ConocoPhillips (NYSE: COP) has revealed its plans to sell off a portion of its Canadian assets to Calgary-based Cenovus Energy Inc. (NYSE: CVE) for $13.3 billion. According to the company, the assets to be sold had a net book value of about $10.9 billion as of Dec. 31. Under the terms of the deal, ConocoPhillips will receive $10.6 billion in cash and 208 million Cenovus shares, valued at $2.7 billion as of March 28.
The deal includes ConocoPhillips’ 50 percent nonoperated interest in the Foster Creek Christian Lake oil sands partnership and the majority of its western Canada Deep Basin gas assets. Its 50 percent interest in the Surmont oil sands joint venture and its operated 100 percent Blueberry-Monteny unconventional acreage position will be kept by ConocoPhillips Canada. In addition, the company will receive five years of uncapped contingent payments when the price of Western Canada Select crude is higher than $52 Canadian dollars per barrel.
The deal is the fifth-biggest in the Canadian energy sector according to Thomson Reuters data. Calgary-based Cenovus is among Canada’s largest producers. The deal will double Cenovus’ production to 588,000 barrels of oil equivalent per day. ConocoPhillips’s shares rose more than 6 percent in after-hours trading while shares of Cenovus fell more than 7 percent.
ConocoPhillips Chairman and CEO Ryan Lance said in a March 29 press release, “Our stated plan was to accelerate our value proposition by reducing debt with asset sales. Clearly, this transaction significantly accelerates those efforts and provides an important catalyst that should allow investors to have clarity and confidence in our future direction.” The deal is expected to close in the second quarter of this year.
The deal allows ConocoPhillips to reduce both its debt and its exposure to the higher-cost Canadian oil sands. Holding the third-largest crude reserves in the world, Canada’s oil sands also carry some of the highest operating costs globally. ConocoPhillips is just the latest international oil major to pull back from the region. Other large energy companies, including Marathon Oil Corp., Exxon Mobil Corp., Royal Dutch Shell and Norway’s state-owned Statoil ASA, have also been divesting Canadian oil sands assets due to the high cost of production.
ConocoPhillips will reportedly use the cash to reduce its debt to $20 billion. The company is also planning to use some of the proceeds from the deal to increase the amount and pace of its share repurchases. Last November, the company announced a goal to divest between $5 billion and $8 billion in assets in 2017 and the implementation of a $3 billion share buyback program. The company’s board recently doubled its existing share repurchase authorization to a total of $6 billion. ConocoPhillips expects its buybacks to reach $3 billion this year with the remaining $3 billion allocated to 2018 and 2019.