Debt-hating Pourbaix bets big to transform Cenovus into integrated energy giant — with more debt


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Equity markets, on the other hand, were less enthusiastic about the deal. Some equity investors had bought Cenovus shares to gain exposure to WCS oil prices, which are expected to improve as oil production in the U.S. declines and as new pipelines are built to connect Albertan oil producers with new markets, Eight Capital’s Skolnick said of the company’s Monday selloff.

“They don’t fit into my positive WCS thematic,” he said, noting that bullish oil investors looking for exposure to WCS will now need to consider other pure-play oilsands companies.

They are a much better company now, and I can’t ignore that

Phil Skolnick, Eight Capital

However, in the long run, Skolnick said he thinks an integrated Cenovus-Husky will be more attractive to a broader range of investors. In particular, credit ratings upgrades could allow Cenovus to attract more institutional investors, enable the company to strike better pipeline transportation deals and improve their cost of borrowing.

“They are a much better company now, and I can’t ignore that,” Skolnick said.

Whether the new Cenovus will compare more favourably against the remaining large-cap Canadian oil and gas peers such as Suncor Energy Inc. and Canadian Natural Resources Ltd. is an open question.

Raymond James analyst Chris Cox wrote in a Monday research note that “company would still lag (CNRL and Suncor),” on account of the better balance sheets, lower oil price break-evens and sheer size, “just not as substantially as before.”

Similarly, Citi Research analyst Prashant Rao said the deal is “clearly a win” for Husky but “leaves us scratching our heads” for Cenovus.

“While we get management’s through-cycle/integration industrial logic for the deal on a longer-term basis, today’s announcement dampens the 12-18 month share price upside potential versus what we reckoned for a standalone (Cenovus),” Rao wrote in a note.

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