To say Cenovus Energy Inc. has a lot riding on its plans for up to $5-billion worth of asset sales would be understating the matter.
The divestitures are key to debt reduction following Cenovus's $17.7-billion acquisition of oil sands and natural gas assets from ConocoPhillips Corp., one of Canada's largest-ever oil and gas deals. The tough part is the timing – hopes for top-dollar bids come as the appetite for deals has diminished with languishing commodity prices.
Chief executive Brian Ferguson has confidently predicted that the sales of major packages of oil and gas properties will be completed on schedule in the coming weeks and months. Given the state of the market, that's raised eyebrows among shareholders and even a few veteran investment bankers.
"We continue to see very strong interest in all four properties and from a variety of parties, many of them that are very, very well-funded and do not rely on capital-markets activity," Mr. Ferguson said during a conference call late last month.
The last part of that sentence is key, because equity markets have been anything but welcoming after some large energy offerings sank immediately below the issue prices – not least, the $3-billion of stock Cenovus sold to help fund its big acquisition. Since closing the deal in late March, Cenovus shares have stuck below the $16 issue price. They were down 1 per cent at $9.75 on the Toronto Stock Exchange on Tuesday.
By industry standards, the deal flow has slowed to a dribble. In the second quarter of this year, the whole of the Canadian exploration and production sector notched $2.3-billion worth of acquisitions, according to Sayer Energy Advisors, down from a record $33.3-billion in the first quarter (Cenovus's deal accounted for more than half of that), and less than half the value in the second quarter of 2016.
Mr. Ferguson has acknowledged that investors reacted harshly to the increase in leverage on the company's balance sheet as oil markets turned bearish. To be sure, they had become accustomed to a conservative operating style and there has been no shortage of speculation that the negative early reviews on the deal and its impact on Cenovus's balance sheet helped hasten his impending retirement.
This week, Royal Bank of Canada analyst Greg Pardy published a snapshot of what he thinks Cenovus's various wares are worth to would-be buyers, with a top-end total figure of $4.2-billion. Cenovus has said it may have other assets to sell, which could lift its total to $5-billion.
According to Mr. Pardy's math, the company's Suffield property in southeastern Alberta, which is mostly as a shallow-gas play, is worth $480-million to $600-million. Pelican Lake, a heavy-oil project, is pegged at $800-million to $1-billion. Weyburn, a Saskatchewan oil-producing property known for CO2 injection, could sell for $1-billion to $1.1-billion. Palliser Block, another gas asset, could go for $1.1-billion to $1.5-billion.
The company expects to strike deals for Suffield and Pelican Lake in the current quarter, and the remaining properties in the fourth quarter. There's been talk of a few bids being floated, including Canadian Natural Resources Ltd. being interested in Pelican Lake, where it has its own operations.
Bank of Montreal, which is handling the Suffield deal for Cenovus, lists that process as being in the "post-bid" stage.
Mr. Pardy said he would not be surprised if one of the deals was announced shortly, but the question of just who is ready to deal remains front and centre. Public companies have been punished in the market for doing transactions in recent months, as the odds of any major increases in oil and gas prices have become longer.
Buyers for conventional energy assets have emerged in the form of smaller, private companies backed by Chinese capital. Such outfits have bought properties from struggling companies requiring proceeds to satisfy lenders. It is likely some have been running the numbers on the various Cenovus properties, though all but Suffield would represent a bigger bite than has so far been the case.
Clearly, it's go-time for Cenovus to ink some deals. Investors are on pins and needles waiting to see someone at the other side of the table.
Jeffrey Jones