Skip to content

Cenovus-Husky Deal Creates New Canadian Oil Major, Stokes Hunger for Deals

Questioning the Universe With Wonderment: ‘Philosopher Lecturing on the Orrery’

Science, with people believing that the truths it offers are absolute, has become a source from which many people gather their beliefs. The Age of Enlightenment was a philosophical catalyst in helping science gain a foothold over religion and faith, with some of the era eventually seeing them as outdated and even harmful modes of belief. Science is always advancing, however, and the scientific truth of yesterday—despite being thought of as absolute—is often overturned by new evidence tomorrow. As science continues to develop and evolve, is there a place for those things that exist outside the domain of science, such as religion and faith? Asking these questions makes me think of a scientific artist I loved as a young boy, Joseph Wright of Derby. As an adult, however, I find myself…

Cenovus-Husky Deal Creates New Canadian Oil Major, Stokes Hunger for Deals

News Analysis

WINNIPEG/TORONTO鈥擟enovus Energy’s acquisition of Husky Energy creates a new Canadian-owned major oil producer and lends the long-struggling oil patch greater stability during its biggest crisis in decades, with investors betting on further deals.

The $3.8 billion combination announced Sunday, the largest Canadian oil and gas deal in nearly four years based on enterprise value, may pressure peers to get bigger or sell.

“You will continue to see stock-based deals with skinny premiums as companies scrape together enough accretion and cash flow to survive,” said Ryan Bushell, President of Newhaven Asset Management, which holds Canadian Natural Resources shares.

Such deals represent a need for greater access to capital, as lenders have little appetite to fund mid-sized producers, Bushell said. Cenovus, the third-biggest Canadian producer by output, narrows the gap with top producers Canadian Natural and Suncor Energy by acquiring Husky.

Pandemic travel restrictions have crushed demand for jet fuel and gasoline, weakening crude prices and spurring companies to cut costs or merge to survive.

Canada’s problems, however, trace to 2014, the previous big price dip, as foreign oil companies have sold assets and investors withdrawn from a sector dogged by high costs and emissions.

Major Canadian producers begin reporting this week quarterly earnings that are expected to be an improvement over the first half’s losses.

Cenovus Chief Executive Alex Pourbaix told Reuters the deal lowers the company’s operating costs and adds pipelines, storage, and refineries, making it more resilient to low prices.

Along with integrating the companies, Pourbaix said he will identify non-core assets to eventually shed.

“We’re like the dog that caught the car,” he said. “We have a lot of hard work ahead of us.”

MEG Energy next?

The deal may be only the first major tie-up of the pandemic, said Eric Nuttall, senior portfolio manager of Ninepoint Partners. MEG Energy, a mid-tier producer that Husky sought to buy in 2018 before abandoning its bid, looks like a target again, said Nuttall, who holds MEG shares.

“If someone wants scale and a very high-quality asset and is able to take on the debt, MEG’s the last large asset available,” he said.

MEG Chief Executive Derek Evans declined to comment.

An industry source familiar with the Cenovus-Husky deal said that talks started months ago, after the pandemic struck.

Discussions for the tie-up鈥攃ode-named Purple to represent the combination of company colours, red and blue鈥攇ot serious only a couple of weeks ago, said the source.

Husky’s biggest investor, Hong Kong tycoon Li Ka-shing, is committed to being a long-term shareholder in the new company, Husky Chief Executive Rob Peabody said.

The combination has long been an idea that investment bankers pitched, matching Cenovus’ Alberta heavy oil production to Husky’s Midwest refineries, said Dan Tsubouchi, principal at SAF Group, a firm that invests in energy companies and lends to them.

The deal may have a downside though.

Bushell was surprised Cenovus would acquire Husky given its poorer record on environmental social and governance (ESG) issues.

“As these companies are desperate for social license, only the very best in my opinion will receive any inkling of support from institutional investors,” he said.

Canadian companies should follow European oil producers by expanding into renewable energy, said Keith Stewart, senior energy strategist at Greenpeace Canada.

“In buying up more high-carbon reserves, Canadian oil companies are gambling that the world will fail in the fight against climate change,” he said.

By Rod Nickel and Jeff Lewis

Focus News: Cenovus-Husky Deal Creates New Canadian Oil Major, Stokes Hunger for Deals

Popcorn and Inspiration: ‘High Noon’: A Moving Western About Standing Up for What’s Right

PG | 1h 25min | Drama, Thriller, Western | 30 July 1952 (USA) Similar to 1960’s “The Magnificent Seven,” director Fred Zinnemann’s “High Noon” (1952) is a Western about courage and standing up for what’s right, no matter the odds. And although this film shares that message, it doesn’t begin as dramatically as the later film does. “High Noon” starts off much more subtly, with shots of scruffy henchman Jack Colby (Lee Van Cleef) smoking a cigarette under a tree. Soon, he is joined by a couple of similar, devious-looking men, Jim Pierce (Robert Wilke) and Ben Miller (Sheb Wooley). The three men travel via horseback to a lone train station to await the noontime arrival of their leader, Frank Miller (Ian MacDonald). Not too far away is the dusty…