Markets expected to take measure of Cenovus-Husky deal as earnings season begins

CALGARY – Oilpatch investors are expected to take stock of a mega-merger between oilsands heavyweights Cenovus Energy Inc. and Husky Energy Inc. as stock markets open this morning.

The surprise deal announced Sunday will see Husky shareholders receive 0.7845 of a Cenovus share plus 0.0651 of a Cenovus share purchase warrant in exchange for each Husky common share.

The companies say the price, which values Husky at $3.8 billion, represents a 21 per cent premium, excluding warrants, to Husky’s five-day volume-weighted average price per share on Friday, but Cenovus CEO Alex Pourbaix said Sunday that’s more a result of recent stock market volatility than intent.

Cenovus shareholders would own about 61 per cent of the combined company and Husky shareholders about 39 per cent.

Calling themselves leaner but stronger in a conference call Sunday, the companies explained they can better handle West Texas Intermediate oil prices, the U.S. benchmark that’s battered them in the past with a price differential that’s had them selling crude at a deep discount.

“I can still run my refinery, I can buy barrels off the market and so now my exposure, I can optimize it in my entire value chain, so the products that come out of the refinery all the way to the extraction point so it gives them more control,” said Vice President of North American crude markets at IHS Markit, Kevin Birn.

RELATED: Cenovus to buy Husky Energy in $23.6B deal, company to stay in Alberta

Cenovus and Husky will now form a new integrated company, which appears to be the trend in oil and gas.

ConocoPhillips announced last Monday it’s buying Concho Resources in a $9.7 billion deal. It followed Paramount Resources Limited’s 17 per cent acquisition of Calgary’s NuVista Energy.

The Cenovus/Husky deal will create Canada’s third-largest oil and gas producer.

“In the 2014/15 price collapse, it led to a much more consolidated western Canadian industry,” said Birn. “I think we’re seeing it again as companies deal with /that we may be in this 40 to 50 dollar bandwidth for a bit longer.”

The transaction must be approved by at least two-thirds of Husky’s shareholders but Hong Kong billionaire Li Ka-Shing  controls 70 per cent of Husky’s shares and has agreed to vote them in favour of the deal.

Unfortunately, mergers often lead to layoffs even with the series of job cuts announcements so far.

“That’s the unfortunate piece for people in these regions that have these companies, there is a trade-off that the company will be more resilient and the people who work there will have greater stability in the long run.”

The merger is expected to save $1.2 billion in about a year.

Sunday’s announcement comes just as Calgary’s oilsands companies are about to start rolling out third-quarter financial results, with Suncor Energy Inc. set to report Wednesday and both Cenovus and Husky scheduled to report on Thursday.

–With files from Crystal Laderas, CityNews