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Cenovus sells HRP royalty business for $3.3 billion

Sale to significantly strengthen energy company's balance sheet.


June 30, 2015
by PLANT STAFF

CALGARY — Cenovus Energy Inc. is strengthening its balance sheet with the sale of its royalty business to Ontario Teachers’ Pension Plan for $3.3 billion.

The Heritage Royalty Limited Partnership (HRP), a wholly owned Cenovus subsidiary, holds approximately 4.8 million gross acres of royalty interest and mineral fee title lands in Alberta, Saskatchewan and Manitoba.

In the first quarter, third-party royalty interest volumes were approximately 7,800 barrels of oil equivalent per day (boe/d). Additionally, there is a royalty on Cenovus’s working interest production with first quarter volumes of approximately 5,400 boe/d, a gross overriding royalty (gorr) on the Pelican Lake heavy oil property in northern Alberta and an enhanced oil recovery project in Weyburn, Sask., with first quarter volumes of 1,600 boe/d.

Cenovus, an integrated oil company based in Calgary, said it attracted “significant interest” in HRP, the outcome of a “rigorous marketing process.”

The company said it considered several alternatives to generate value from the business, including a potential initial public offering but determined the transaction with Teachers’ was the best alternative to maximize value for shareholders.

At the end of the first quarter, the company’s net debt to capitalization ratio was 27%, which significantly improves with this transaction.

Cenovus’s pro forma cash position at the end of the quarter would have been $5.1 billion, or $6.16 per outstanding share. As a result of the transaction, consolidated production will be reduced by the 7,800 boe/d of third-party royalty interest volumes.

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