Cenovus, Husky Energy in giant merger

Business | Reuters 27 Oct 2020

Cenovus Energy has agreed to buy rival Husky Energy in an all-stock deal valued at C$3.8 billion (HK$22.34 billion) to create Canada's No 3 oil and gas producer, as a pandemic-driven collapse in demand forces the industry to consolidate.

The combination, announced on Sunday, follows recent big deals in the United States. Concho Resources agreed this month to a takeover by ConocoPhillips for US$9.7 billion. That followed Chevron Corp's US$4.2 billion purchase of Noble Energy.

The collapse in fuel demand during pandemic lockdowns has put additional pressure on companies in Canada, the fourth-largest global oil producer, forcing them to cut costs. They have been under stress for six years, dating back to the last downturn, due to congested pipelines and the flight by foreign oil companies and investors from Canada's high production costs and emissions.

Consolidation makes the Canadian industry leaner and lowers costs, said Jackie Forrest, executive director at the ARC Energy Research Institute, adding that deal-making is likely just getting started.

The deal makes Cenovus an integrated producer with refineries in Canada and the United States, adding to their existing half-ownerships in two US refineries.

Acquiring refineries, pipelines and storage offered a solution to Canada's often-congested pipelines, which have usually created price discounts, said Cenovus CEO Alex Pourbaix. "In one fell swoop, this deal will almost completely remove our exposure to (West Texas Intermediate/Western Canada Select) differentials," Pourbaix said, referring to the discounts.

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