Cenovus Energy Inc. is expanding its significant steam-driven oilsands assets through a $5.7 billion cash and stock transaction to acquire Athabasca Oil Corp. The company’s CEO believes recent government policy changes will facilitate increased production from the acquired properties.
Currently, Athabasca has a daily oilsands production of 40,000 barrels, but Cenovus aims to boost this to 115,000 barrels by 2032, presenting a substantial growth opportunity in the Canadian oilsands sector. CEO Jon McKenzie expressed enthusiasm about the potential growth during a conference call with analysts.
The acquisition follows the federal government’s classification of a proposed one-million-barrel-per-day pipeline from Alberta to British Columbia as the first national interest project. This designation streamlines the regulatory review process for the pipeline and other expansions, raising concerns about meeting production demands by 2032.
McKenzie praised the federal and Alberta governments for their efforts to enhance the industry’s competitiveness, mentioning positive initiatives that could accelerate growth projects at Leismer and Corner, two Athabasca assets included in the acquisition.
Additionally, Prime Minister Mark Carney announced tax deductions for a broader range of investments, which could expedite growth projects. McKenzie highlighted upcoming royalty incentives from the Alberta government expected to further stimulate oilsands production.
Under the agreement terms, Athabasca shareholders can opt for $12 in cash or 0.264 of a Cenovus common share per share, subject to set limits on total cash and shares available. Analysts view the acquisition as strategically valuable due to the scarcity and long-term potential of thermal inventory in the oilsands sector.
This acquisition reflects a trend of consolidation in the Canadian oilsands industry, with major players like Cenovus, ConocoPhillips, and others dominating the market. The transaction is expected to increase Cenovus’ share of total oilsands output to 21.5%, contributing to the industry’s concentrated ownership among a few major companies.
Stock reactions showed Cenovus shares dropping by three percent to $44.86, while Athabasca’s shares surged by 13.5% to $12.01. The deal is anticipated to close in December pending regulatory and shareholder approvals.