By Victor Uchechukwu with EnergyNow.ca
Cenovus Energy Inc. (TSX: CVE) (NYSE: CVE) has announced entry into a “definitive arrangement agreement” to acquire MEG Energy Corp. (TSX: MEG) (“MEG”) in a cash and stock transaction valued at $7.9 billion, including what had been referred to “assumed debt”.
Under the terms of the agreement according EnergyNow.ca, Cenovus will acquire both issued and outstanding common shares of MEG for $27.25 per share, which Energy Window International (Media) learnt would be paid 75% in cash and 25% in Cenovus common shares. “Each MEG shareholder will have the option to elect to receive, for each MEG common share (i) $27.25 in cash; or (ii) 1.325 Cenovus common shares, subject to pro-ration based on a maximum amount of $5.2 billion in cash and a maximum of 84.3 million Cenovus common shares.” On a fully pro-rated basis the report highlighted, the consideration per MEG common share represents approximately $20.44 in cash and 0.33125 of a Cenovus common share.
While highlighting the deal to mean a form of reinforcement of Cenovus’s position as the pre-eminent SAGD oil sands producer, the acquisition has also brought together two leading SAGD oil sands producers with combined oil sands production of over 720,000 barrels per day (bbls/d), regarded as the lowest steam-to-oil ratio and the largest land base in the best quality resource area in the basin, according to the report.
“Exceptional asset fit – Consolidates adjacent, fully contiguous and highly complementary assets at Christina Lake, enabling integrated development of the region and unlocking significantly accelerated access to previously stranded resource.”
With over $400 million of annual synergies Energy Window International (Media) gathered, Cenovus expects that it could realize approximately $150 million of near-term annual synergies, growing to over $400 million per year in 2028 and beyond. It was highlighted to include corporate and commercial synergies as well as development and operating synergies which will leverage both companies’ technical expertise and the ability to integrate future development across the Christina Lake region.
Characterized by gradual growth and increase, the acquisition is also expected to be immediately accretive to adjusted funds flow per share and free funds flow per share. It also has the tendency of maintaining strong balance sheet with continued focus on shareholder returns which equally meant that the transaction has been structured to preserve Cenovus’s strong balance sheet and investment grade credit ratings, with expected pro forma net debt of <1 times adjusted funds flow (AFF) at strip pricing. In addition, Cenovus will retain a robust financial framework and continue to balance deleveraging with meaningful shareholder returns.
“This transaction represents a unique opportunity to acquire approximately 110,000 barrels per day of production within some of the highest quality, longest-life oil sands resource in the basin, which sits directly adjacent to our core Christina Lake asset,” says Jon McKenzie, Cenovus President and Chief Executive Officer. “The magnitude of synergies that we have identified makes this a compelling value creation opportunity for Cenovus shareholders. The team at MEG has done a fantastic job developing these assets, and we look forward to leveraging our combined expertise and scale to drive additional value for many years to come.”
On its financing plan, Cenovus has obtained fully committed financing for the transaction comprised of a $2.7 billion term loan facility and a $2.5 billion bridge facility, which will be used to fund the cash component of the transaction. Cenovus anticipates initiating a senior debt offering to replace the bridge facility, Energy Window International (Media) has gathered from the Canada-based EnergyNow.
Cenovus is expected to maintain, upon completion of the transaction, its strong financial position with liquidity of over $8 billion in undrawn committed credit facilities and cash on hand, and this is while maintaining its commitment to a strong balance sheet and investment grade credit ratings. “Pro forma net debt is expected to be approximately $10.8 billion, representing less than one times AFF at strip pricing.”
“The fully committed term loan and bridge facilities have been provided by Canadian Imperial Bank of Commerce and JP Morgan Chase Bank as Co-Underwriters and Joint Bookrunners.”