Brian Zinchuk is editor and owner of Pipeline Online
Cenovus Lloydminster Upgrader. Photo by Brian Zinchuk
CALGARY – Saskatchewan’s largest oil producer, Cenovus Energy Inc., announced on June 14 it would be repurchasing approximately 2.4 per cent of its total common shares outstanding, by way of repurchasing 84 per cent of its outstanding warrants.
Cenovus said in a release it had reached separate agreements with each of Hutchison Whampoa Europe Investments S.à r.l. (HWEI) and L.F. Investments S.à r.l. (LFI) to purchase for cancellation all of the warrants held by HWEI and LFI, respectively, representing an aggregate of 45,484,672 warrants (CVE.WT), for $711 million in the aggregate (the Warrant Repurchase Transactions). As part of Cenovus’s combination with Husky Energy Inc., each Husky shareholder received 0.7845 of a Cenovus common share plus 0.0651 of a Cenovus common share purchase warrant in exchange for each Husky common share, with each whole warrant having an exercise price of $6.54 per common share, expiring January 1, 2026.
The price to be paid for each warrant pursuant to each Warrant Repurchase Transaction represents a price of $22.18 per common share, less the warrant exercise price of $6.54 per common share. The warrants will be cancelled at close, which is expected to occur later today. The company has negotiated payment terms that provide flexibility to work within its shareholder returns framework, with no expected impact to Cenovus’s ability to achieve its $4.0 billion net debt target. At its discretion, Cenovus has the option to pay the aggregate warrant purchase price of $711 million for the combined Warrant Repurchase Transactions through the remainder of 2023, within each quarter’s excess free funds flow, with full payment being made no later than January 5, 2024.
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The 45,484,672 warrants cancelled as part of the Warrant Repurchase Transactions would, if exercised, represent approximately 2.4 per cent of Cenovus’s total common shares outstanding. This transaction represents a repurchase of 84.1 per cent of the warrants that remain outstanding. HWEI and LFI will continue to own 316,927,051 common shares (16.7 per cent) and 231,194,699 common shares (12.2 per cent), respectively, of Cenovus’s issued and outstanding common shares.
“This is a unique opportunity for Cenovus to continue to enhance shareholder returns by acquiring these warrants at a discount to the market price,” said Jon McKenzie, Cenovus president and chief executive officer. “The agreements reached separately with HWEI and LFI benefit all Cenovus shareholders. Both HWEI and LFI are committed, long-term Cenovus shareholders and we continue to value each entity’s support and confidence in our company.”
Board review process
The Warrant Repurchase Transactions were overseen by Cenovus’s board of directors, other than certain directors who recused themselves from Board meetings, or portions thereof, as applicable, at which the Warrant Repurchase Transactions were considered, due to past and/or ongoing relationships with CK Hutchison Holdings Limited and its affiliates, of which HWEI is an indirect wholly-owned subsidiary. The Board undertook a deliberate and full consideration of the Warrant Repurchase Transactions with the assistance of its advisors outlined below, and determined that the Warrant Repurchase Transactions are in the best interests of Cenovus, the company said.
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