Cenovus to buy Husky as Canada oil sands consolidate

Canadian oil sands producer Cenovus Energy agreed to acquire rival producer Husky Energy in a C$3.8 bn ($2.9 bn) all-stock transaction that would create the country's third largest producer of oil and natural gas.

The combination would boost Cenovus' production to about 750,000 b/d of oil equivalent (boe/d), from 475,000 boe/d currently. It also would make Cenovus the second largest Canada-based refiner and upgrader, more than doubling the company's North American refining and upgrading capacity to about 660,000 boe/d from 250,000 boe/d currently.

Combining Cenvous' in-situ oil sands production with Husky's North American upgrading, refining and transportation assets is designed to create a lower cost, more integrated company as Alberta's oil sands region endures broad declines in heavy crude production. The Covid-19 pandemic has sapped demand and resulted in shut-ins and financial losses at Cenvous, Husky and others.

The deal would nearly double Cenovus' takeaway capacity from Alberta's oil sands producing region, adding 130,000 b/d to the company's existing 135,000 b/d, with another 305,000 b/d of committed capacity on pipelines planned by the two companies. The combined company would have 16mn bl of crude storage capacity, up from 10mn bl currently.

Cenovus also gains Husky's natural gas production interests in Asia Pacific.

The companies are targeting $1.2bn in annual cost savings from the combination, to be largely achieve in the first year.

"We will be a leaner, stronger and more integrated company, exceptionally well-suited to weather the current environment and be a strong Canadian energy leader in the years ahead," Cenvous chief executive Alex Pourbaix said.

Including the assumption of Husky's debt, the deal is valued at $C23.6 bn, the companies said today. The deal is expect to close in the first quarter.

By Jack Kaskey