CONOCO SELLS FOR $13.3 BLN
REUTERS - ConocoPhillips (COP.N) on Wednesday agreed to sell oil sands and western Canadian natural gas assets to Cenovus Energy Inc (CVE.TO) for C$17.7 billion ($13.3 billion), making it the latest international oil major to pull back from a region where high costs and low crude prices have made it hard for large companies to make an acceptable return.
For Calgary-based Cenovus, among Canada's largest producers, the deal doubles its production to 588,000 barrels of oil equivalent per day as it takes full ownership of its main oil sands assets in northern Alberta.
ConocoPhillips will sell its 50 percent interest in the Foster Creek Christina Lake oil sands partnership, which Cenovus already operates, as well as the majority of its western Canada Deep Basin conventional gas assets.
The U.S. oil major will retain its 50 percent interest in the Surmont oil sands project, a joint venture with Total E&P Canada (TOTF.PA), and its liquids-rich Blueberry-Montney shale assets.
The divestment, the largest in ConocoPhillips's history, was unexpected on Wall Street but comes as the company has come under pressure to cut its debt. Its shares jumped 6 percent in after-hours trading.
Shares of Cenovus listed on the New York Stock Exchange tumbled more than 8 percent after hours.
The deal, the fifth-biggest in the Canadian energy sector according to Thomson Reuters data, comes weeks after Royal Dutch Shell (RDSa.L) and Marathon Oil Corp (MRO.N) sold off billions of dollars in oil sands assets and adds to uncertainty over future development in the patch.
Canada's oil sands hold the world's third-largest crude reserves but also carry some of the highest operating costs globally, and are struggling to compete with cheaper U.S. shale plays in a $50-a-barrel oil price environment.
"Now that you have a prolonged period of low crude prices, the companies are really looking hard on where is the place to invest," Carlos Murillo, economist at the Conference Board of Canada. "Canadian companies ... they're kind of getting bigger in what they know ... whereas other companies are seeing opportunities elsewhere."
ConocoPhillips Chief Executive Ryan Lance said his company will use the cash portion of the deal to pay down debt and increase share repurchases.
The company last fall told analysts it would hive off $5 billion to $8 billion in assets this year. The Canadian divestment comes on top of that plan, boosting the planned asset sales for the year to more than $16 billion.
Calgary-based Cenovus will pay C$14.1 billion in cash and 208 million Cenovus common shares. It launched a bought-deal financing agreement to sell 187.5 million shares at C$16 each for expected gross proceeds of more than C$3 billion.
CEO Brian Ferguson said the company intends to divest a significant portion of legacy conventional assets to help fund the transaction.
"In a low oil-price environment, economies of scale are important. This deal about doubles the scale of the company, and this will give us a greater competitive edge," Ferguson said on a public conference call.
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REUTERS - Brent crude futures LCOc1 were down 72 cents at $61.49 per barrel at 1020 GMT, having fallen by 1.5 percent on Tuesday, its largest one-day drop in a month. U.S. West Texas Intermediate (WTI) crude CLc1 was at $55.12 per barrel, down 58 cents.
BLOOMBERG - Prices dropped during the session as the International Energy Agency said the recent recovery in oil prices, coupled with milder-than-normal winter weather, is slowing demand growth. The worsening outlook for consumption dampened some of the enthusiasm that OPEC and its allies will extend supply curbs.
Global energy needs rise more slowly than in the past but still expand by 30% between today and 2040. This is the equivalent of adding another China and India to today’s global demand.
Product exports have grown significantly over the past several years and are expected to continue to grow as Russian refineries add capacity to produce more high-quality products.