Bay du Nord concept art. Equinor

CALGARY – As foreign companies move away from their investments in Canadian oil and gas, particularly the oil sands, Cenovus Energy Inc. is one of the domestic producers that has been stepping into the void. While the trend has been dramatic decrease in foreign investment in the oil sands since the Justin Trudeau government has come to power, it has also marked the growth of our own domestic players.

For BP, it means getting out of the oil sands and more heavily investing in offshore Newfoundland.

On June 13, Cenovus announced it would acquire the remaining 50 per cent stake in the Sunrise oil sands project from BP. The announcement has something of a stunning twist to it, as it involves divesting the company’s involvement in a major Newfoundland project that was recently approved by the federal government. Norwegian-based Equinor, formerly StatOil, is the lead in the Bay du Nord project, while Husky, acquired by Cenovus last year, was a minority partner.

Total consideration for the transaction includes $600 million in cash, a variable payment with a maximum cumulative value of $600 million expiring after two years, and Cenovus’s 35 per cent position in the undeveloped Bay du Nord project offshore Newfoundland and Labrador. The transaction has an effective date of May 1, 2022, and is anticipated to close in the third quarter of this year, subject to closing conditions and normal purchase price adjustments.

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Full ownership of Sunrise further enhances Cenovus’s core strength in the oil sands, the company said. Sunrise has been operated by the company since the beginning of 2021, following the Husky Energy transaction, and Cenovus is now in the early stages of applying its oil sands operating model at this asset.

“Acquiring the remaining working interest in Sunrise enables us to fully benefit from the significant optimization opportunities available,” said Alex Pourbaix, Cenovus president and CEO in a release. “By applying Cenovus’s advanced operating techniques, we expect to increase production at Sunrise while driving down sustaining capital, operating costs and emissions intensity.”

The Sunrise oil sands project, operated by Cenovus, is located 40 miles east of Fort McMurray, Alberta and employs steam-assisted gravity drainage to produce bitumen. Cenovus currently operates Sunrise and owns 50 per cent of the asset through the Sunrise Oil Sands Partnership, with bp. Current production from the asset is approximately 50,000 barrels per day (bpd), and the company expects to achieve nameplate capacity of 60,000 bpd through a multi-year development program. The acquisition is expected to be immediately accretive to adjusted funds flow and cash from operating activities.

Starlee Sykes, bp senior vice president, Gulf of Mexico & Canada, said in a June 13 release, “This is an important step in our plans to create a more focused, resilient and competitive business in Canada. Bay du Nord will add sizeable acreage and a discovered resource to our existing portfolio offshore Newfoundland and Labrador. Along with bp’s active Canadian marketing and trading business, this will position bp Canada for strong future growth.”

BP’s release said, “In Canada, BP will no longer have interests in oil sands production and will shift its focus to future potential offshore growth. BP currently holds an interest in six exploration licenses in the offshore Eastern Newfoundland region. The non-operated stake in the Bay du Nord project will expand bp’s position offshore Eastern Canada.”

The Bay du Nord (BdN) project consists of several oil discoveries in the Flemish Pass Basin, some 500 km northeast of St. John’s in Newfoundland and Labrador, Canada.

The project area is in water depths of approximately 1,200m, with recoverable reserves estimated to be about 300 million barrels of oil.

BP Canada Energy Group ULC holds offshore exploration licenses in the Orphan Basin and is planning to drill an initial exploration well called Ephesus in 2023.

2022 Guidance

Cenovus’s corporate guidance dated April 26, 2022 does not reflect this acquisition. The company plans to update guidance with its second quarter results in July 2022

 

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