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Mutually Profitable Transaction for CA$600 Million Between BP and Cenovus
06/20/2022
BP Plc agreed on June 13 to exit the Canadian oil sands in an asset swap with Cenovus Energy Inc. potentially worth up to CA$1.2 billion. BP is convinced that it will be a significant step in the creation of a focused, flexible and competitive business in Canada, according to the company release.
50% non-operated interest in the Sunrise Oil Sands project will be sold by BP in an agreement reached with Cenovus Energy, a company based in Alberta.
Two companies agreed on the following conditions: total consideration for the transaction includes CA$600 million in cash, additionally, a contingent payment with a maximum aggregate value of CA$600 million expiring after two years, and concerning Cenovus, it will have a 35% position in the undeveloped Bay du Nord project offshore Newfoundland and Labrador.
In BP they consider that the Bay du Nord project will increase the acreage and fill up their existing portfolio offshore Newfoundland and Labrador with a discovered resource. Moreover, BP’s active Canadian marketing and trading business give BP Canada a wonderful opportunity for strong growth in the future.
BP already holds an interest in six exploration licenses in the offshore Eastern Newfoundland Region. The swap transaction has an effective date of May 1 and is forecast to close in the third quarter.
According to Tudor, Pickering, Holt & Co. (TPH), it gives BP an additional six exploration licenses in the eastern Newfoundland region in the Orphan Basin where an exploration well called Ephesus is planned for 2023. They admit that the transaction moves forward the company’s noncore divestiture efforts, whereas shifting focus in the Canadian portfolio towards potential expansion opportunities in Atlantic Canada.
Since the beginning of 2021 Cenovus operates Sunrise and owns 50% of the asset with help of the Sunrise Oil Sands Partnership. On strip pricing, TPH carries a NAV of roughly CA$3.3B for Cenovus’s 50% operated interest in the project.
Current production from the Sunrise Oil Sands asset is about 50,000 bbl/d and the company anticipates achieving a nameplate capacity of 60,000 bbls/d through a multi-year development program.
As Cenovus is now in the early stages of applying its oil sands operating model at the Sunrise Oil Sands asset, acquiring the remaining working interest in Sunrise enables them to fully benefit from the significant optimization opportunities available.
Cenovus expects to increase production at Sunrise while forcing sustaining capital, operating costs, and emissions intensity to fall by applying Cenovus’s advanced operating techniques. However, Cenovus’s corporate guidance dated April 26 does not reflect this acquisition. The company is about to update guidance with its second-quarter results in July.
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