Canadian Manufacturing

Cenovus defends $17.7B ConocoPhillips deal amid investor dissent

Toronto-based Coerente Capital Management has asked the Ontario Securities Commission to halt the deal pending a shareholder vote



CALGARY—A $17.7-billion megadeal to buy most of the Canadian assets of ConocoPhillips will make Cenovus Energy Inc. a “better and stronger company,” CEO Brian Ferguson said Wednesday in a response to the deal’s critics.

Calgary-based Cenovus’s share price has fallen more than 20 per cent since the acquisition was announced March 29 and an investor, Toronto-based Coerente Capital Management, has asked the Ontario Securities Commission to halt the deal.

Coerente wants to put the decision to a shareholder vote because it dilutes the existing shareholders’ float by more than 25 per cent.

But Ferguson said on a conference call with analysts and later at the company’s annual meeting that the price and structure of the deal are appropriate.

“I believe it is the right transaction for us and that we have structured the transaction in the right way to maintain our financial strength,” he said on the call.

“I don’t know specifically what’s been asked of the Ontario Securities Commission but I would just emphasize that the transaction was undertaken in full compliance with all securities regulations.”

At the company’s April 26 annual meeting in Calgary, shareholders voted more than 87 per cent in favour of re-electing the board of directors, a result Ferguson interpreted as a vote of confidence.

Of three shareholders who spoke, only one said that Cenovus should have held a shareholder vote on the ConocoPhillips deal.

“If you guys are so confident about this deal why don’t shareholders have the opportunity to vote on this matter?” said the man. He later told reporters he owns 1,500 shares but wouldn’t give his name.

Cenovus chairman Michael Grandin responded that the “once in a lifetime” opportunity could have been lost if word of the deal had leaked out before financing and terms were finalized.

Cenovus is buying Houston-based ConocoPhillips’s 50 per cent interest in the FCCL Partnership, an oilsands venture between the two companies in northern Alberta, as well as most of its Deep Basin conventional assets in Alberta and British Columbia.

The price includes $14.1 billion in cash and 208 million Cenovus common shares. Part of the cash has been raised by selling a further 188 million shares for $3 billion.

It also plans to raise at least $3.6 billion from dispositions by the end of the year and may sell other non-core assets.

Ferguson said Cenovus is finding plenty of buyer interest in its legacy Alberta conventional assets at Pelican Lake and Suffield.

The ConocoPhillips deal is expected to close by June 30.

Cenovus reported oilsands production in northern Alberta rose 32 per cent in the first quarter ended March 31 from the same time last year as volumes ramped up from two new oilsands expansion projects.

Higher prices helped to fuel a nearly $1.7-billion rise in revenue from a year earlier to $3.87 billion—Cenovus’s average crude oil sales price was C$41.41 per barrel in the first quarter, up from $15.97 in the same period of 2016 when benchmark oil prices touched 13-year lows.

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