Canadian Natural buys Pelican Lake assets for $787m
Canadian Natural Resources has agreed to buy Cenovus Energy's Pelican Lake heavy oil operations and other assets in northern Alberta for CAD975m ($787m). Canadian Natural plans to expand existing heavy oil and polymer operations at Pelican Lake to about 19,600 barrels of oil equivalent a day. Cenovus has embarked on a divestiture campaign after closing on a $13.3 billion deal with ConocoPhillips earlier this year to acquire full ownership of its oil-sands operations and a production platform in the Deep Basin in northwestern Alberta and British Columbia. The company said it wants to reach deals to sell between C$4 billion and C$5 billion of its conventional oil and natural-gas assets this year.
Oil storage tanks at Pelican Lake.Rene Michaud - Bliss Photographi Share

Canadian Natural Resources Ltd. is buying a major heavy-oil property and other assets from Cenovus Energy Inc. for $975-million in what is expected to be the start of a busy deal season in the oil patch.

Canadian Natural, fresh from acquiring Royal Dutch Shell PLC's oil sands business, is snapping up a field in Alberta called Pelican Lake, which is adjacent to one of its own operations. Cenovus is selling the business as part of a series of planned divestitures that it says could garner up to $5-billion.

Cenovus has earmarked the proceeds to pay down debt it incurred to buy Houston-based ConocoPhillips Co.'s interests in several oil sands and natural gas properties for $17.7-billion, a megadeal that's had a rocky reception in the stock market.

Since the company announced the deal in late March, its shares are down 41 per cent as investors bristle at the price and debt taken on by a company that had been financially conservative through the industry downturn. The stock gained 3.3 per cent on Tuesday.

Harsh reaction to the deal is said to have hastened the departure of chief executive officer Brian Ferguson. Mr. Ferguson is to step down in October but will remain an adviser while the company seeks a replacement.

Cenovus said it is close to a deal to sell its Suffield shallow-gas assets in southeastern Alberta. Analysts have pegged potential proceeds at up to $600-million. Another two packages of properties – Palliser in Alberta and Weyburn in Saskatchewan – are slated to be jettisoned by year end.

"The divestiture processes for the remainder of our legacy conventional assets are proceeding as expected, with strong interest from potential buyers," Mr. Ferguson said in a statement.

Private-equity and pension-fund-controlled companies are seen as potential buyers for the remainder of the assets.

Canadian Natural shares rose about 1.5 per cent. The company, the largest of several concerns that count financier Murray Edwards as a large investor, has had a more positive reaction to its last big deal, the $12.7-billion takeover of an oil sands mining operation that pumps out up to 255,000 barrels a day.

Toronto-Dominion Bank analyst Menno Hulshof said the transaction is far less significant to Canadian Natural than to Cenovus, as it represents just 1.4 per cent of the buyer's enterprise value.

Pelican Lake produces about 19,000 barrels of heavy oil a day. The deal also includes Cenovus's stake in a pipeline in the region as well as undeveloped land.

For Cenovus, the sale price is fair and represents "a step in the right direction in restoring market confidence," Mr. Hulshof wrote in a note to clients.

The deal follows an unusually quiet period for oil-patch mergers and acquisitions, as buyers and sellers stayed on the sidelines waiting for some shift in the outlook for oil prices – either up or down. U.S. crude has hung stubbornly at less than $50 (U.S.) a barrel for more than four months.

The lack of direction for commodity prices and the end of summer vacation should spell an uptick in deals over the next few months, said Michael Dunn, an analyst at GMP FirstEnergy. The upcoming Cenovus transactions, which involve both light oil and natural gas assets, will be a barometer for the rest of the sector, Mr. Dunn said.

Cenovus still faces skepticism that it can hit its target of $4-billion (Canadian) to $5-billion in sales.

Raymond James Ltd. analyst Chris Cox forecasts the company will generate proceeds of $3.8-billion, well short of its targeted range, meaning more operations will be auctioned off.

"Potentially corroborating this pessimistic outlook, management's indication that additional asset sales are likely to be pursued suggests that proceeds for the remaining packages are unlikely to surprise to the upside," he said in a note.

Further sales could include portions of the newly acquired properties and infrastructure in the Deep Basin exploration region of Alberta, as well as a possible royalty interest in the oil sands, Mr. Cox said.

With files from reporter Jeff Lewis in Calgary