tuesday and sweeping new measures as COVID-19 cases in the province continue to rise.  (photo by Chris Schwarz/Government of Alberta)
Alberta premier says hospitals stressed by COVID-19, more surgeries may be cancelled

EDMONTON — Premier Jason Kenney says Alberta’s largest hospitals are at 91… Continue reading

Idyllic winter scenes are part of the atmosphere of the holiday season, and are depicted in many seasonal movies. How much do you know about holiday movies? Put your knowledge to the test. (Pixabay.com)
QUIZ: Test your knowledge of holiday movies and television specials

The festive season is a time for relaxing and enjoying some seasonal favourites

Toronto police respond to an incident at St. Michael’s College School, in Toronto, Nov. 19, 2018. The trial of a teen accused of sexually assaulting two students at a prestigious Toronto high school is set to resume today. THE CANADIAN PRESS/Tijana Martin
Trial resumes for teen accused in St. Michael’s College School sex assault case

Defence lawyers for a teen accused of sexually assaulting two students at… Continue reading

Minister of Health Patty Hajdu responds to a question during question period in the House of Commons on Parliament Hill in Ottawa on Monday, Nov. 30, 2020. The Trump administration is keeping silent about Canada blocking its plan to import prescription drugs from north of the border. THE CANADIAN PRESS/Sean Kilpatrick
Trump admin silent after Hajdu pushes back on U.S. plan to raid Canada’s drug cabinet

WASHINGTON, D.C. — The Trump administration is keeping silent about Canada blocking… Continue reading

Quebec City mayor Regis Labeaume, right, speaks at the inauguration of a memorial to the 2017 mosque shooting, Tuesday, December 1, 2020 in Quebec City. From the left, Luce Pelletier, artist who designed the memorial, MP Joel Lightbound, Boufeldja Benabdallah, and MNA Joelle Boutin.THE CANADIAN PRESS/Jacques Boissinot
Quebec City’s memorial to 2017 mosque shooting victims symbolizes defeat of hatred

Quebec City has inaugurated a memorial to the victims of the 2017… Continue reading

A scene from last year’s Light the Night fundraiser at the Stettler Town and Country Museum. This year’s rendition is on a drive-through basis only, but it still promises to be a not-to-be-missed seasonal highlight. (Independent file photo)
Stettler Town and Country Museum hosts ‘Light the Night’

This year’s rendition is drive-through only, but will still prove to be a dazzling display

Opinion piece
Opinion: A down payment on recovery, details to come

Just to be clear: Justin Trudeau’s government has not acquired the ability… Continue reading

(Black Press File Photo)
Rimbey woman gathering Christmas gifts for seniors at Valleyview Manor

Margaret Tanasiuk says she doesn’t want anyone to feel forgotten on Christmas morning

Mike Miltimore, seen in Kamloops, B.C., in an undated handout photo, says the Gretsch electric guitar that a woman brought into his store is from 1955 and similar to one played by country music legend Chet Atkins before he developed his signature series of guitars. THE CANADIAN PRESS/HO-Mike Miltimore
Guitar made in 1950s worth more than B.C. family imagined

KAMLOOPS, B.C. — When Renee Latheur decided to take an old guitar… Continue reading

Lewis Hamilton won the German Grand Prix after Sebastian Vettel crashed while leading near the end. (Photo by THE ASSOCIATED PRESS)
Hamilton positive for COVID-19, will miss F1’s Sakhir GP

SAKHIR, Bahrain — Seven-time Formula One champion Lewis Hamilton has tested positive… Continue reading

Most Read