The CEO of Cenovus Energy Inc. (TSX:CVE) says it is “right on target” with its asset sales plan after announcing a deal Monday to sell its Suffield oil and gas operations in southern Alberta to International Petroleum Corp. (TSX:IPCO) for $512 million in cash.
The package, which includes production from wells on a Canadian Forces base as well as adjacent property, is the second of four key asset sales Cenovus has promised to deliver to help pay for its $17.7-billion purchase of most of the Canadian assets of ConocoPhillips.
It announced in early September it would sell its Pelican Lake heavy oil operations in northern Alberta for $975 million to Calgary-based rival Canadian Natural Resources Ltd. (TSX:CNQ).
“We’re right on target with the financial plan we put in place to deleverage our balance sheet following our recent transformational acquisition of assets in Western Canada,” said Cenovus CEO Brian Ferguson in a news release.
“The successful execution of our planned divestiture program this year will further focus our asset base and should leave us well positioned to drive additional shareholder value from our core assets in the oilsands and Deep Basin.”
The Suffield sale is expected to close in the fourth quarter and resulting funds are to be used to reduce a $3.6-billion bridge debt facility employed as part of the ConocoPhillips deal. Cenovus has suggested additional non-core assets might be sold to take the total to between $4 billion and $5 billion by year-end.
Cenovus can earn up to $36 million more from Suffield over two years through a deferred purchase price adjustment that pays out in every month in which the average West Texas Intermediate crude price is above US$55 per barrel or Henry Hub natural gas is above US$3.50 per million British thermal units.
Cenovus said it hopes to have sales deals in the fourth quarter for its Palliser assets in southern Alberta and its stake in the Weyburn carbon dioxide enhanced oil recovery operation in Saskatchewan. National Bank Financial estimates those assets could bring in $1.175 billion and $975 million, respectively.
The deal is the first Canadian asset purchase for International Petroleum, which has a corporate office in Vancouver and an operations office in Switzerland.
The company was formed five months ago by the Lundin Group, a private international corporation with mining and oil and gas assets around the world.
CEO Mike Nicholson said on a conference call with analysts it was a “transformational acquisition” which will triple existing production from operations in France and Malaysia.
“The Suffield acquisition puts IPC in a fantastic position with a very bright future with a quality asset with material reserves and production,” he said.
“We think this gives us a fantastic platform to generate a lot of value for our shareholders in the years ahead.”
He said the company plans to go ahead with low-cost optimization investments to boost production from Suffield natural gas wells next year and will begin drilling oil wells in late 2018 and into 2019.
Nicholson said under Cenovus Suffield had been “undercapitalized” for a dozen years, with no gas well drilling on the property since 2010 and the last oil well drilled in 2014.