Photographer: Brent Lewin/Bloomberg

Canadian Natural Buys Cenovus's Pelican Lake for $787 Million

  • Assets in Alberta sold to Canadian Natural for $790 million
  • Analysts say sale price is mostly in line with expectations

Cenovus Energy Inc. agreed to sell its Pelican Lake heavy-oil project and other assets to Canadian Natural Resources Ltd. for C$975 million ($790 million) in the first deal to fund its purchase of ConocoPhillips assets.

The fields produce the equivalent of about 19,600 barrels of oil a day, Canadian Natural said in a statement Tuesday. Cenovus plans to use the cash to pay off part of the C$3.6 billion bridge loan it took to purchase ConocoPhillips’ Canadian operations earlier this year.

The sale is the first from a batch of assets Cenovus put on the block to help whittle down debt from the ConocoPhillips acquisition. The price it garnered may help calm investors’ fears that it wouldn’t be able to generate enough cash from the sales to pay off those borrowings.

“It’s a relief (in our view) to see that Cenovus was able to fetch a decent price for the asset,” Justin Bouchard, an analyst at Desjardins Securities Inc. in Calgary, said in a note to clients. He estimated the sale at eight times the asset’s cash flow.

Travis Wood, an analyst at National Bank of Canada, said the sale was at the top end of the range he’d estimated. Menno Hulshof at TD Securities and Chris Cox at Raymond James said the deal was in line with expectations.

The deal is the second major purchase for Canadian Natural this year, following its C$12.7 billion acquisition of most of Royal Dutch Shell Plc’s and Marathon Oil Corp.’s oil-sands production. The assets fit easily into its portfolio because the producer already runs similar operations and owns oil and gas fields in the Pelican Lake area.

Cenovus also is selling its Suffield oil and natural gas drilling project and its Palliser and Weyburn oil assets in Western Canada. The sale process for Suffield is well advanced, the company said. The sale to Canadian Natural is targeted to close on or before Sept. 30, the two Calgary-based companies said.

‘First Step’

“This represents a significant first step in our strategy to optimize our asset portfolio and de-leverage our balance sheet,” Cenovus Chief Executive Officer Brian Ferguson said in the statement. “The divestiture processes for the remainder of our legacy conventional assets are proceeding as expected, with strong interest from potential buyers.”

Cenovus shares rose 3.9 percent to C$10.34 at 11:35 a.m. in Toronto, while Canadian Natural gained 0.8 percent to C$39.03.

While investors cheered Canadian Natural’s purchase of Shell’s and Marathon’s oil-sands assets earlier this year, sending the Canadian producer’s shares up 10 percent the day it was announced, Cenovus’s ConocoPhillips deal has been widely panned, with the shares down more than 40 percent since.

— With assistance by James Herron

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