Cenovus is merging with Husky Power: What which means for jobs and the way forward for the oilpatch

Buyers balked on the acquisition, the worth tag, and the sheer quantity of debt Cenovus took on to make the acquisition. Quickly Cenovus’ CEO introduced he was heading out the door and the corporate’s share value had plunged virtually 50 per cent because the deal was introduced.

Now, Cenovus is once more making an attempt to tug off a house run with a $3.eight billion merger with Husky Power.

After struggling to tug off the final deal, the large query is whether or not Cenovus could make this formidable play work because it takes over belongings stretching from offshore Newfoundland and Labrador to the waters close to China and Indonesia.

Whereas there are parallels to the deal three years in the past, this transfer can also be fairly completely different.

This time the gamers, setting and the acquisition itself are all distinct.

Cenovus CEO Alex Pourbaix will stay as chief government of the merged firm. He took over from Brian Ferguson after the fallout from the ConocoPhillips deal. 

New vitality panorama

As a substitute of shopping for Husky, it is a merger. Each corporations are carrying a comparatively hefty quantity of debt and that is why becoming a member of forces made monetary sense. 

Whereas the oilpatch has struggled for a few years, this deal is going on in a remarkably distinctive time within the business, with many corporations bleeding cash with traditionally low oil costs that even turned unfavorable this yr.

Up to now in 2020, Cenovus and Husky shares have misplaced 63 per cent and 70 per cent of their worth, respectively.

“It would permit us to make higher returns in a more durable setting, in order that’s all the time all the time one thing we should be seeking to do,” stated Husky CEO Rob Peabody in an interview, including it should even be simpler to draw funding as an even bigger firm.

Workforce modifications

With any possession change, there’ll little question be involved staff at each corporations questioning whether or not they are going to nonetheless have a job when the mud settles. Cenovus expects to seek out financial savings of $1.2 billion.

The merger additionally comes throughout a latest wave of layoffs within the business and can seemingly result in additional job losses.

“The draw back to that’s a variety of the time synergies and efficiencies and value containment often means fewer jobs,” stated Rory Johnston, managing director and market economist at Value Road in Toronto, who described the deal as “huge announcement” within the sector.

With head places of work in the identical metropolis, executives already say that is one space of overlap.

The make-up of the Canadian oilpatch is slated to alter but once more, after different main offers lately comparable to CNRL’s blockbuster transfer for almost all of Shell’s Alberta belongings in 2017.

After the Husky deal, Cenovus would be the third largest producer within the nation. The merger may even proceed the latest pattern of Canadian corporations shopping for up an even bigger share of the oilsands, which is a repatriation, of kinds.

Hong Kong tycoon Li Ka-shing is the biggest shareholder of Husky at about 70 per cent, of which 40 per cent is held by his funding firm, Hutchison Whampoa, and 29 per cent personally. He’ll management a bit of over 1 / 4 of the mixed firm, if and when the merger goes via.

Whereas the ConocoPhillips deal modified the make-up of Cenovus with the belongings it acquired, the addition of Husky might current a extra complicated makeover.

Cenovus was typically considered a pure-play Alberta oil firm that rode the roller-coaster of commodity costs. Now, it is including rather more refining capability, along with branching out into proudly owning gasoline stations, offshore terminals on the east coast and as far-off because the Asia Pacific area.

“It wasn’t onerous to persuade me that this was an extremely compelling alternative,” stated Cenovus’ Pourbaix in an interview, pointing to the decreased publicity to heavy oil costs in Alberta and the decreased volatility total of the brand new firm.

The large danger

Some Cenovus buyers will respect the change to a extra built-in, secure firm, whereas others can have most well-liked a extra targeted agency, in keeping with Rafi Tahmazian with Calgary-based Canoe Monetary.

No matter their stance, the large query is whether or not Cenovus could make the merger work. That is the large danger to buyers, staff, and the general stability of Alberta’s oil and gasoline sector.

Thus far, Cenovus is skilled within the oilsands and standard oil and gasoline manufacturing, along with proudly owning a 50 per cent stake in a pair of U.S. refineries. 

Nevertheless, it has no retail or offshore involvement, not to mention expertise working in the Asian market. 

“They should exhibit their consciousness of an space that’s uncharted for them,” stated Tahmazian. 

“They are going to have to emphasise the asset they bring about from Husky [which is] the folks that may assist them handle that asset.”

It is not simply managing the mixture of the 2 corporations, but additionally making selections about what areas of enterprise to prioritize and whether or not to divest any properties or amenities.

“There are a variety of transferring elements on this one to observe … as a result of we have by no means seen all of it mixed and dealing collectively proper,” stated Tahmazian.

One urgent challenge is the destiny of the White Rose enlargement undertaking close to Newfoundland and Labrador, which Husky indefinitely halted as a part of a wider evaluation final month of its future within the space. The ability was first sanctioned three years in the past and was initially supposed to start producing oil in 2022. Subsequent yr’s development season is already cancelled.

When the merger formally closes subsequent yr, the mixed firm can be value $23.6 billion, together with debt, in keeping with the corporations.

After Cenovus’ final big-time deal, the unfavorable response from buyers was swift and harsh. This time, the response will seemingly take extra time and concentrate on whether or not the mixed firm is able to pulling so many various properties collectively and obtain the associated fee financial savings being promised.