Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) is pleased to announce
that its strategic combination with Husky Energy Inc. has closed.
The transaction creates a resilient integrated energy leader that
is well positioned to provide superior returns for investors over
the long term, as well as strong environmental, social and
governance (ESG) performance.
The transaction was completed through a definitive arrangement
agreement announced on October 25, 2020 under which Cenovus and
Husky agreed to combine in an all-stock transaction. Pursuant to
the transaction agreement, Husky common shareholders received
0.7845 of a Cenovus common share and 0.0651 of a Cenovus common
share purchase warrant in exchange for each Husky common share. In
addition, Husky preferred shareholders exchanged each Husky
preferred share for one Cenovus preferred share with substantially
identical terms.
Cenovus common shares remain listed on the Toronto Stock
Exchange (TSX) and New York Stock Exchange (NYSE) under the ticker
symbol CVE. The Cenovus warrants have been listed on the Toronto
and New York exchanges under the ticker symbols (TSX: CVE.WT) and
(NYSE: CVE WS). The Cenovus preferred shares Series 1, Series 2,
Series 3, Series 5 and Series 7 have been listed on the TSX under
the ticker symbols CVE.PR.A, CVE.PR.B, CVE.PR.C, CVE.PR.E and
CVE.PR.G. The Cenovus warrants and Cenovus preferred shares are
expected to commence trading on the TSX at the opening of market on
January 6, 2021 and the Cenovus warrants are expected to begin
trading on the NYSE at the opening of market on January 6, 2021.
The Husky common shares and preferred shares are expected to be
delisted by the TSX at the close of market on January 5, 2021.
With the close of the transaction, Husky has become a wholly
owned subsidiary of Cenovus and will remain as such until
completion of a planned amalgamation among the two entities. Upon
amalgamation, Cenovus will become the obligor under Husky’s
existing long-term notes and other direct obligations. The combined
company will continue to be headquartered in Calgary.
“This is an exciting day for Cenovus as we become a leaner,
stronger, more fully integrated oil and natural gas company that is
exceptionally well-positioned to weather the current environment
and be an energy leader in the years ahead,” said Alex Pourbaix,
Cenovus President & Chief Executive Officer. “With the closing
of this transaction, we will focus on safely and efficiently
integrating the assets and teams of these two great companies while
working to realize the $1.2 billion in synergies we’ve identified.
These cost and capital efficiencies, combined with our strong
portfolio of well-matched upstream production, midstream and
downstream assets as well as improved financial strength, are
expected to generate strong value for our shareholders.”
The combination creates Canada’s third largest crude oil and
natural gas producer, based on total company production, with about
750,000 barrels of oil equivalent per day (BOE/d) of low-cost oil
and natural gas production. Cenovus is also now the second largest
Canadian-based refiner and upgrader, with total North American
upgrading and refining capacity of approximately 660,000 barrels
per day (bbls/d). In addition, the company has access to about
265,000 bbls/d of current takeaway capacity from Alberta on
existing major pipelines, 305,000 bbls/d of committed capacity on
planned pipelines and 16 million barrels of crude oil storage
capacity as well as strategic crude-by-rail assets that provide
takeaway optionality.
The commitments both Cenovus and Husky have made to world-class
safety performance and ESG leadership will remain core to the
combined company. This includes an ongoing commitment to
transparent performance reporting, an ambition to achieve net zero
emissions by 2050 and a plan to set ambitious new ESG targets for
the combined company later this year.
“I want to thank and congratulate everyone at Cenovus and Husky
for their dedication and hard work in bringing this transaction to
a successful conclusion,” Pourbaix said. “This is truly one of the
most significant developments in the history of our two companies,
and in the history of the Canadian energy industry, for that
matter.”
Cenovus expects to provide additional details on its future
plans with the release of its 2021 capital budget and updated
corporate guidance in late January. Fourth quarter and year-end
financial and operating results for both Cenovus and Husky Energy
are scheduled for release in mid-February.
ADVISORY
Basis of Presentation
All financial figures and information have been prepared in
Canadian dollars (which includes references to “dollars” and “$”),
except where another currency has been indicated, and in accordance
with International Financial Reporting Standards (“IFRS” or “GAAP”)
as issued by the International Accounting Standards Board.
Production volumes are presented on a before royalties basis.
Barrels of Oil Equivalent
Natural gas volumes have been converted to barrels of oil
equivalent (“BOE”) on the basis of six Mcf to one barrel (“bbl”).
BOE may be misleading, particularly if used in isolation. A
conversion ratio of one bbl to six Mcf is based on an energy
equivalency conversion method primarily applicable at the burner
tip and does not represent value equivalency at the wellhead. Given
that the value ratio based on the current price of crude oil
compared with natural gas is significantly different from the
energy equivalency conversion ratio of 6:1, utilizing a conversion
on a 6:1 basis is not an accurate reflection of value.
Note Regarding Forward-Looking Information
This news release contains certain forward-looking statements
and forward-looking information (collectively referred to as
“forward-looking information”) within the meaning of applicable
securities legislation, including the U.S. Private Securities
Litigation Reform Act of 1995, about Cenovus's current
expectations, estimates and projections about the future of the
combined company, based on certain assumptions made in light of
experiences and perceptions of historical trends. Although Cenovus
believes that the expectations represented by such forward-looking
information are reasonable, there can be no assurance that such
expectations will prove to be correct.
This forward-looking information is identified by words such as
“achieve”, “ambition”, “capacity”, “committed”, “commitment”,
“continue”, “expect”, “focus”, “plan”, “position”, “provide”,
“remain”, “target”, “will”, or similar expressions and includes
suggestions of future outcomes, including statements about: the
ability of the combined company to provide superior returns and
strong value for investors over the long term as well as strong ESG
performance; the planned amalgamation of Husky and Cenovus; the
combined company weathering the current environment and being an
energy leader; safely and efficiently integrating the assets and
teams; realizing $1.2 billion in identified synergies; total
company production of about 750,000 BOE/d; daily refining capacity
of approximately 660,000 bbls/d; commitment to world-class safety
performance; commitment to ESG leadership, including ambitious
targets and transparent reporting; reaching the company’s ambition
of net zero emissions by 2050 and setting new ESG targets; and
expectations for the commencement of trading of the Cenovus
warrants on the TSX and the NYSE and the Cenovus preferred shares
on the TSX and the delisting of the Husky common shares and
preferred shares by the TSX.
Developing forward-looking information involves reliance on a
number of assumptions and consideration of certain risks and
uncertainties, some of which are specific to Cenovus, Husky and the
combined company and others that apply to the industry generally.
The factors or assumptions on which the forward-looking information
are based include, but are not limited to: the combined company's
ability to successfully integrate the businesses of Cenovus and
Husky; access to sufficient capital to pursue any development plans
associated with full ownership of Husky; the impacts the
transaction may have on the credit ratings of the combined company
following closing; the amalgamation of Husky and Cenovus, and the
resulting assumption of Husky’s obligations by Cenovus; forecast
commodity prices, light-heavy crude oil price differentials and
other assumptions; projected capital investment levels, the
flexibility of capital spending plans and associated sources of
funding; achievement of further cost reductions and sustainability
thereof; applicable royalty regimes, including expected royalty
rates; future improvements in availability of product
transportation capacity; increases to the combined company's share
price and market capitalization over the long term; cash flows,
cash balances on hand and access to credit and demand facilities
being sufficient to fund capital investments; foreign exchange
rate, including with respect to the combined company's US$ debt and
refining capital and operating expenses; the WTI-WCS differential
in Alberta remaining largely tied to the extent to which voluntary
economically driven supply cuts are made, the potential start-up of
Enbridge Inc.’s Line 3 Replacement Program, the completion of the
Trans Mountain Expansion and Keystone XL projects, and the level of
crude-by-rail activity; the ability of the combined company's
refining capacity, dynamic storage, existing pipeline commitments
and financial hedge transactions to partially mitigate a portion of
the combined company's WCS crude oil volumes against wider
differentials; accounting estimates and judgments; future use and
development of technology and associated expected future results;
the combined company's ability to obtain necessary regulatory and
partner approvals; the successful and timely implementation of
capital projects or stages thereof; the ability to generate
sufficient cash flow to meet current and future obligations;
estimated abandonment and reclamation costs, including associated
levies and regulations applicable thereto; the combined company’s
ability to reach its ambition of net zero emissions by 2050 and to
set new ESG targets; the combined company's ability to obtain and
retain qualified staff and equipment in a timely and cost-efficient
manner; the combined company's ability to carry out transactions on
the desired terms and within the expected timelines; forecast
inflation and other assumptions inherent in the current guidance of
Cenovus; expected impacts of the contingent payment to
ConocoPhillips; alignment of realized WCS and WCS prices used to
calculate the contingent payment to ConocoPhillips; the combined
company's ability to access and implement all technology necessary
to efficiently and effectively operate its assets; the continued
satisfaction by Cenovus of applicable TSX and NYSE requirements;
and other risks and uncertainties described from time to time in
the filings made by Cenovus and Husky with securities regulatory
authorities.
The risk factors and uncertainties that could cause actual
results to differ materially from the anticipated results or
expectations expressed in this press release, include: the ability
of the combined company to realize the anticipated benefits of, and
synergies from, the transaction and the timing thereof; failure to
achieve and sustain future cost reductions; the ability of Cenovus
and Husky to amalgamate; the timing of the commencement and
completion of construction activities, first production and sales,
if at all; the impacts of a changing risk profile and possible
subjection to a credit rating review, which may result in a
downgrade or negative outlook being assigned to the combined
company; the potential exposure to political, economic or social
instability related to international operations; potential
undisclosed liabilities unidentified during the due diligence
process; the accuracy of the pro forma financial information of the
combined company after the transaction; the interpretation of the
transaction by tax authorities; the success of business
integration; the focus of management's time and attention on
integration and other disruptions arising from the transaction; the
ability to access or implement some or all of the technology
necessary to efficiently and effectively operate the assets and
achieve expected future results; volatility of and other
assumptions regarding commodity prices; the duration of the market
downturn; a resurgence in cases of COVID-19, which has occurred in
certain locations and the possibility of which in other locations
remains high and creates ongoing uncertainty that could result in
restrictions to contain the virus being re-imposed or imposed on a
more strict basis, including restrictions on movement and
businesses; the extent to which COVID-19 impacts the global economy
and harms commodity prices; the extent to which COVID-19 and
fluctuations in commodity prices associated with COVID-19 impacts
the business, results of operations and financial condition, all of
which will depend on future developments that are highly uncertain
and difficult to predict, including, but not limited to, the
duration, spread and severity of the pandemic, the actions taken to
contain COVID-19 or treat its impact, the effectiveness and
implementation of COVID-19 vaccinations and how quickly economic
activity normalizes; the success of new COVID-19 workplace policies
and the ability of people to return to workplaces; continued
liquidity being sufficient to sustain operations through a
prolonged market downturn; the WTI-WCS differential in Alberta does
not remain largely tied to the extent to which voluntary
economically driven supply cuts are made, the potential start-up of
Enbridge Inc.’s Line 3 Replacement Program, the completion of the
Trans Mountain Expansion and Keystone XL projects, and the level of
crude-by-rail activity; the ability to achieve lower transportation
costs as a result of temporarily suspending the crude-by-rail
program; the ability to realize the expected impacts of the
capacity to store within oil sands reservoirs barrels not yet
produced, including possible inability to time production and sales
at later dates when pipeline and/or storage capacity and crude oil
differentials have improved; the effectiveness of risk management
programs, including the impact of derivative financial instruments,
the success of hedging strategies and the sufficiency of liquidity
positions; the accuracy of cost estimates regarding commodity
prices, currency and interest rates; lack of alignment of realized
WCS prices and WCS prices used to calculate Cenovus's contingent
payment to ConocoPhillips; product supply and demand; accuracy of
share price and market capitalization assumptions; market
competition, including from alternative energy sources; risks
inherent in marketing operations, including credit risks, exposure
to counterparties and partners, including ability and willingness
of such parties to satisfy contractual obligations in a timely
manner; risks inherent in the operation of a crude-by-rail
terminal, including health, safety and environmental risks; the
ability to maintain desirable ratios of net-debt-to-adjusted-EBITDA
as well as net debt to capitalization; the ability to access
various sources of debt and equity capital, generally, and on
acceptable terms; the ability to finance growth and sustaining
capital expenditures; changes in credit ratings applicable to the
parties or any of their securities; changes to dividend plans; the
ability to utilize tax losses in the future; accuracy of reserves,
future production and future net revenue estimates; accuracy of
accounting estimates and judgments; the ability to replace and
expand oil and gas reserves; potential requirements under
applicable accounting standards for impairment or reversal of
estimated recoverable amounts of some or all of the assets or
goodwill from time to time; the ability to maintain relationships
with partners and to successfully manage and operate integrated
businesses; reliability of assets including in order to meet
production targets; potential disruption or unexpected technical
difficulties in developing new products and manufacturing
processes; the occurrence of unexpected events such as fires,
severe weather conditions, explosions, blow-outs, equipment
failures, transportation incidents and other accidents or similar
events; refining and marketing margins; cost escalations, including
inflationary pressures on operating costs, including labour,
materials, natural gas and other energy sources used in oil sands
processes and increased insurance deductibles or premiums;
potential failure of products to achieve or maintain acceptance in
the market; risks associated with fossil fuel industry reputation
and litigation related thereto; unexpected cost increases or
technical difficulties in constructing or modifying manufacturing
or refining facilities; unexpected difficulties in producing,
transporting or refining of bitumen and/or crude oil into petroleum
and chemical products; risks associated with technology and
equipment, including potential cyberattacks; risks associated with
climate change and assumptions relating thereto; the combined
company’s ability to reach its ambition of net zero emissions by
2050 and to set new ESG targets; the timing and the costs of well
and pipeline construction; the ability to secure adequate and cost
effective product transportation including sufficient pipeline,
crude-by-rail, marine or alternate transportation, including to
address any gaps caused by constraints in the pipeline system or
storage capacity; availability of, and the ability to attract and
retain, critical talent; possible failure to obtain and retain
qualified staff and equipment in a timely and cost efficient
manner; changes in labour relationships; changes in the regulatory
framework in any of the locations in which Cenovus or Husky
operate, including changes to the regulatory approval process and
land-use designations, royalty, tax, environmental, greenhouse gas,
carbon, climate change and other laws or regulations, or changes to
the interpretation of such laws and regulations, as adopted or
proposed, the impact thereof and the costs associated with
compliance; the expected impact and timing of various accounting
pronouncements, rule changes and standards; changes in general
economic, market and business conditions; the impact of production
agreements among OPEC and non-OPEC members; the political and
economic conditions in the countries in which Cenovus and Husky
operate or supply; the occurrence of unexpected events such as
pandemics, war, terrorist threats and the instability resulting
therefrom; and risks associated with existing and potential future
lawsuits, shareholder proposals and regulatory actions.
Readers are cautioned that the foregoing lists of factors are
not exhaustive. Events or circumstances could cause the combined
company's actual results to differ materially from those estimated
or projected and expressed in, or implied by, the forward-looking
information. Readers should carefully consider the risk factors
discussed in each of Cenovus's and Husky's Management's Discussion
and Analysis (MD&A) and Annual Information Form (AIF) for the
year ended December 31, 2019 and MD&A for the three and nine
months ended September 30, 2020, which discussions are incorporated
by reference herein. The information contained on Cenovus's website
is not incorporated by reference into this news release. The
reference to Cenovus's website is intended to be an inactive
textual reference.
You should not place undue reliance on the forward-looking
information contained in this news release, as actual results
achieved will vary from the forward-looking information provided
herein and the variations may be material. Cenovus makes no
representation that actual results achieved will be the same in
whole or in part as those set out in the forward-looking
information. Furthermore, the forward-looking information contained
in this news release is made as of the date of this news release.
Except as required by applicable securities law, Cenovus undertakes
no obligation to update publicly or otherwise revise any
forward-looking information or the foregoing list of factors
affecting those statements, whether as a result of new information,
future events or otherwise or the foregoing lists of factors
affecting this information.
This cautionary statement qualifies all forward-looking
information contained in this news release. The prospective
financial information included in this news release has been
prepared by, and is the responsibility of, management of
Cenovus.
Cenovus Energy Inc. Cenovus Energy Inc. is an
integrated energy company with oil and natural gas production
operations in Canada and the Asia Pacific region, and upgrading,
refining and marketing operations in Canada and the United States.
The company is focused on managing its assets in a safe, innovative
and cost-efficient manner, integrating environmental, social and
governance considerations into its business plans. Cenovus shares
trade under the symbol CVE and are listed on the Toronto and New
York stock exchanges. For more information,
visit cenovus.com.
Find Cenovus on Facebook, Twitter, LinkedIn, YouTube and
Instagram.
CENOVUS
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