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MEG shareholders approve Cenovus deal

  • : Crude oil
  • 25/11/06

MEG Energy shareholders today approved selling the Canadian oil sands producer to larger rival Cenovus Energy, clearing the way for the merger to close by year-end.

The vote in favor of the cash-and-stock deal that values MEG at about C$8.6bn ($6.2bn) brings an end to a lengthy pursuit of the oil sands company by Cenovus and Strathcona Resources. All three companies are based in Calgary, Alberta.

The deal was approved by "more than 86pc of the votes," MEG board chair James McFarland said during Thursday's shareholders meeting. Two-thirds support was required for the transaction to go through.

Cenovus is among the largest oil sands producers and will grow to 750,000 b/d of output in the region after acquiring MEG's 110,000 b/d Christina Lake asset. Cenovus' neighbouring Christina Lake project to the southwest is one of the biggest oil sands projects in the industry at about almost 250,000 b/d.

Cenovus's overall third quarter production came in at 833,000 b/d of oil equivalent (boe/d), including production outside of the oil sands region.

Cenovus executives plan to increase output at MEG's Christina Lake asset to 150,000 b/d by the end of 2028, more than the 135,000 b/d targeted by MEG's management. Cenovus would do this by utilizing unused oil treating capacity along with adding a sixth steam generator that it has in inventory.

Cenovus said it expects C$150mn in annual cost savings from the deal in the near-term, rising to C$400mn/yr in 2028 and beyond.

MEG's second-largest shareholder, Strathcona Resources, put the company in play with a hostile takeover bid earlier this year before Cenovus swooped in to strike a deal.

Strathcona with its 14.2pc share of MEG vowed to vote against the Cenovus-MEG deal and those votes were key with Cenovus admitting on 21 October it had come up short of the two-thirds support required. Since then, Strathcona dropped its bid and made a side deal with Cenovus to throw its support behind the proposed transaction.


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