Cenovus Energy announced that it has agreed to acquire Athabasca Oil Corporation in a cash-and-stock deal valued at $5.7 billion. Calgary-based Cenovus said the transaction will add about 40,000 B/D of oil sands production, including steam-assisted gravity drainage (SAGD) projects near its existing assets at Christina Lake, May River, and Thornbury in Alberta.
On a pro forma basis, Cenovus expects the deal will increase its SAGD production to more than 800,000 B/D by year-end.
The acquired assets, which include the Leismer, Hangingstone, and Corner projects, hold more than 75 years of proved-plus-probable reserve life, according to the release. The company added that combined production could reach 115,000 B/D of heavy crude by 2032.
Under the terms of the deal, Athabasca shareholders will receive $4.3 billion in cash and up to 44.4 million Cenovus common shares. Cenovus said it will fund the acquisition with cash on hand and short-term borrowings, leaving it with net debt of about $3 billion. The company added that its debt balance could rise to as much as $5.5 billion by year-end.
“This transaction strengthens our position in one of the world’s premier oil-producing regions and is a natural extension of our oil sands strategy,” Jon McKenzie, CEO of Cenovus said in a statement. “Athabasca’s high-quality, long-life assets fit well with our portfolio and provide a clear opportunity to apply our scale and operating expertise to improve performance, grow production, and create long-term shareholder value.”
The acquisition also consolidates ownership of Duvernay Energy Corporation, a joint venture between Cenovus (70%) and Athabasca (30%). The oil-weighted project produces more than 5,000 BOE/D and includes about 170 future drilling locations that could support production growth to 20,000 BOE/D.
Cenovus said it expects to generate $85 million in annual cost synergies following the closing of the transaction, which is expected in December.