Cenovus Energy Inc. is set to expand its steam-driven oilsands portfolio with a $5.7 billion deal to acquire Athabasca Oil Corp., aiming to leverage recent government policy changes for enhanced production growth from the newly acquired assets. Athabasca currently produces 40,000 barrels per day from its oilsands operations, a figure that Cenovus intends to boost significantly to 115,000 barrels per day by 2032.
During a conference call with analysts, CEO Jon McKenzie highlighted the substantial organic growth potential present in the Canadian oilsands sector. The acquisition comes shortly after the Canadian government classified a proposed million-barrel-a-day pipeline from Alberta to British Columbia as the first national interest project, streamlining its regulatory review process.
There have been concerns regarding whether Cenovus and other oilsands companies would invest adequately to fill the upcoming pipeline expansions by 2032. McKenzie praised the federal and Alberta governments for taking favorable actions to enhance the sector’s competitiveness, citing the positive impact on growth projects such as those at Leismer and Corner, both of which are part of the acquisition.
The deal terms offer Athabasca shareholders a choice between $12 in cash or 0.264 of a Cenovus common share for each share held, with limits on the total cash and shares available. Despite the transaction cost, analyst Robert Mann from Desjardins Securities described the acquisition as strategically compelling due to the scarcity value of premium thermal inventory and a favorable oilsands development environment.
Analyst Michael Berger noted that the valuation of the Athabasca deal surpasses previous transactions, reflecting a higher rating of Canadian oilsands producers amid increasing demand for long-term oil resources in a resource-constrained world. With large operators like Cenovus now dominating the oilsands market, the industry may experience a slowdown in mergers and acquisitions activity.
The acquisition elevates Cenovus’ share of total oilsands production to 21.5%, indicating a decade-long consolidation trend in Canadian oilsands ownership among a few major companies. The deal is expected to close in December, pending regulatory and shareholder approvals.
Share prices saw Cenovus shares drop by three percent to $44.86, while Athabasca’s shares surged by 13.5% to $12.01 following the announcement.
