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Cenovus to buy Husky Energy in $23.6B dollar deal

The Cenovus logo seen at the company's headquarters in Calgary, Alta., on November 15, 2017. THE CANADIAN PRESS/Jeff McIntosh

Cenovus Energy Inc. will buy Husky Energy Inc. in an all-stock transaction valued at $23.6 billion, the Calgary-based companies said Sunday in a joint announcement.

The merged Cenovus Energy Inc. will remain headquartered in Alberta. The deal would combine the companies into a new integrated oil and gas business with increased and more stable cash flows, the statement said.

Cenovus CEO Alex Pourbaix will head the combined company, with Husky chief financial officer Jeff Hart taking on that role at the new entity.

“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,” Pourbaix said in the statement.

“The diverse portfolio will enable us to deliver stable cash flow through price cycles, while focusing capital on the highest-return assets and opportunities. The combined company will also have an efficient cost structure and ample liquidity.”

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 S.a r.l., 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.

“Cenovus is pleased to have Husky’s significant shareholders, with their strong ties to Canada, exceptional business capabilities and knowledge of Asia and Husky’s Asian assets in particular, become one of our long-term shareholders,” said Pourbaix. “We value the perspectives they will provide as highly successful international investors.”

The deal is the latest sign of consolidation in an energy sector that has been battered by the twin crises of the COVID-19-related economic slowdown and low crude oil prices.

Last Monday, ConocoPhillips announced it would buy shale producer Concho Resources in a deal valued at $9.7 billion that would create one of the largest U.S. oil producers.

Earlier in the month, one analyst pointed to the acquisition of a 17.6 per cent stake in Calgary oil and gas producer NuVista Energy Ltd. by rival Paramount Resources Ltd. as part of a trend toward “forced” consolidation in the troubled Canadian energy sector.

News of the Cenovus-Husky deal follows a Friday announcement from Alberta’s government that the province would end its oil curtailment quotas, a temporary measure intended to support oil prices. Spokespeople for both companies said Friday they welcomed the move. Indeed, Cenovus had already been producing above its curtailment levels with credits purchased from other companies.

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.

“Bringing our talented people and complementary assets together will enable us to deliver the full potential of this resilient new company,” Husky CEO Rob Peabody said in the statement.

“The integration of Cenovus’s best-in-class in situ oil sands assets with Husky’s extensive North American upgrading, refining and transportation network … will create a low-cost competitor and support long-term value creation.”

The combined company will be the third largest Canadian oil and natural gas producer, based on total company production, Cenovus said. It will have low exposure to oilsands benchmark crude, which typically trades at a discount to North American benchmark West Texas intermediate.

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.