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Cenovus Energy and Husky Energy agree merger

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Oilfield Technology,

As reported by Reuters, Cenovus Energy has agreed to buy Husky Energy in an all-stock deal valued at CAN$3.8 billion (US$2.9 billion).

The combination, announced on Sunday, follows recent similar deals in the US. Concho Resources agreed this month to a takeover by ConocoPhillips for US$9.7 billion. That followed Chevron Corp's US$4.2 billion purchase of Noble Energy.

The deal makes Cenovus an integrated producer with refineries in Canada and the US, adding to their existing half-ownerships in two US refineries.

Acquiring refineries, pipelines and storage offered a solution to Canada’s often-congested pipelines, which have usually created price discounts, said Cenovus CEO Alex Pourbaix.

“In one fell swoop, this deal will almost completely remove our exposure to (West Texas Intermediate/Western Canada Select) differentials,” Pourbaix told analysts on Sunday, referring to the discounts.

Pourbaix said the deal did not come in response to the risk that oil pipelines will be more difficult to build if Democrat presidential nominee Joe Biden wins the White House.

After the deal closes, Cenovus shareholders would own 61% of the combined entity, with Husky shareholders controlling the rest. Hong Kong tycoon Li Ka-shing-controlled Hutchison Whampoa would hold a 15.7% stake in the new company.

Hutchison Whampoa is the biggest shareholder of Husky currently, with a 40.2% stake.

Cenovus’ deal for Husky is valued at CAN$23.6 billion, including debt, the companies said.

It is the biggest Canadian oil and gas deal in nearly four years, based on enterprise value, said Tom Pavic, president of Sayer Energy Advisors, which advises on M&A.

Cenovus said the deal would create Canada's third-largest producer based on total company output behind Canadian Natural Resources Ltd and Suncor Energy.

The combined company is expected to generate annual synergies of CAN$1.2 billion and will operate as Cenovus Energy Inc with headquarters in Alberta.

Pourbaix will serve as chief executive of the merged company with Jeff Hart, currently Husky’s finance chief, becoming chief financial officer.

Cenovus said the combined company will be able to produce 750 000 boe/d.

The transaction has been approved by the boards of both Cenovus and Husky and is expected to close in 1Q21, the companies said.

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